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El Castillo Retirement Residences v. Martinez

Supreme Court of New Mexico

August 17, 2017


         ORIGINAL PROCEEDING ON CERTIORARI Barbara J. Vigil, District Judge

          Bridget Jacober Santa Fe, NM for Petitioner

          Jones, Snead, Wertheim & Clifford, P.A. Carol A. Clifford Jerry Todd Wertheim Santa Fe, NM for Respondent

          Betzer, Roybal & Eisenberg, P.C. Gary D. Eisenberg Albuquerque, NM for Amicus Curiae New Mexico Health Care Association



         {1} Article VIII, Section 1(A) of the New Mexico Constitution sets forth a general mandate that all property of the same class must be taxed in an "equal and uniform" manner, while Section 3 exempts from taxation property that is, among other exempt categories, "used for . . . charitable purposes." In 2008, the New Mexico Legislature created a new tax exemption for a continuing care community defined under the Continuing Care Act, NMSA 1978, §§ 24-17-1 to -18 (1985, as amended through 2010), that "donates or renders gratuitously a portion of its services or facilities" and "uses all funds remaining after payment of its . . . expenses of operation . . . to further its charitable purpose, including the maintenance, improvement or expansion of its facilities, " among other qualifications. NMSA 1978, § 7-36-7(B)(1)(d) (2008); see § 24-17-3(B)-(C) (defining "community" and "continuing care").

         {2} Respondent El Castillo Retirement Residences is a self-sustaining retirement and continuing care community, funded entirely by admission and monthly fees paid by residents who have met El Castillo's requirements for sufficient financial resources, including a minimum net worth, and have satisfied specific health criteria. It does not accept residents who are Medicare-dependent, Medicaid-dependent, or charity-dependent or any residents who cannot afford to buy their way into the community. It neither donates any significant services or property to charitable causes nor uses its property primarily and substantially for a charitable purpose. While we agree with the Court of Appeals that El Castillo does not use its property for charitable purposes and is therefore not exempt from the constitutional requirement of equal taxation, we write to clarify that Section 7-36-7(B)(1)(d) must be read in harmony with controlling constitutional requirements. Accordingly, we hold that El Castillo is not entitled to property-tax exemptions under either Section 7-36-7(B)(1)(d) or Article VIII, Section 3 of the New Mexico Constitution because El Castillo does not use its property primarily for substantial public benefit furthering charitable purposes.

         I. BACKGROUND

         {3} El Castillo Retirement Residences, located in Santa Fe County, provides graduated levels of care to its accepted residents, all of whom must pay an entry fee upon admission and monthly fees thereafter in return for living quarters, the use of shared facilities, access to coordinated social and recreational activities, and the assurance that El Castillo will provide any level of care that accepted residents may need as they age.

         {4} El Castillo is funded primarily by resident fees calculated at the time of admission and based on each resident's life expectancy and projected level of required care. Fees are calculated to cover all of the operating costs of the facility and to provide additional reserves that can be drawn on to make up deficits. It is possible that particular residents will outlive their predicted life spans or require more expensive medical care than anticipated so that the fees they pay would not be enough to cover the entire cost of their lifetime care. Other residents may live fewer years than expected, and the entry fee and monthly fees they pay to El Castillo will exceed the total cost of their lifetime care.

         {5} To minimize the facility's exposure to financial risk from this flat-fee arrangement, prospective residents must meet physical, mental, and financial requirements to be accepted for admission. El Castillo does not accept applicants who depend solely on Medicare or Medicaid, individuals whose net worth is less than $300, 000 independent of social security benefits, or those whose health issues likely will require a high level of care.

         {6} El Castillo's property was valued at $9, 860, 000 for 2009 property-tax purposes by the petitioner, the Santa Fe County Assessor. After receiving the notice of valuation, El Castillo filed a claim for exemption of property used for charitable purposes under Article VIII, Section 3 of the New Mexico Constitution and Section 7-36-7(B)(1)(d) of the New Mexico Property Tax Code. The Assessor denied the claim because "El Castillo's donation of services or facilities is minimal." The Assessor acknowledged that the Legislature did not textually set forth a minimum level of charitable donation in Section 7-36-7(B)(1)(d) but concluded that "because the constitutional grant of exemption requires primary and substantial charitable use of the property, so must the statute."

         {7} El Castillo protested the Assessor's denial to the Santa Fe County Valuation Protests Board. The Board upheld the Assessor's denial of the property-tax exemption after finding that El Castillo had not "donate[d] or render[ed] gratuitously a portion of its services or facilities" as the terms of Section 7-36-7(B)(1)(d) require. The Board did not purport to address the constitutional issue separately because El Castillo did not argue for an exemption under Article VIII, Section 3 separate from the statutory grounds, and the parties agreed that the Board did not have jurisdiction to address the "constitutional issue with regard to the statute itself."

         {8} El Castillo appealed the Board's decision to the district court pursuant to the district court's appellate jurisdiction. El Castillo asked the district court to review the Board's decision which denied the exemption on statutory grounds. El Castillo argued that the Board's decision "was not supported by substantial evidence and was reached in an arbitrary and capricious manner." Additionally, El Castillo asked the district court to exercise its original jurisdiction and decide whether El Castillo was exempt from property valuation under Article VIII, Section 3 of the New Mexico Constitution.

         {9} El Castillo argued that by enacting Section 7-36-7(B)(1)(d) the Legislature had made a policy decision within its purview, giving "new depth and meaning to Article VIII, Section 3" in "acknowledg[ing] the great public benefit provided by nonprofit continuing care retirement communities" and by "helping assure [their] financial viability, " noting that the exemption is available to such communities that meet the other requirements of Section 7-36-7(B)(1)(d) "so long as a portion of services and facilities are donated or rendered gratuitously." In addition, El Castillo argued that satisfaction of the statutory claim necessarily satisfied the constitutional claim in "alleviating a burden on the government by sustaining its members to a significant degree, certainly far more than the tax burden that it is seeking to relieve itself of."

         {10} The district court did not exercise its appellate jurisdiction over the Board's decision interpreting Section 7-36-7(B)(1)(d) but instead exercised its original jurisdiction over both El Castillo's statutory and constitutional claims. Without addressing any of the Board's findings of fact, the district court issued new findings of fact which contradicted the findings of the Board. The district court concluded that Article VIII, Section 3 was not self-executing and that by enacting Section 7-36-7(B)(1)(d), the Legislature had "spelled out how the constitutional provision 'used for charitable purposes' is to be interpreted." Consequently the district court declined to "read into the statute a requirement that El Castillo render a 'primary or substantial' public benefit" and held that, by ...

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