March 13, 2013
Arizona Taking Steps to Exempt "Fallow" Church Property
A couple of years ago one of my students, Brittany Viola (not the Olympic platform diver) wrote a note for the University of Illinois Law Review on the property tax status of "fallow" property owned by exempt organizations, particularly churches. A PDF of that article is available here. In the article, Ms. Viola discussed how various states, particularly in the Northeast, were attempting to tax "fallow" property - for example, shuttered Catholic schools or churches that had been closed by the local diocese (though this issue was by no means limited to property owned by the Catholic church). The essence of the legal issue was the requirement of most state property tax exemption laws that the exempt property be "used" for an exempt purpose; arguably, fallow church property is not being "used" for religious purposes; it literally isn't being "used" at all, and hence potentially does not meet the requirements for exemption.
It appears that Arizona is in the midst of considering legislation that would protect this fallow property from taxation. This article in the East Valley Tribune details legislation that was first proposed in the Arizona House that would permit religious organizations to buy undeveloped property and hold it subject to exemption (this original version of the legislation also apparently would have exempted other property owned by churches, but used for non-religious purposes, like student dormitories). Word today is that a compromise version of this bill passed the Arizona House, and although it no longer protects things like student dormitories, it does apparently still provide for exemption of fallow land (I haven't been able to find a full-text version of the amended bill; I'll try to link it when I do).
I've written before about my view that churches ought not to be given the tax benefits accorded "charities." While some clearly do produce "public goods" in the form of helping the poor and disadvantaged, many are nothing more than clubs for believers. The modern case for general tax exemptions for churches usually rests on the notion that taxing them would be unconstitutional (a violation of the federal free-exercise clause, or similar provisions in state constitutions). I don't agree - and think that a neutral tax law applied to religious organizations would be upheld. (The historical rationale for religious exemptions comes from the proposition that human beings could not (or should not) tax God; there are references in ancient Egyptian history and the Old Testament regarding the proposition that human beings did not have the authority to tax priests or temples. I think we're sort of past the "if we tax churches, plagues of locusts will destroy the fields" theory.) Social clubs do get federal income tax exemption under Section 501(c)(7), but clubs do not get the other major benefits of charitable tax exemption under 501(c)(3) (e.g., the ability to receive tax-deductible donations or to issue tax-exempt bonds), and states generally do not provide property tax exemptions for clubs. So let's give churches the same tax benefits we give all social clubs and nothing more.
A colleague at another institution once floated the idea that churches ought to be taxed, but get an unlimited charitable deduction for actual charitable works, like expenditures for programs to help the poor. That also sounds fine to me. But the idea that we should be expanding exemption for churches to property that isn't even used for religious worship, particularly given the strains on local budgets, is in my view ludicrous.
January 22, 2013
Local Property Tax Exemption Fights Still Going Strong
A modestly-improving economy does not seem to have halted the trend of local property tax exemption fights. Here's a roundup of recent ones, to give a flavor of the scope of what's going on.
Vanderbilt University is seeking full property tax exemption for 11 fraternity/sorority houses. According to Vanderbilt, an agreement with the Greek organizations transferred full control over the property to Vanderbilt, and therefore the houses should be exempt like any other student housing. The move would save Vanderbilt (whose 2013 operating budget was $3.7 billion) $74,000 in annual property taxes. To paraphrase the late Senator Everett Dirksen, "$74,000 here and $74,000 there, and pretty soon you're talking about real money."
Meanwhile, the town of Hebron, Indiana, is fighting property tax exemption granted by the state to a set of apartment buildings. "Town Clerk-Treasurer Terri Waywood said the exemption was granted because the complex provides its tenants with classes in managing money and other services they can't get anywhere else in town." Sounds like a tax-exemption blueprint for all the apartment complexes in Indiana; heck, who doesn't need help managing their money? Even the folks on Downton Abbey could use some instruction on this front . . .
In Knoxville, Tennessee, a pair of golf courses are fighting to re-establish exempt status, and Texas State University's exempt status apparently is causing some budgetary headaches (heartache?) in San Marcos, Texas.
