St. David’s Health Care System v. United States

St. David’s Health Care System (St. David’s) (plaintiff) operated several healthcare facilities in the Austin, Texas area. St. David’s was recognized as a tax-exempt charitable organization. Due to financial difficulties, St. David’s decided to consolidate with another healthcare organization. St. David’s formed a partnership with HCA Healthcare Corporation (HCA), a for-profit company that operated dozens of hospitals nationwide. St. David’s contributed all of its facilities to the partnership. HCA contributed its Austin-area facilities. A subsidiary of HCA managed the day-to-day operations of the partnership medical facilities. The Internal Revenue Service (IRS) audited St. David’s and concluded that due to its partnership with HCA, St. David’s no longer qualified as a charitable, tax-exempt organization. The IRS ordered St. David’s to pay taxes. St. David’s paid the taxes under protest. St. David’s then brought suit in federal court to recover the taxes. The trial court ordered the government (defendant) to refund the taxes. The government filed an appeal. The government argued that because St. David’s ceded control to HCA, St. David’s no longer qualified for tax exemption. St. David’s argued that because it still engaged in activities that furthered its exempt purpose, it was still entitled to exemption. The United States Court of Appeals for the Fifth Circuit heard the appeal.