Court denies tax break for unfinished hospital tower

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Children’s Hospital of Wisconsin, Inc.‘s North Tower, which was under construction, did not qualify for a tax-exempt status in 2020, according to a ruling by the Wisconsin Court of Appeals District 1.

In 2020, the North Tower at the hospital’s Wauwatosa campus was under construction when the City of Wauwatosa assessed it for property taxes. The hospital countered that the North Tower qualified for a tax exemption as a nonprofit hospital for 2020 tax year regardless of its construction status because it was “readying” the North Tower for use as a nonprofit hospital at the time of assessment.

Children’s questioned the decision in civil court, but the court agreed with Wauwatosa. The hospital appealed the decision to the Court of Appeals under the precedent set in Family Hospital Nursing Home, Inc. v. City of Milwaukee. In that case, a nursing home was complete and awaiting occupants when the Wisconsin Supreme Court ruled it was exempt since it was “readying” for a non-profit purpose.

The Court of Appeals wrote Children’s North Tower did not qualify under the “readying rule” set forth in the Family Hospital case because “this narrowly tailored exemption is only applicable when the property is fully constructed and in the final stages of being readied to be used for exempt purpose.”

In 2019, Children’s began construction of the North Tower, now known as the Craig Yabuki Tower, located on the Milwaukee Regional Medical Complex in Wauwatosa. On Jan. 1, 2020, the city assessed the North Tower for the 2020 tax year, sending the hospital a tax bill for $122,870.15. During the onsite inspection, the assessor observed the building was approximately 14% completed.

At a motion hearing, the circuit court analyzed several cases discussing the readying rule and found these cases all relied on whether the building at issue was fully constructed and equipped, like the building in the Family Hospital case.

Children’s argued the readying rule applied in the case and that the property can be tax exempt regardless of whether the building is fully constructed if it appears the property will eventually be used for an exempt purpose.

The Court of Appeals said if the Supreme Court intended the Family Hospital ruling to be so broad as to include all structures being readied for a nonprofit purpose regardless of their progress, it would have stated it.

“Instead, the court confined its holding to a fully constructed and equipped building in the final stages of readying itself for tax exempt use. The readying rule provides some flexibility but cannot be stretched as far as (Children’s) contends,” the Court of Appeals wrote.