Columbus Board of Tax Assessors v. Medical Center Hospital Authority

Opinion

302 Ga. 358 FINAL COPY

S17G0091. COLUMBUS BOARD OF TAX ASSESSORS et al. v. THE MEDICAL CENTER HOSPITAL AUTHORITY.

HUNSTEIN, Justice.

In May 2007, The Medical Center Hospital Authority (“Hospital

Authority”) filed an action against the Columbus Board of Tax Assessors and

related parties (together, “the Tax Board”) in which it sought a declaration that

its leasehold interest in a building located on real property owned by a private

entity constituted public property exempt from ad valorem taxation under

OCGA § 48-5-41 (a) (1). The superior court granted summary judgment to the

Hospital Authority, finding that the Hospital Authority’s leasehold interest

qualified as “public property,” and was thus exempt from ad valorem property

taxation. The Tax Board appealed this decision to the Court of Appeals, which

affirmed the trial court’s grant of summary judgment.1 See Columbus, Ga. Bd. 1 The Hospital Authority further alleged that it was tax exempt because it met the requirements as a home for the aged pursuant to OCGA § 48-5-40 (2). The Court of Appeals did not reach this issue on appeal as it affirmed summary judgment on the “public property” exemption. See Columbus, Ga. Bd. of Tax Assessors v. Med. of Tax Assessors v. Med. Center Hosp. Auth., 338 Ga. App. 302 (788 SE2d

879) (2016).

We granted certiorari to decide whether the Court of Appeals erred in

determining that two prior bond validation orders conclusively determined, for

purposes of OCGA § 48-5-41 (a) (1) (A), that the property at issue is “public

property” exempt from ad valorem taxation. For the reasons that follow, we

hold that these orders did not conclusively establish that the Hospital

Authority’s leasehold interest was “public property” exempt from ad valorem

taxes and therefore reverse the Court of Appeals and remand this case for further

proceedings.

1. Factual and Procedural Background

This is a decade old case that has a rich and detailed factual background

and procedural history. We address the pertinent parts of that history below,

including the lease agreement, the bond validations, the superior court’s grant

of summary judgment regarding ad valorem taxes, and the opinion of the Court

of Appeals affirming that judgment.

Center Hosp. Auth., 338 Ga. App. 302 (788 SE2d 879) (2016). We did not grant certiorari on this question, and, therefore, we do not review it.

2 (a) Creation of Lease Agreement

On June 1, 2004, Columbus Regional Healthcare System, Inc. (“Columbus

Regional”),2 as the lessor, and the Hospital Authority, as the lessee, entered into

a long-term lease agreement. Specifically, the lease stated that the Hospital

Authority wanted “to construct, own, and operate” on land owned by Columbus

Regional a facility known as Spring Harbor at Green Island, a continuing care

retirement center. At the conclusion of the lease term, all improvements would

become the absolute property of Columbus Regional, including the Spring

Harbor facility. To further the goals of the lease, the Hospital Authority

subsequently issued revenue bonds to finance construction of Spring Harbor.

At the same time, the Hospital Authority entered into a management agreement

with another private entity, a subsidiary of Columbus Regional, to develop,

market, and manage the operation of Spring Harbor on behalf of the Hospital

Authority. See Columbus, 338 Ga. App. at 302-304.

(b) Bond Validation Orders

2 Columbus Regional is a private non-profit organization.

3 Later in 2004, the superior court validated the financing of the Hospital

Authority’s bonds, finding, in pertinent part, “that the purposes for which the

Bonds are being issued, as described in the petition and complaint, are in

furtherance of the public purposes for which Defendant Authority was

established.” Following a 2007 bond refinancing, the superior court again was

tasked with considering the validity of the revenue bonds, and was specifically

“requested to rule on which entity did in fact build, manage and own[ ] Spring

Harbor at Green Island.” In its detailed, 27-page order, the superior court both

validated the refinancing of the bonds, and also concluded, in relevant part, that

clear and convincing evidence “demonstrate[d] that the [Hospital] Authority

ha[d] transferred and delegated [its] rights and duties to a private company.”

