Uncertainty Remains Surrounding the Nonprofit Hospital Tax Exemption

by Cole Schotz
Contact

In a recent ground-breaking decision, the New Jersey Tax Court in AHS Hospital Corp., d/b/a Morristown Memorial Hospital v. Town of Morristown shattered the previous near incontestability of the tax exemption that has shielded nonprofit hospitals from local property tax obligations for over 100 years. In response, the New Jersey Legislature, in conjunction with the New Jersey Hospital Association, quickly joined forces in an attempt to formulate a “fix” and alleviate the resulting great uncertainty that has left municipalities and nonprofit hospitals clamoring for answers.

The resulting bi-partisan supported fix, embodied by Bill No. 3299 (approved early this year) was sent to the Governor’s desk for signing with just days left in the recently completed legislative session. Unfortunately, due to the fast track of this legislation and the late submission of the bill for consideration to the Governor’s office, the Governor allowed the time to lapse for taking action on the bill, thereby effectuating a pocket veto that served to kill the bill in its tracks.

The import of this failed bill is that while it worked to attempt to reaffirm the longstanding exemption applicable to nonprofit hospital property, it also, in a controversial twist, declared that even those portions of the hospital that were being utilized for, or supporting, for-profit medical activities, should be exempted from taxation. By attempting to continue the exemption, even for components deemed unquestionably “for-profit” by the tax court in the AHS Hospital case, this bill worked to effectively strip away the host municipality’s ability to effectively contest the applicability of the exemption. In return, however, the Legislature attempted to create a special “Community Service Contribution” obligation that was to be borne by the hospital in lieu of paying taxes. This contemplated Community Service Contribution was championed by the sponsors as being readily calculable and serving to remove the need for costly litigation to determine what, if any, portions of the hospital should remain exempt. The funds received by the municipality through this “contribution” obligation in turn would have been earmarked to offset local expenses and financial hardships created by the presence of these typically large facilities that introduce thousands of patients, employees, professionals and associated vehicular activity into the community. The failed bill therefore, although controversial, appeared to strike a reasonable balance between stakeholders, affording both hospitals and municipalities benefits that were left to chance in the unstable environment created in the aftermath of the recent tax court decision.

The killed bill would have required non-profit acute care hospitals to pay a Community Service Contribution equal to $2.50 a day for each licensed hospital bed at the exempt acute care facility.  In addition, satellite emergency care facilities of acute care hospitals would have been required to contribute $250 a day for each such facility.  These mandatory contributions were to have been made in equal quarterly installments and, as in the case of tax payments, payable on February 1, May 1, August 1 and November 1 of each year. These new obligations were to also have been treated the same as other local tax obligations from an enforcement perspective (i.e., the same penalties for late payments and exposure to municipal lien foreclosure actions would apply in the event defaults).

The proposed legislation also dictated that 5% of these contribution payments were to be paid to the County. Such fund sharing would not otherwise have been required in the traditional payments made in lieu of taxes (so-called “PILOT” payment) setting. As a result, the failed bill also afforded county officials some measure of comfort and pre-empted any claims that counties were being unfairly ignored.

This failed legislation further afforded the subject hospitals and satellite emergency care facilities an opportunity to seek relief from these Community Service Contributions obligations where the facility was able to demonstrate that it: 1) had a negative operating margin in the prior tax year; 2) was not in full compliance with the financial terms of any bond covenants, 3) was in financial distress, or 4) was at risk of being in financial distress.

The present impasse however occasioned by the pocket veto continues an environment of uncertainty that will undoubtedly foster a spike in tax court actions to determine the scope and applicability of the hospital tax exemption. Consequently, the question that remains is not if, but when, some refashioning of this proposed legislation will find its way back to the desk of the Governor for adoption.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Cole Schotz | Attorney Advertising

Written by:

Cole Schotz
Contact
more
less

Cole Schotz on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.