Doctors General Hospital v. County of Santa Clara , 150 Cal. App. 2d 53 ( 1957 )

KAUFMAN, P. J.

This is an action brought by appellant Doctors General Hospital of San Jose, a California nonprofit corporation, to recover property taxes for the year 1953-1954, which had been levied by the respondents, county of Santa Clara and city of San Jose, and paid under protest by the appellant. The trial court found that the appellant did not meet the requirements prescribed by the 1953 amendment to section 214, subdivision (3), of the Revenue and Taxation Code for the “welfare exemption” which section le of article XIII of the state Constitution authorized the Legislature to grant. The issue here presented is the constitutionality of the retroactive application of the 1953 amendment to section 214, subdivision (3), Revenue and Taxation Code.

It is conceded that appellant after the effective date of the amendment has been qualified for the exemption. Prior to the 1953 amendment, appellant’s hospital could not qualify under section 214, subdivision (3), of the Revenue and Taxation Code, because its operation produced an excess of income over expenses. Sutter Hospital v. City of Sacramento, 39 Cal.2d 33 [244 P.2d 390], held that under a strict but reasonable construction of section 214, subdivision (3), a hospital could not qualify for the property tax exemption if it made any profit, as the statute prohibited any excess of income over revenue, regardless of the purpose for which the profit is used.

The 1953 Amendment (Stats. 1953, ch. 730) is as follows: “provided, that in the case of hospitals, such organization shall not be deemed to be organized or operated for profit, if during the immediate preceding fiscal year the excess of operating revenues, exclusive of gifts, endowments and grants in aid, over operating expenses shall not have exceeded a sum equivalent to 10% of such operating expenses.” As this enactment occurred on May 18, 1953, a date prior to the time that taxes were due and payable, November 1, 1953, (Rev. & Tax. Code, § 2605), but after the lien date, the 1st Monday in March, 1953, (Rev. & Tax. Code, §2192), the amendment was expressly made retroactive as to all taxes levied on or after January 1, 1953. The amendment also contained an urgency clause (Stats. 1953, Ch. 730, § 2) making it effective immediately because of the effect of the Sutter case.

The question then is whether the 1953 Amendment contravenes the prohibition against gifts of public money of section 31 of article IV of the state Constitution. The appellant’s first contention that the Constitution of the State of California does not prohibit retrospective legislation per se, need not be discussed.

The appellant’s second contention is that there was no gift in the case at bar, as the right to the tax moneys did not vest in the state until the date that the taxes were due and payable, November 1. There is no merit in this contention, in a case such as this one where the statute specifically prescribes a lien date prior to the due date. The statute clearly states that city and county ad valorem property taxes constitute a lien on the property (Rev. & Tax. Code, §§ 2187, 2188, 2189) and that this lien attaches as of the first Monday in March. (Rev. & Tax. Code, § 2192.)

In all of the cases relied on by the appellant to support its contention, there was no statutory lien date prior to the due date. In Allen v. Franchise Tax Board, 39 Cal.2d 109 [245 P.2d 297], an amendment to State Income Tax law retroactively changing the tax base after the accrual of tax liability but before the date when taxes became due and payable was upheld by the court. This case dealt only with the specific income tax situation in issue. There was no statutory Ren date. In Estate of Stanford, 126 Cal. 112 [54 P. 259, 58 P. 462, 45 L.R.A. 788], it was held that a retroactive release by the Legislature of the collateral inheritance tax was a void gift of public funds within the meaning of article IV, section 31, as the tax was due and payable at the death of the decedent which occurred prior to the legislative enactment. The ease does not, as appellant maintains, stand for the proposition that vesting does not occur until the tax becomes due and payable. In dealing with a retroactive amendment in legislation concerned with other types of taxes, the reasoning of the Stanford case has been followed by the courts. In People v. Schmidt, 48 Cal.App.2d 255 [119 P.2d 766], it was held that the repeal of a provision of the Alcoholic Beverage Control Act could not affect the right of the people to collect the fee, as the right to collect had vested under the act before the repeal.

Estate of Potter, 188 Cal. 55 [204 P. 826], held that the right to the inheritance tax vested in the state at the date of the taxable transfer even though it was not due and payable until the death of the decedent. As stated by the court in Trippet v. State, 149 Cal. 521 at page 529 [86 P. 1084, 8 L.R.A.N.S. 1210], “There is no legal inconsistency in the idea of a right being vested, although the possession may be postponed or contingent upon the performance of certain acts.”

