Thursday, August 12, 2010
The District 1 Court of Appeals of Wisconsin just released an opinion denying a property tax exemption to an outpatient clinic run by a subsidiary hospital of Covenant Healthcare, the same entity that owns Provena Covenant Hospital in Illinois. Provena, as readers may recall, had its exempt status revoked by the Illinois Department of Revenue, an action recently upheld by the Illinois Supreme Court (see prior blog posts here and here). It appears Covenant has taken it on the chin again.
The Wisconsin case, however, was not based on lack of charity care. Instead, the Wisconsin appeals court held that the outpatient clinic essentially was nothing more than a building housing doctors' offices, which under Wisconsin law cannot be exempt. Wisconsin Statutes § 70.11(4m), provides an exemption from property taxes for nonprofit hospitals, but specifically excludes doctors offices:
NONPROFIT HOSPITALS. (a) Real property owned and used and personal property used exclusively for the purposes of any hospital of 10 beds or more devoted primarily to the diagnosis, treatment or care of the sick, injured, or disabled, which hospital is owned and operated by a corporation, ... no part of the net earnings of which inures to the benefit of any shareholder, member, director or officer, and which hospital is not operated principally for the benefit of or principally as an adjunct of the private practice of a doctor or group of doctors. This exemption does not apply to property used for commercial purposes, as a health and fitness center or as a doctor’s office.
According to the court, the clinic at issue "(1) did not provide inpatient services; (2) provided the doctors with a space to do paperwork; and (3) saw most patients by appointment, during business hours." That led the court to conclude that the clinic was used as a doctors' office, not an extension of a hospital.
Though the opinion is based on a unique state law, it follows the recent trend of state departments of revenue and at least some state courts (e.g., Illinois) in getting tougher on tax exemptions for nonprofit healthcare organizations. Given the current economic climate and resulting financial pressures on states and local communities, I suspect we'll see more of this trend in the near future.