In recent years, several actions by legislatures and courts across multiple states have challenged the tax-exempt status of nonprofit hospital property. Actions have ranged from proposed legislation in Indiana to eliminate the property tax exemption for nonprofit hospitals to a New Jersey Tax Court that ruled a hospital was not entitled to a property tax exemption on almost all its property. In 2018, the Illinois Supreme Court upheld the constitutionality of the state’s property tax exemption statute for hospitals, but court challenges have persisted.
In the face of these challenges, nonprofit health care providers need to be proactive and not assume they are entitled to an exemption. The first step for providers seeking to protect property tax exemptions is to demonstrate community benefit in an intentional way through a community health needs assessment and financial assistance policy, as required of tax-exempt hospitals under the ACA.
The second and perhaps more difficult step is to quantify and communicate the results effectively to government and community leaders. Strategies to thwart these new challenges may include:
- Documenting and quantifying charitable acts that go beyond Medicare and Medicaid shortfalls.
- Offering free rent for likeminded organizations or inviting community groups to use space during off hours.
- Gathering data that shows the government’s cost to provide the services rendered at the subject property; this helps demonstrate that the provider relieves the burdens of government.
- Determining whether there are competitors in the market providing the same services on a for-profit basis; a lack of for-profit options may help justify a nonprofit motive in providing the services in question.
- Reconsidering whether to own property in the name of a subsidiary. Some recent court decisions have focused on corporate separateness to challenge the charitable nature of services provided in a facility owned by an LLC.
- Producing time-usage studies that show how much time the health provider spends doing charitable work versus non-charitable work at the property.
- Considering payment in lieu of tax (PILOT) agreements.
If you have additional questions or would like to discuss strategies for maintaining property tax exemption at your hospital or health care facility, please contact:
- Joel Swider at (317) 429-3638 or jswider@wp.hallrender.com; or
- Your primary Hall Render contact.
Special thanks to Ben Jamison for his assistance in preparing this article.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot give legal advice outside of an attorney-client relationship.