In City of Santa Monica v. Los Angeles County, 15 Cal.App. 710 [115 P. 945], the court held that property acquired by the city after the lien date but prior to the levy and assessment was not exempt from taxation as the lien attached on the first Monday in March. The court stated at page 712 that ‘ ‘ a lien declared by positive statute is not dependent for its existence upon subsequent acts requisite to its enforcement. ’ ’

In San Diego County v. Riverside County, 125 Cal. 495 [58 P. 81], the court held that although the right of San Diego to the payment of certain taxes assessed on railroad tracks did not accrue until a valid assessment had been made, the right to taxes arose on the lien date, and was one of the assets of San Diego County to be prorated between San Diego County and the newly created County of Riverside. The court said at page 500: “The lien for the taxes justly leviable upon the property of a railroad company attaches on the first Monday of March in each year, and the obligation to pay necessarily accrues at the same time, if not earlier. Payment is not due, of course, until the assessment has been made; but when that has been done and the amount of taxes ascertained, it is payable to the county in which the roadbed was included at the time when the lien attached.” Furthermore the legislative history of the 1953 statute reveals that the section providing for retroactive application was added by amendment (1953 Assembly Journal p. 1932). The assumption of the Legislature appears to have been that the property tax vests as of the March 1 lien date.

It should be noted that the 1954 amendment to article XIII, section le of the state Constitution, which was designed to liberalize the welfare exemption, is made applicable to buildings and equipment in the course of construction on or after March 1, 1954.

The appellant further contends that even if the right to tax moneys vested on March 1 and constituted a thing of value within the purview of section 31 of article IY of the state Constitution, the Legislature could make a valid gift thereof under the public doctrine of section lc, article XIII of the state Constitution. It is a well recognized rule that the courts will not disturb a legislative determination of what constitutes a public purpose, as long as it has reasonable basis. (Alameda County v. Janssen, 16 Cal.2d 276 [106 P.2d 11, 130 A.L.R. 1141]; Shean v. Edmonds, 89 Cal.App.2d 315 [200 P.2d 879] ; County of Los Angeles v. Jessup, 11 Cal.2d 273 [78 P.2d 1131].) However, in the 1953 amendment there is no statement indicative of purpose, unless the urgency clause is so construed. There is no doubt that the provision for hospitals is a well recognized public purpose. However, it has been held that a county cannot provide medical treatment and care to those who can obtain and pay for such services at private hospital institutions. (Goodall v. Brite, 11 Cal.App.2d 540 [54 P.2d 510].) Under the 1953 amendment the 10 per cent excess of profits over operating costs can be spent for any hospital purpose. The money could be used to provide more luxurious care in the existing facilities. Under the appellant’s argument any hospital purpose is a sufficient public purpose for an appropriation of public funds. It is our view that private hospitals are exempt from taxation not because there is a public purpose within the meaning of article IY, section 31, but rather because the Legislature’s power to exempt is limited to specific instances.

In City of Ojai v. Chaffee, 60 Cal.App.2d 54 [140 P.2d 116], the court held that a statute providing for the cancellation of uncollected taxes was not in contravention of article IY, section 31 of the Constitution, because the specific public purpose was to restore the property in question to the tax rolls and make it once more a source of public revenue. In Simpson v. City of Los Angeles, 40 Cal.2d 271 [253 P.2d 464], the court upheld the surrender of unclaimed animals in the pound to private research laboratories for the specific public purpose of “increasing knowledge relating to the cure of disease.” In City of Oakland v. Garrison (1924), 194 Cal. 298 [228 P. 433] the funds were required to be used for the paving of a certain road in the city of Oakland. Under the 1953 amendment there is no legally enforceable duty to use the 10 per cent excess profits for any specific hospital purpose. It is not enough that appellant intends to use the profits for a hospital -purpose. Cedars of Lebanon Hospital v. County of Los Angeles, 35 Cal.2d 729 [221 P.2d 31, 15 A.L.R. 2d 1045], involved the application of the welfare exemption to various items of hospital property. In holding that the buildings under construction on tax date intended for use in housing of student nurses were not within the welfare exemption, the court said at p. 742, “as above quoted, the pertinent constitutioanl provision (art. XIII, § lc) and the implementing statute (Rev. & Tax. Code, § 214) unequivocally require that the property be used “for the enumerated purposes. Such express limitation making use the focal point of consideration contemplates actual use as differentiated from an intention to use the property in a designated manner. ’ ’

We can find nothing in the 1953 amendment which would compel the appellant to use the 10 per cent profit exclusively for such hospital purposes as would also be proper public purposes.

In view of the foregoing the judgment of the trial court finds support in the law and must be affirmed.

Judgment affirmed.