Some days I wonder whether the solution is just to get rid of all tax exemptions . . .
October 15, 2012
A Lesson in State Property Tax Exemption Law
The dispute between the town of Vestal, NY and United Health Services over a property tax exemption for a new clinic owned by UHS offers a good lesson in the requirements for state property tax exemption. UHS built the clinic on land leased from a for-profit corporation. There is no dispute that the building is tax-exempt; the dispute regards an exemption on the underlying land.
While property tax exemption laws vary considerably from state to state, in most states property tax exemption requires that the exempt property meet two requirements: (1) it must be owned by an exempt charity and (2) it must actually be used "exclusively" (which usually really means "primarily") for exempt purposes. In New York, the relevant statutory language comes from Section 420-a of the New York Real Property Tax Law, which states:
Real property owned by a corporation or association organized or conducted exclusively for religious, charitable, hospital, educational, or moral or mental improvement of men, women or children purposes, or for two or more such purposes, and used exclusively for carrying out thereupon one or more of such purposes either by the owning corporation or association or by another such corporation or association as hereinafter provided shall be exempt from taxation as provided in this section.
The New York law seems pretty clear in requiring "ownership" by an exempt entity, which is pretty clearly not the case in the Vestal-UHS dispute. It may be, however, that UHS is claiming that the terms of its lease are the equivalent of "ownership" for New York property tax rules. The IRS sometimes treats very long-term leasing arrangements as the equivalent of fee ownership. In its regulations regarding tax-deferred exchanges under Code Section 1031, for example, the IRS treats a leasehold of 30 years or more as "like kind" to a fee interest. Treas. Reg. 1.1031(a)-1(c).
Since UHS has declined to reveal the specific provisions of its lease, I don't know what it's argument is on the ownership question (there is a suggestion in the cited story that UHS is claiming that it is responsible for paying the property taxes, which is enough to meet NY law). I'm also not sure whether New York would recognize certain leasehold interests (or obligations to pay the taxes) as the equivalent of "ownership" for property tax purposes - perhaps some reader from New York could enlighten us on that point.
But the story is a good illustration of how state property tax exemption differs from federal (or even state) income tax exemption. Federal income tax exemption is focused solely on the "charitable-ness" of the entity seeking exemption. Property tax exemption, on the other hand, generally requires meeting a two-pronged "ownership and use" test. The latter can produce different results - for example, property that is owned by a charity but not used for charitable purposes (e.g., leased to for-profit entities, or not used at all - that is, fallow property) generally will not qualify for exemption, just as property used for exempt purposes but owned by a for-profit entity and leased to a charity will not qualify.
July 12, 2012
Has the Tax-exemption Rumble Started in Pennsylvania?
A while ago I posted about a recent Pennsylvania Supreme Court decision on tax exemption that I speculated might reopen the door to property exemption challenges. The President of the Pittsburgh City Council might have kicked that door open a bit recently. A story posted on Pittsburgh's public radio station web site notes that city council president Darlene Harris is "investigating whether the city could legally challenge the tax-exempt status of large nonprofits in Pittsburgh." Harris apparently specifically referred to the recent Pennsylvania Supreme Court decision as grounds for her investigation.
“What some call ‘nonprofit’ is not necessarily all nonprofit,” said Harris. “If you can pay for having commercials during Super Bowls, if you can pay for your name to be on the top of the highest buildings in the City of Pittsburgh… There are doctors that will not see poor people.”
It appears that the City Council is not exactly happy with the PILOT deal struck with a consortium of Pittsburgh nonprofits that we blogged about last week. The story quotes council budget director Bill Urbanic, who stated “If these were ‘taxable organizations,’ the amount of payroll tax we would receive would be somewhere around $22 million… Also, the real estate, with the new assessment, is probably somewhere between $35 to $50 million. So, you’re looking at somewhere around $60 to $70 million that we’re forgoing, and what we’re getting instead is $2.6 million annually.”
Has the rumble over property tax exemption started in Pennsylvania?
