Despite the Tax Court’s ruling in Tipton County Health Care Foundation, the Petitioner here claims it is entitled to 100% exemption in 2010 and 2011. There is no dispute that Crestmark Management is a for-profit entity that purchased the subject property as part of its business plan. According to the Petitioner’s witness, because the property was experiencing low occupancy, the owners felt they could increase occupancy and make the property profitable. Crestmark Management leased the property to Crestmark Operations, which is also a for-profit entity owned by the same investors as Crestmark Management. The lease shows that Crestmark Operations is required to pay the debt service on Crestmark Management’s mortgages, in addition to the taxes, utilities, insurance and repairs to the buildings.
35. The Articles of Organization for Crestmark Management and Crestmark Operations do not contain any limiting language and the Petitioner has presented no operating document or other corporate document restricting the activities of either entity to charitable purposes. And while the lease may require the lessee to operate the property as a healthcare facility, the lease allows a written request to be made for a change of use and, the lease states, consent to such request can not be unreasonably withheld. Moreover, given the ownership structure of Crestmark Management and Crestmark Operations, the members or officers of Crestmark Operations that might make such a request are the same members or officers of Crestmark Management that would have to approve the request.
36. Further, like the lessee in Tipton County Health Care Foundation, the lease between Crestmark Management and Crestmark Operations appears to be a standard “triple net” lease. Also similar to the lessee in Tipton County Health Care Foundation, the Petitioner’s mission statement fails to “indicate that public benevolence is its reason for operating.” 961 N.E.2d at 1052-1053. According to the Petitioner’s witness, Crestmark Management and Crestmark Operations “use the TLC Management general purpose” mission statement, which states: “TLC Management has earned the reputation of being a leading health care provider. After its incorporation in 1987, TLC struck out on a mission to build the business by applying traditional values along with key principles of leadership and a quest for quality service. This successful mission has been implemented throughout TLC’s business portfolio.” Respondent Exhibit 1A.
37. The Petitioner argues that Crestmark Operations has never made a profit on the property and therefore the fact that Crestmark Management continues to own the property and Crestmark Operations continues to operate the property as a nursing home is evidence of the Petitioner’s charitable intent. “The failure to make a profit, however, does not convert a business into a charitable institution.” Cullitan v. The Cunningham Sanitarium, 16 N.E.2d 205, 207 (Ohio 1938). See also Topeka Presbyterian Manor, Inc. v. Board of County Commissioners of Shawnee County, Kansas, 402 P.2d 802, 807 (Kan. 1965) (“we recognize that the failure to make a profit does not convert a business into a charitable institution.”), reversed on other grounds, Lutheran Home, Inc. v. Board of County Commissioners of Dickinson County, Kansas, 505 P.2d 1118 (Kan. 1973). In fact, Mr. Ott, as an owner and officer of both Crestmark Management and Crestmark Operations, agreed that the goal of Crestmark Operations was “to be profitable” at the site. Similarly, Ben Gehrmann, an administrator for Crestmark Management, testified that he is focused on the “three Cs” for running any profitable nursing home: cost, census and compliance. More specifically, Mr. Gehrmann testified, his goal is to ensure that costs are controlled, the census is increased and the business is in compliance with all state laws. Thus, the evidence does not support a finding that Crestmark Management owns the property or Crestmark Operations operates the property without any “expectation” of profit.
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39. In addition, the evidence shows that the three owners of Crestmark Management and Crestmark Operations own TLC Management which is a for-profit corporation that manages the subject property, among other properties. When asked if Crestmark Operations had made any management payments to TLC Management, Mr. Ott could not answer: “I would have to go back through the five years and see if they did.” Ott testimony. Moreover, Mr. Ott testified that the funds owed to TLC Management are currently still on the books of Crestmark Operations and may be paid. Id. The loan from TLC Management is likewise still reflected as a debt of Crestmark Operations and TLC Management has not forgiven this debt. Id. In addition, the members may derive other financial and tax benefits from Crestmark Management and Crestmark Operations. The mere lack of profit on a cash flow basis at Crestmark Management or Crestmark Operations does not indicate there has not been, and will not be, financial or other benefit to their members.
40. Perhaps most relevant to the Board’s consideration is that the owners of Crestmark Management and Crestmark Operations own TLC Construction Company with another brother, Randy Ott and the owners of Crestmark Management and Crestmark Operations, through their ownership of TLC Management, have a partial interest in PSI Pharmacy. TLC Construction was hired to perform significant work on the subject property. The Petitioner’s witness admitted that TLC Construction was paid in full for its work and that, despite Mr. Ott’s characterization of TLC Construction as a “break even company,” TLC Construction has made at least one distribution to its shareholders. Likewise, PSI Pharmacy was hired to provide all prescription and over-the-counter drugs to residents at the nursing home and was paid for its services. The owners of Crestmark Management and Crestmark Operations therefore benefit from their interest in PSI Pharmacy through TLC Management. Moreover, even if the property is not able to generate a profit to its owner or operator, the owners of Crestmark Management and Crestmark Operations are current on their mortgage and therefore the owners are building equity in the real estate.
41. Because of the interwoven network of businesses owned by Gary Ott, Dwight Ott, and Larry Maxwell, or their spouses or siblings, whether Crestmark Management or Crestmark Operations individually has realized a profit fails to sufficiently show that the owners of Crestmark Management and Crestmark Operations receive no private benefit from their ownership of the subject property. The Board therefore finds that the Petitioner failed to raise a prima facie case that its property was owned, operated and used for charitable purposes for the 2010 and 2011 assessment years.
