The Rules of the Fight Must Be Fair: States Should Pass a Uniform Code for Nonprofit Hospital Tax Exemption of Real Property

By Mintz, Lowell R. | Journal of Law and Health, Summer 2013 | Go to article overview

The Rules of the Fight Must Be Fair: States Should Pass a Uniform Code for Nonprofit Hospital Tax Exemption of Real Property


Mintz, Lowell R., Journal of Law and Health


I. INTRODUCTION II. BASIS FOR HOSPITAL TAX EXEMPTION     A. Real Property Tax Exemption is Derived       from State Level Tax Exemption     B. Hospitals Began as Charities     C. Policy Underlying Tax Exemption for       Charitable Institutions III. GENERAL DISCUSSION OF STATE METHODS   TO DETERMINE TAX EXEMPTION     A. What is Charity Care?     B. Quantitative Test     C. Multifactor Test     D. Hybrid Test IV. THE MAJORITY OF STATES TREAT NONPROFIT   HOSPITALS AS GARDEN VARIETY CHARITIES   UNDER THE LAW FOR TAX EXEMPTION     A. Utah     B. Illinois     C. Ohio V. PROBLEMS UNDER THE CURRENT LAW OF   TAX EXEMPTION     A. The World has Changed     B. Evolution of the Nonprofit Hospital     C. Hospital Consolidation     D. The Growth Trend for Nonprofit Hospitals       is Expected to Continue to be Fueled by       Increasing Demand for Medical Care     E. Municipal Budget Problems     F. Nonprofit Hospitals Have Evolved into a       Unique Form of Charitable Institution       Much Different From the Model of Charity       used by the Law     G. Lumping Hospitals Together with Garden       Variety Charities for Real Estate Tax       Exemption is Problematic     H. Utah     I. Illinois     J. Ohio     K. Lack of a Uniform Standard VI. THE SOLUTION: A UNIFORM MODEL CODE   FOR TAX EXEMPTION OF NONPROFIT HOSPITALS;   ESTABLISHING A CLEAR STANDARD FOR   "CHARITY CARE"     A. Tax Exemption for Hospitals Should Be       Established in a Statute that is Separate       from the Law Establishing Tax Exemption       for Other Charities     B. A Uniform Standard is Needed     C. Should a Quantitative Test be Applied?     D. Proposed Uniform Code for Nonprofit       Hospital Tax Exemption     E. The Principals Proposed in This Model       Code are Generally Accepted by the Great       Majority of States     F. This Model Code Should be Adopted       Because Interstate Hospital Growth       Will Continue Necessitating a Uniform       Law for Real Property Tax Exemption VII. CONCLUSION 

I. INTRODUCTION

Let's Get Ready to Rumble! (1) Iconic words said at the start of heavyweight bouts. The struggle between municipalities and nonprofit hospitals over real property tax exemption has been a recurring fight between these two heavyweights. (2) In most cases, hospitals have preserved their real estate tax exemption. (3) In two cases, however, one from 1985 in Utah and another from 2010 in Illinois, local governments have successfully stripped traditional nonprofit hospitals of their real property tax exemption. (4) These two cases are illustrative of the problems that exist under the current standards that a hospital must meet for real property tax exemption from state to state. (5)

Governmental challenges to charitable hospitals' tax exempt status is not a new fight. (6) While the conflict is classic, the landscape and players have changed. Once flush with tax revenues, local governments are now seeking new revenue for cash strapped schools, a problem that was originally limited to the inner city but has since spread to suburbs. (7) Nonprofit hospitals have been expanding into the suburbs and to surrounding states. (8) Nonprofit hospitals are operating like for-profit hospitals, (9) starting subsidiary businesses, (10) and closing unprofitable emergency rooms in poor neighborhoods where charity care is most sought after. (11) As nonprofit hospitals have evolved, their business model is more and more like for-profit hospitals, getting away from providing charity care to those who cannot afford to pay for healthcare services. (12) As hospitals operate more and more like for-profit businesses, cities' need for tax revenue increases, local governments have renewed efforts to tax nonprofit hospitals' real estate by challenging their state level charitable tax exemption. (13) The taxing authority's recent success in the Illinois Supreme Court (14) is expected to spur a renewed effort to fight tax exemptions for nonprofit hospitals around the country.

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