Phelps County and its assessor Bill Wiggins have proceeded with appealing a decision by a Missouri State Tax Commission senior hearing officer who ruled that certain personal property assessed by Phelps County in 2010 and 2011 at the Rolla Mercy Clinic is tax exempt.

Phelps County and its assessor Bill Wiggins have proceeded with appealing a decision by a Missouri State Tax Commission senior hearing officer who ruled that certain personal property assessed by Phelps County in 2010 and 2011 at the Rolla Mercy Clinic is tax exempt.

Last month hearing officer W. B. Tichenor ruled in favor of St. John’s Health Systems, Inc., which appealed the Phelps County Assessor’s Office’s decision that the subject personal property at the Mercy Clinic is, in fact, taxable.

Wiggins noted that Kevin Rasmussen, the previous county assessor, assessed personal property at the clinic that he felt was taxable for those two years. The assessed value of personal property totaled $4,931,040 in 2010 and $3,644,410 in 2011.

St. John’s contended that the property, which consists of machinery, tools and equipment, is exempt from taxation under state statute 137.100(5), which states, “All property, real or personal, actually or regularly used exclusively for ... purposes purely charitable and not held for private or corporate profit” is exempt from taxation for state, county or local purposes.

St. John’s contends that it is a not-for-profit corporation according to Missouri state laws. The Rolla Mercy Clinic is a subsidiary of St. John’s and operates as a unit of Mercy Hospital Lebanon. Gerald Dowdy, vice president of the Rolla Mercy Clinic, said last month that the property that St. John’s contended was tax exempt was exclusively used for hospital-based services.

The Phelps County Commission Thursday was given a copy of Wiggins’ appeal, which will be made to the tax commission itself, not a hearing officer.

The county has contracted with the law firm Williams, Robinson, Rigler and Buschjost, of Rolla, and Lance Thurman, of the law firm, sent a letter to the tax commission dated Feb. 11 informing them of the county’s appeal.

According to the appeal, the complaintant, St. John’s, had the burden to present substantial evidence sufficient to rebut the presumption that the property was tax exempt.

The appeal states, “The hearing officer erred in finding Complaintant met its burden of proof because Complaintant is, in fact, being operated for individual profits which are paid to its physicians and operated solely for the benefit of those who can pay for the physician’s production-based compensation scheme.”

The appeal goes on to say, “Complaintant can not claim to be operating ‘without profit’ simply by paying the profits to key employees (physicians) or by simply re-labeling those profits as ‘margin.’ Instead, Complaintant in fact operates for the private profit of its individual physicians, whose production-based compensation plan encourages physicians to both increase income and reduce costs, so as to maximize each doctor’s individual private profit and income.”

Wiggins’ appeal compares this appeal to the case Tri-State Osteopathic Hospital v. Blakely 898 SW2d 693 (Mo. App. S.D. 1995) in which the Southern District Court of Appeals determined that despite being a 501(c)(3) charitable organization, the complaintant in that case was not eligible for a charitable use exemption because its physician compensation agreement paid the physicians a salary plus a percentage of profits.

In Tichenor’s decision, he wrote, “The payment of compensation which is a combination of a percentage draw against the prior year’s salary and a distribution of the margin (income over expenses) based upon the amount of work being performed by the physician does not constitute a paying of profits or distribution of dividends that one might expect from a for-profit operation.”

Tichenor added, “The compensation methodology employed by Complaintant (St. John’s) for the physicians utilizing the subject machinery, tools and equipment is in accord with state and federal statutes regulating the matter ... The payment of compensation to the staff of Complaintant working in conjunction with the subject facility is clearly a reasonable cost of conducting Complaintant’s charitable activities.”
Wiggins’ appeal lists four arguments as to why he and the law firm feel the hearing officer erred in his ruling.

The first argument is that St. John’s failed to prove it does not operate for the private profit of its individual physicians and that St. John’s profits (revenue less expenses) are paid to its physicians as part of a production-based compensation plan under which all physicians are encouraged to increase their own private profits.

The second argument states that the hearing officer failed to admit and consider testimony that St. John’s requires execution of a non-compensation agreement by all its physicians, prohibiting them from “competing” with St. John’s by working in another medical practice — either for-profit or not-for-profit.

The purpose of a non-competition agreement is to prevent one medical group from taking the physicians or patient base of another medical group and so depriving the latter of the profit to be derived from those patients, the second argument states, and if St. John’s was a true non-profit charity, it would never be in “competition” with other health care providers since there would never be any “profit” to compete over.

The third argument listed is that St. John’s failed to prove its compensation scheme is stark compliant because such schemes generally prohibit physicians from referring patients for specific laboratory services when the referring physician has a financial interest in the profits of the entity to which referrals are made.

The last argument states that St. John’s failed to prove it is operated for the benefit of an indefinite number of people since the evidence suggests treatment is limited to those with some payment capability and there is no evidence that all no-pay patients seeking treatment are always given free treatment.