Specifically, the court noted that, though the bond documents stated that

Columbus Regional would “have little participation in the Project,” the court

found it “apparent [that] Columbus Regional ha[d] acquired the site, built Spring

Harbor, prepared all legal documents and financial transfers, and [would] own,

manage and control Spring Harbor.” Indeed, the court found that the Hospital

Authority “ha[d] transferred all the bond proceeds, acquisition, construction,

4 management, and total control of this Project to a private company, Columbus

Regional Healthcare System Inc., and/or ‘affiliates.’”

Subsequently, the superior court explained that it

cannot rule as a matter of fact and as a matter of law [that] Spring Harbor is a project which originated with the [Hospital] Authority, or as one which will only benefit the [Hospital] Authority and the public, or that “no person, partnership, association, or corporation shall have any rights hereunder, or that the [Hospital] Authority will ‘own’ and ‘manage’ the Spring Harbor at Green Island project.”

The court reiterated that “the entire project is owned, managed, and controlled

by [a private entity], and once the bonds are paid, the [Hospital] Authority has

agreed that [Columbus Regional] will take possession and will own everything

on site . . . all property of every kind, real or personal.” Nevertheless, as

referenced above, the court validated the 2007 bond refinancing, finding that the

project itself served a public purpose as contemplated under the Hospital

Authorities Law.3

(c) Proceedings Regarding Ad Valorem Taxation

3 The trial courts’ bond validation rulings were not appealed, and we express no opinion on their merits.

5 Between the validation of the 2004 and 2007 bonds, the Tax Board sent

the Hospital Authority a bill for its Spring Harbor property tax obligation, which

included taxes for all improvements made to the facility. The Hospital

Authority refused to pay, contending that its property interest in Spring Harbor

was exempt from ad valorem property taxation and subsequently filed for

declaratory and injunctive relief in Muscogee County Superior Court.

At the request of the trial court, the parties filed cross-motions for

summary judgment regarding the taxability of Spring Harbor. Specifically, the

Hospital Authority contended, inter alia, that its leasehold interest was exempt

from ad valorem taxation pursuant to OCGA § 48-5-41 (a) (1) (A). The trial

court granted summary judgment to the Hospital Authority finding, in relevant

part, that

the validity of Plaintiff Hospital Authority’s property interest in Spring Harbor under the ground lease, and the validity of the ground lease itself, has been established by the Superior Court of Muscogee County in two separate Bond Validation orders, one in 2004 and another in 2007. While these Bond Validation orders did not specifically resolve the issue of taxation regarding the Spring Harbor property, the orders did confirm the Hospital Authority’s ownership of Spring Harbor. [4] 4 The superior court’s conclusion regarding the Hospital Authority’s ownership of Spring Harbor is inconsistent with the lengthy factual findings made by the trial

6 These two Bond Validation orders also determined that Spring Harbor was a valid and proper project of the Hospital Authority that advances the Hospital Authority’s purposes . . . . In the instant case, income derived from the operation of Spring Harbor would not only go toward supporting its continued operation, but would necessarily be used to satisfy the Hospital Authority’s revenue bond indebtedness. On both counts, said income would be used in furtherance of the functions and purposes of the Hospital Authority. Based on the foregoing, this Court concludes that Plaintiff Hospital Authority’s property interest in the facilities and improvements constituting Spring Harbor qualifies as public property, and therefore, it is exempt from ad valorem property taxation.

(Emphasis supplied.) The Tax Board appealed this decision to the Court of

Appeals.

(d) Court of Appeals Opinion

Relying on the 2004 and 2007 bond validation orders, which the Court of

Appeals determined were conclusive on the question of ownership and taxation,

the Court of Appeals affirmed the trial court’s grant of summary judgment.

Specifically, relying upon the bond validation’s “conclusive findings,” the court

concluded that the Hospital Authority’s leasehold interest was public property

court in the 2007 bond validation order. However, the superior court order does not address these inconsistencies.

7 because, in part, “‘the purposes for which the (b)onds (were) being issued, as

described in the petition and complaint, (were) in furtherance of the public

purposes for which (the Hospital) Authority was established.’” Columbus, 338

Ga. App. at 305. We granted the petition for certiorari to review that holding

and now reverse the decision of the Court of Appeals.

