ELLSWORTH — The Ellsworth Board of Appeals on Monday rejected a request that would have opened the door for tax exemptions on over $3 million worth of property held by a real estate group affiliated with Maine Coast Memorial Hospital.
Maine Coast Medical Realty group had applied for exemptions on the properties but was denied by the city, which argued that the realty group is not organized solely for charitable purposes and thus should not be exempt from taxation.
“We’re a nonprofit,” said John Ronan, president of Blue Hill Memorial and Maine Coast Memorial hospitals, in an interview on Tuesday. “So we questioned why would we be paying this and ended up there last night.”
Board members sided 4-1 with the city, with Chairman Jeffrey Toothaker the sole vote to classify the real estate arm as charitable and benevolent. That designation is the first hurdle the group would have had to clear to qualify for the exemptions, which would then be considered on a case-by-case basis.
William Dale, a Portland-based attorney representing the city, did not dispute that the hospital itself, which operates under the nonprofit Maine Coast Regional Health Facilities, should be exempt from taxes. But Dale argued that the realty group, which holds property for the hospital, should not be exempt because it is not organized exclusively for charitable purposes.
“Doctors are businessmen,” said Dale. “Some of whom do good things, just like my law firm does some good things. But we’re businessmen.”
Dale pointed to the hospital’s ability to sell its holdings at a profit as the primary reason it should not be tax exempt.
“One of the things it does,” said Dale, “is it leases out and sells condo units for doctors in the community.”
The properties in question are assessed at a total of $3,286,800, according to city tax records, with total taxes coming in around $59,100 in 2017. Maine Coast Medical Realty has been paying taxes on the properties since 2012, according to City Assessor Larry Gardner, when a change in state law meant that property owners who rented to a hospital were no longer exempt from taxes, as they had been in years past.
The primary property in question is a $3,092,500 building at 50 Union Street. The building houses several condos and suites, some of which are owned by Maine Coast Medical Realty and leased to doctors.
Board members asked Ronan about the hospital’s relationship with the occupants of the suites.
“I want my question answered,” said Board of Appeals Chairman Jeffrey Toothaker. “Are these doctors employees of the hospital or are they renting space and making a living?”
Ronan replied that “the majority” are hospital employees, adding that there are two units the hospital does not own that are rented as condos, one of which is used by employees and contains equipment owned by the hospital.
“There was a private practice in one of the units doing what I consider to be work on behalf of the hospital,” said Ronan, referring to recently-retired anesthesiologist Dr. Peter Just.
Dale pointed to the organization’s bylaws as one of the reasons the city believes it should not be considered a charitable organization. The current bylaws permit the buying and selling of real estate, even to doctors in private practice who may be making a profit, said Dale.
“This organization does a lot of charitable things,” said Dale. “But it also can buy, sell and lease real estate to doctors in private practice. Those doctors, even if they provide a good service, they’re businessmen and women.”
In an interview the next day, Ronan said the group might consider altering the bylaws to qualify for the exemption.
“I think that the work that we do in that building, in our opinion, is clearly for the benefit of our patients,” said Ronan, adding that while the group was “disappointed” by the board’s decision, “We respect the decision and the process that they went through.”
Assessors around the state have struggled with similar questions over the years.
In a 1996 case, the Maine Supreme Judicial Court found that 82 percent of a multi-unit building in Lewiston owned by Marcotte Congregate Housing, Inc., was being used for charitable purposes. The use of the remaining 18 percent of the building did not qualify as charitable. The court found that Marcotte Congregate Housing Inc. had to pay taxes on the entire building because some of the spaces were being used in a for-profit manner.
Condos, however, are a different story. Under Maine law, condos are assessed and taxed individually, which an attorney representing the hospital said brought about a change in the way hospitals manage their real estate.
“What generally happened after Marcotte is hospitals started doing condominiums, for that reason” said Jon Pottle of Eaton Peabody.
Toothaker interpreted Pottle’s comment. “We go to condos to get around that,” he said, meaning the Marcotte decision and full-taxation on the property.
Board member Stephen Salsbury questioned the role of Maine Coast Medical Realty, wondering why the properties were not held by the hospital itself, which does not have to pay taxes under state law.
The group exists for “liability protection,” said Pottle, shielding the hospital from “slip and fall” issues.
“You’re saying the hospital itself doesn’t have insurance for such uses?” asked Salsbury.
After the vote in favor of the city, Pottle said the hospital wanted to challenge the valuation of the $3 million condo property. The organization had previously challenged the valuation but been rejected by City Assessors. “There was never any evidence of overvaluation presented,” said Gardner.
Toothaker declined to consider the request on Monday, but gave both parties 30 days to prepare finding of facts to present to the board for further consideration. In an interview on Tuesday, Ronan said the hospital had not yet decided how to move forward with the case. He said the decision to ask for the exemption came about as the group was looking at its finances.
“We don’t feel like we should be assessed these taxes,” said Ronan. “We’re a nonprofit.”