June 21, 2012
Op-Ed in Support of Minimum Charity Care Requirement for Nonprofit Hospitals
Pablo Eisenberg, a senior Fellow at the Georgetown Public Policy Institute, opined in a recent piece for the Huffington Post that Congress needs to set a benchmark for nonprofit hospitals to provide a minimum amount of charity care in exchange for their tax-exempt status. Eisenberg discusses a recent investigative report on North Carolina nonprofit hospitals revealing increases in profits, reserves and compensation packages for their executives in recent years while less than 3 percent of their operating budgets were spent on charity care. Eisenberg also references the recent legislative solution to the standoff between Illinois hospitals and the counties seeking to require a minimum charity care standard in exchange for property tax exemption. He frames that solution as a success for those hospitals in avoiding revocation of their tax exemptions. A federal legislative solution is necessary, Eisenberg opines, to ensure nonprofit hospitals "earn" their tax-exempt status by adequately serving the poor.
June 06, 2012
A Water Park as an Exempt Religious Organization?
I always tell my students in my basic income tax class that I usually forge exam problems from stuff I read in the press, because I can't possibly make up stuff as good as what I read.
And so it is today. Hot on the heels of my post yesterday regarding the definition of a religious organization comes a story in the Milwaukee newspaper that the local Jewish Community Center (JCC) is seeking tax exemption for a family water park. According to the story,
In a legal brief, the JCC noted that what appears to be purely recreational activity "has religious and community-building purposes." At the park, members observe Shabbat, attend kosher barbecues and Jewish holiday events, and play Israeli games. All of the signs in the facility are in English and Hebrew.
<Sigh> OK - so maybe not exactly a claim that the water park is a religious organization, but close. On the other hand, JCC does appear to have raised one interesting issue: why should a YMCA be tax-exempt under Wisconsin law, but not a family water park? Why, indeed . . .
June 04, 2012
Illinois Enacts Hospital Property Tax Exemption Standards
Late last week, the Illinois Legislature enacted a new law setting specific standards for nonprofit hospitals seeking property tax (and sales tax) exemptions. The new law, SB2194 (the tax exemption provisions begin on page 48 of the PDF file linked above), essentially requires nonprofit hospitals to provide unreimbursed services to the poor or government entities in an amount at least equal to the property tax that would have been assessed on the hospital's property in order to retain exempt status. For-profit hospitals would get a property-tax credit for the value of such services.
The new law is a response to the Illinois Supreme Court's decision in the Provena Covenant hospital exemption case, which we have previously blogged about a number of times (key posts are here and here). In that case, a plurality of the court held that Provena Covenant hospital in Urbana, Il failed to provide sufficient charity care to qualify for property tax exemption, although the court declined to set a specific standard for how much charity care would be enough. The resulting uncertainty created a mess, and this legislation was designed to end the uncertainty.
While I'm not going to attempt a detailed dissection of the legislation in this blog post, I do want to comment on a few items. The first is that while the bill does retreat a bit from the classic community benefit formulation of tax exemption for nonprofit hospitals in that it focuses on the unreimbursed costs of services to the poor or underserved populations as the only things that "count" for tax exemption purposes, the breadth of the definition of those services is very wide indeed. In addition to classic charity care (not charging charity patients at all or heavily discounting their services), Medicaid shortfalls count, as do Medicare shortfalls for so-called "dual eligible" patients (e.g., Medicare-eligible patients that also meet eligibility requirements for Medicaid). Also counting in the calculation are
the portion of unreimbursed costs of the relevant hospital entity attributable to providing, paying for, or subsidizing goods, activities, or services that relieve the burden of government related to health care for low-income individuals. Such activities or services shall include, but are not limited to, providing emergency, trauma, burn, neonatal, psychiatric, rehabilitation, or other special services; providing medical education; and conducting medical research or training of health care professionals.
While the hospital in question will have to make an allocation for the above costs attributable to low-income inividuals, you can see that the "community benefit" theme still runs strongly in this legislation. So strongly, in fact, that I seriously doubt the legislation will effect any change to nonprofit hospital behavior. In fact, a hospital that "missed" its numerical target could simply cut a check to an appropriate entity (e.g., a clinic for the poor) and maintain exemption that way. And the fact the legislation was supported heavily by the hospital industry causes me to think that my "serious doubt" will prove to be reality.
