IOWA CITY — Johnson County officials have decided not to fight a nursing home chain’s attempt to be reclassified as a residential property, citing a recent Iowa Supreme Court ruling showing a broad interpretation of residential housing.
The decision means Johnson County will lose $90,770 this year in taxes from Care Initiatives, Iowa’s largest non-profit nursing home chain, which owns Lantern Park at 2200 Oakdale Rd. in Coralville.
Last spring, Care Initiatives asked dozens of Iowa communities to reclassify its homes from commercial to residential, which would cut the chain’s taxes in half and force counties and cities to scramble to make up for lost tax revenue.
Iowa law allows non-profit organizations that provide “land and buildings that are used primarily for human habitation” to be classified as residential properties. Care Initiatives says it meets these criteria.
Twenty-one communities approved the change. Sixteen others — including Johnson and Cedar counties — denied the petition from Care Initiatives. The chain appealed the decisions to the Property Assessment Appeals Board, which could take 18 months to make a final decision.
Johnson County recently decided to settle with the chain and will change Lantern Park to a residential property, Assessor Bill Greazel said.
“The law is so broad it’s really hard to fight it,” he said.
Last month, the Iowa Supreme Court upheld a District Court and Iowa Court of Appeals decision allowing two Newton housing cooperatives to be classified as residential property.
The difference between a co-op and an apartment is that a co-op must have at least two members and members are granted the right to occupy units, which they can sublease.
In the case that went before the Iowa Supreme Court, Larry and Connie Krupp were the only members of the co-op and subleased the units in the two buildings. They did not live in either building. Jasper County argued that the co-op status was sought solely for tax purposes and that the Krupps treated the buildings as rental property.
The Supreme Court said Iowa Code requires properly organized residential co-ops to be classified as residential property. Co-ops must operate on a non-profit basis to get the break, but that does not prohibit a member from leasing out units with “desirable economic terms,” the court ruled.
Greazel said in June he thought nursing home chains providing 24-hour skilled nursing, meals, physical therapy, dental services and hair salons were not primarily used for human habitation. But the Supreme Court ruling seems to give Care Initiatives a “bulletproof” argument for its facilities being considered residential under Iowa law, Greazel said this week.
At least one Iowa county disagrees. Pottawattamie County, of the 16 that denied Care Initiatives’ request for a status change, will continue to oppose the chain’s appeal to the state board.
“We’re going to keep fighting it,” said Pottawattamie County Assessor Bill Kealy. “Our attorney seems to think it’s winnable.”
Care Initiatives owes $93,374 in property taxes this year for the Avoca Nursing & Rehab Center, a 46-bed skilled nursing facility and 20-apartment assisted-living complex about 30 miles east of Council Bluffs. If the county’s Board of Review had approved the residential rollback, Pottawattamie County agencies would have lost about $44,000.
“City, school and counties would be the biggest losers,” Kealy said.
Cedar County, which has Care Initiatives nursing homes in Mechanicsville and West Branch, has not decided whether it will continue to fight the appeal from the chain, Assessor Dan Lett said.
The Iowa League of Cities, which is concerned the co-op ruling will erode the tax base in cities across Iowa, may seek changes to the law, said Terry Timmins, an attorney for the group.
“The League is considering what legislative solution we might be able to request,” Timmins said. “If the nursing homes are using the same technique to avail themselves of residential tax status, we would have a great concern with that as well.”
Care Initiatives is the 27th largest nursing home chain in the nation with 3,543 beds, according to the 2010 Long Term Care Survey from the American Health Care Association.
The chain’s expenses for 2009 were nearly $143 million, which included $80.6 million in salaries, according to the group’s Form 990 tax report. Care Initiatives paid $2.5 million in salaries and related compensation to nine senior-level administrators in 2009. Miles King, the chain’s president and CEO, was paid nearly $615,000 in salary and other compensation.