2. Analysis

Bond validation decisions are “incontestable and conclusive.” Ga Const.

of 1983 Art. IX, Sec. VI, Par. IV. See also OCGA § 36-82-78 (“[T]he judgment

of the superior court confirming and validating the issuance of the bonds and the

security therefor shall be forever conclusive against the governmental body

upon the validity of such bonds and the security therefor.”). However, this

restriction “only attaches to those matters that are referenced and adjudicated in

[the bond] proceedings.” Sherman v. Fulton County Bd. of Assessors, 288 Ga.

88, 94 (701 SE2d 472) (2010).

As the Tax Board argues, and the superior court correctly recognized

below, the bond validation orders “[do] not specifically resolve the issue of

taxation regarding Spring Harbor.” Indeed, the bond validation orders include

8 factual determinations regarding the ownership, control, and management of the

property, and the Court of Appeals appears to have misconstrued the bond

validation orders in this respect.

It is well established that “[a]ll public property is exempt from taxation .

. . but it is exempt only so long as it remains in public ownership.” Delta Air

Lines, Inc. v. Coleman, 219 Ga. 12, 16 (131 SE2d 768) (1963) (recognizing that

where an entity owns a leasehold interest, that estate can be severed from the fee

interest and classified separately for ad valorem tax purposes). Though OCGA

§ 48-5-41 (a) (1) (A) does not define “public property,” this Court has

established its meaning as property which “is owned by the State, or some

political division thereof, and title to which is vested directly in the State, or one

of its subordinate political divisions, or in some person holding exclusively for

the benefit of the State, or a subordinate public corporation.” Sigman v.

Brunswick Port Auth., 214 Ga. 332, 335 (104 SE2d 467) (1958). When

property is held not by the State itself, but instead by an instrumentality such as

a hospital authority, whether it is “public property” depends on whether the

instrumentality “holds title only for the benefit of the State and the public.”

9 Hosp. Auth. of Albany v. Stewart, 226 Ga. 530, 537 (175 SE2d 857) (1970). Put

another way, the question in this case is whether the Hospital Authority holds

the leasehold interest for “public purposes . . . in the furtherance of the

legitimate functions of the hospital authority,” id. at 531, rather than for “private

gain or income.” Id. at 537. As the Court of Appeals previously observed, “the

mere fact that property is owned by a Hospital Authority does not exempt it

from property taxes.” Columbus, Ga. Bd. of Tax Assessors v. Med. Center

Hosp. Auth., 336 Ga. App. 746, 752 (783 SE2d 182) (2016). 5

Just like the superior court below, the Court of Appeals presumed that the

Hospital Authority’s leasehold interest was public property because the bonds

issued were found to have a public purpose in both the 2004 and 2007 bond

validations. It may be that in many cases — perhaps even most cases — facts

establishing that bonds have a public purpose also will tend to show that

property associated with those bonds is public property, but it is not inevitably

so. The question of whether a hospital authority’s property interest qualifies for

ad valorem tax exemption as “public property” is a separate and distinct

5 This Court of Appeals decision arose from a separate action that involved the same parties but different property.

10 question from the issues presented in a bond validation proceeding. Instead, the

standard to be applied in order to determine whether a hospital authority’s

property interest qualifies as “public property” is set forth in our decisions in

Stewart and Sigman.

Consequently, the bond validation proceedings did not conclusively

establish whether the leasehold interest of the Hospital Authority is “public

property” for tax purposes, and the superior court below should have drawn its

own conclusions about taxability.6 To the extent that the Court of Appeals and

superior court considered the bond validation judgments conclusive on the

question of taxability, we reverse and remand for further proceedings consistent

with this opinion.

Judgment reversed and case remanded with direction. All the Justices

concur.

6 We do not foreclose the possibility that the superior court might consider facts found in the bond validation proceedings. Indeed, because this issue was presented to the superior court in the form of a motion for summary judgment, the court should review all submitted record materials in support of and opposing the motion in order to determine whether a genuine issue of material fact existed as to the ad valorem tax exemption.

11 Decided October 16, 2017.

Certiorari to the Court of Appeals of Georgia — 338 Ga. App. 302.

Troutman Sanders, Charles F. Palmer, Kevin G. Meeks; Robert R. Lomax,

for appellants.

Dentons US, J. Randolph Evans, Keshia W. Lipscomb; Rothschild &

Rothschild, Jerome M. Rothschild, Andrew A. Rothschild; Scott C. Crowley;

Brown & Adams, Jeffrey A. Brown, for appellee.