I also wonder if the result of having a specific mathematical target (the property tax that would otherwise have been due) will lead over time to fewer services for the poor than more. While I certainly don't see any hospital CEO getting up in front of her Board and requesting changes in policies to reduce services for the poor (that would certainly get a headline in the Chicago Tribune, if not the New York Times!), one wonders if over time more subtle changes in policy (or lack of new policies) will result in a "remarkable accident" where hospitals all end up just meeting the statutory requirements in order to retain exemption. As I told one reporter, call me in five years and let's see what has happened.
In addition, there is some question whether the legislation is in fact constitutional. The Illinois Supreme Court had previously held in the Eden Retirement Center case that what constitutes a "charity" for property tax exemption purposes is in the first instance a constitutional matter, and therefore the legislature may not contradict the courts interpretations of charity for property tax exemption purposes. How this plays out with SB2194 is an interesting question. On the one hand, the bill does stick to defining broad concepts laid out by the Illinois Supreme Court in Provena - the concept of charity care as a broad gift to the community and the overall concept of relief of government burden as a sine qua non of property tax exemption. On the other hand, the bill curiously "overrules" some specifics of the Provena case - for example, the plurality in Provena quite clearly stated that Medicaid shortfalls do not count for tax exemption purposes, while this bill quite clearly says they do.
Finally, there is the question whether this legislation will become a model for other states. (If I were in a snarky mood, I might ask why anyone in their right mind would copy something passed by the Illinois Legislature, but as the saying goes, even a stopped clock tells the right time twice a day). The truth is that I doubt it. The issue of nonprofit hospital tax exemption has been settled in many states either by statute (e.g., New York, Pennsylvania, Texas); or prior litigation (e.g., Vermont, in the Medical Center Hospital v. Burlington case). While there are a few states where the issue may still be open, I didn't see any rush by state departments of revenue or local county assessment boards to copy the Provena analysis, and I similarly doubt there will be much interest in the Illinois solution to the Provena case.
May 23, 2012
PILOTs vs. Property Tax Reform
An interesting article/editorial in the New London, Connecticut newspaper, The Day, analyzing whether the region should consider comprehensive property tax reform and restructuring of local municipalities and services (i.e., going to a more regional structure on schools, fire and emergency services, etc.) rather than seeking payments in lieu of taxes (PILOTs). It is an interesting discussion that is likely applicable to other local governments and taxing jurisdictions across the country.
Hat tip: Nonprofit Quarterly
April 19, 2012
Issuance of Shares by "Participation Nonprofits"
In his new book, Finance and the Good Society (Princeton),Yale economist Robert Shiller specifically addresses societal philanthropy and the role of the nonprofit sector. In particular, he proposes the concept of "nonprofit stock." Here is the explanation is his Huffington Post blog entry entitled "Ten Ways Finance Can Be a Force for Good in Society:"
2. Create what I am calling, in my new book, participation nonprofits, nonprofits that might run schools or hospitals or the like, but that raise money by selling shares to the public. Such a firm pays dividends from its profits into a special account in the name of the shareholder. The shareholders get a charitable tax deduction for making the investment, but can use the dividends in the account only for further charitable contributions, including purchasing shares in participation nonprofits, or can spend them on themselves in some predefined emergency situations such as a medical crisis. With participation nonprofits, charitable giving will be more fun for the donors, for they could watch their money grow and feel their influence grow with it, if they invest wisely, fulfilling a natural human need for stimulation and appreciation. For example, the Wikipedia Foundation might have been even more successful if it had been set up as a participation nonprofit, and found some revenue opportunity associated with their mission. Instead of operating on a shoestring of the mere 75 employees it has today, I'll bet it would have received many billions in donations by now, which it probably could use for a much expanded social purpose.
(Hat tip: Nonprofit Quarterly)
April 18, 2012
Illinois Hospitals' Property Tax Exemption Battle Could Negatively Affect Credit Ratings
As reported by the Daily Tax Report, Fitch Ratings, a global rating agency, released a report entitled Illinois Property Tax Exemption Battle, in which the rating agency concluded that the Illinois Department of Revenue's current enforcement stance on the property tax exemptions of Illinois nonprofit hospitals is a "negative credit development" for certain of these hospitals. As previously blogged, Illinois Governor Quinn lifted a moratorium on nonprofit hospital exemption cases last month. Essentially, according to the report, a nonprofit hospital's loss of tax exemption, along with current operational challenges, could "negatively affect" the hospitals' creditworthiness. The report opines that certain "lower rated entities will have a limited ability to absorb an additional expense in the form of a property tax."
The report acknowledges that this tax-exemption challenge is not limited to Illinois, mentioning an Ohio nonprofit dialysis clinic [Dialysis Clinic, Inc. v. Levin, see previous blog] that, similar to Provena Covenant Medical Center in Illinois, lost its property tax exemption due to insufficient provision of charity care. The Ohio Supreme Court upheld revocation of the clinic's property tax exemption. The Court noted that the Ohio test for exemption was narrower than the “community benefit” test of federal law, but did not find that a minimum amount of charity care is required. Rather, in Ohio, an exemption is granted if services are provided “on a nonprofit basis to those in need, without regard to race, creed, or ability to pay.”
Whether the Fitch report will impact the ongoing Illinois debate on hospitals' property tax exemption is unclear. The spokesman for the Illinois Hospital Association is nevertheless "hopeful that a legislative solution can be enacted" in the upcoming General Assembly session.
March 07, 2012
Hartford Latest to try PILOTs
This story in the Hartford Business Journal on-line details the efforts of Hartford to implement a PILOT (payment in lieu of taxes) program, aimed at the largest nonprofits in the city. Like Boston, which has a PILOT program, Hartford has a number of very large nonprofits (mostly hospitals and universities) that are exempt from property taxes (although the state actually does reimburse the city some $40 million for its property). Like Boston, over half the property in Hartford is tax-exempt as the result of either state or private charity ownership. And like Boston, the revenue lost is huge - Hartford estimates that the value of exempt property is $3.6 billion (yes, that's "billion"). And like Boston, the charities complain that everything they do helps economic development - so they shouldn't have to pay taxes. Hmmm . . . Wonder if Microsoft enhances the economic development of Redmond, WA - and the last time I checked, Microsoft paid taxes . . .
February 19, 2012
New York Attorney General Proposes Plan for Nonprofits
Last Monday, we blogged about problems that had surfaced in New York's charity care system. Today we note that the New York Times is reporting that New York's Attorney General, Eric T. Schneiderman, has proposed a plan to overhaul the way nonprofit groups operate in that state. According to the Times, the proposal "is as much an aid package for nonprofit groups as an attempt to hold the line on runaway compensation and other abuses."
Among other things, the proposal calls for state-backed, zero-interest loans for struggling nonprofits and changes to state laws and regulations to make them more friendly to nonprofits in general. Mr. Schneiderman's plan also proposes "some steps to bolster self-policing by nonprofit groups, including the use of independent directors to monitor compensation."
February 13, 2012
Exposed Problems with NY's Charity Care Law
The New York Times reports on a recent study showing that New York's charity care system has significant problems that are not being acknowledged nor addressed by the state government. The complicated system, which is partially financed by an 8.95% surcharge on hospital bills, is criticized by some patient advocates as ineffective in improving patient access and care. The study found that some hospitals failed to provide patients with elibility information on discounted care as required by NY state law, did not provide patients with financial aid applications, and made impermissible demands for unnecessary documents. While providing limited to no financial aid and utilizing aggressive bill collection practices (including liens against patients' homes), hospitals continued to collect, without questions or audits, from the state charity care pool that distributes more than $1 billion a year. Patient advocates and hospital administrators are reportedly being assembled to overhaul a better system.
December 29, 2011
Michigan's Tax Credits for Charitable Giving to End
Michigan tax credits for charitable gifts will expire at the end of 2011. The state has provided tax credits of 50% of amounts given to Michigan charities of three types: homeless shelters and food banks; public institutions such as universities, libraries, public broadcast entites and the Detroit Institute of Arts; and community foundations such as the Community Foundation for Southeast Michigan. Credits are limited to $100 for an individual or $200 for a couple, for gifts to each of the three categories (total credits of $300 or $600) Charities report a disproportionate share of donations in $200 increments, and they fear the end of the credits will mean a loss of donations in 2012. The actual effect on charitable giving is hard to predict, and the Johnson Center for Philanthropy at Grand Valley State University has announced that it will study the effects of the change. Even if their overall charitable giving does not decrease, some taxpayers may have been influenced by the credits to focus their giving on Michigan charities. For now, charities are trying to get the word out that gifts should be made before the end of the year to take advantange of the credits. See the story in the Detroit Free Press.
December 28, 2011
Efforts to Save CA State Parks Continue
There is no immediate news on the efforts to link nonprofit groups with CA state parks to keep the parks open, but I wanted to share a blog that is posting reports on the efforts for anyone who wants to keep up on the latest news for the CA parks. On October 4, 2010, the CA legislature enacted AB 42, a bill that adds §5080.42 to the California Public Resources Code. The new provision modifies the statute that gives control of the state park system to the Department of Parks and Recreation. The new section gives the department the authority to enter into "an operating agreement for the "development, improvement, restoration, care, maintenance, administration, or operation" of a state park with a "qualified nonprofit organization." The goal is to keep parks open, using nonprofits to help find resources to manage and maintain the parks.
Christine Sculati's Blog has posted a number of stories about the efforts of nonprofit organizations to work with particular parks in California. Her most recent post on the subject describes efforts of the Portola and Castle Rock Foundation to save Castle Rock and Portola Redwoods State Parks. She notes that 70 state parks have been identified for closure, with 18 of those in the Bay Area. The parks located near populous areas may have a better chance of generating the kind of fundraising that will be needed to keep them open. Her posts provide excellent descriptions of the problems and the efforts to save the parks, and are worth a read if you're interested in this topic.
December 12, 2011
More Strain on Relationship Between State Governments and Nonprofits
Continued Decreases in State Funding of Social Programs
The Chronicle of Philanthropy reports that nonprofits should expect to see continued decreases in funding and additional increases in demand for services through 2013 as state governments' budgets continue to deal with decreasing revenues. A new report, issued by Changing Our World, a philanthropy consulting firm, does a historical review of the economic crisis, calculates its negative effects on state budgets, and assesses whether charitable giving can stave off the decrease in government spending on social programs. Because 44 states have greatly reduced their spending and used federal stimulus money to make up the difference, the loss of that stimulus money will mean further cuts in social programs during the next two fiscal years. In order for nonprofits to meet the resulting increase in demand for such services in some of the most affected states, the report estimates that charitable giving would need to increase by 30 percent in 2011 and 60 percent in 2012, which the report refers to as “historically unprecedented.”
Taxation of Nonprofits' Real Estate
We continuously blog about state and local governments looking to nonprofits as additional revenue sources. In another such development, The Nonprofit Quarterly reports that Pennsylvania State Senator Wayne Fontana introduced in October Senate Bill 1281, which would grant local governments the ability to tax the assessed value of nonprofits' land. The Senator stated that specific exemptions would be enacted to protect "small" nonprofits, such as Boys and Girls Clubs and churches. The bill as introduced specifically exempts properties owned by local, state, and federal governments, and by “police, fire, including volunteer fire and relief, public works or emergency services.” According to the article, although there is no mention of small nonprofits, the asserted "small" nonprofit carveout is likely the proposed exemption of the first $200,000 of aggregate land value. The tax would only be imposed on the value of the underlying land, not any improvements on it. The specified intent of the Bill reads: “It is necessary and proper for local governments to have the option to ensure the continued viability of certain essential services it provides or causes to be provided by requiring a contribution from owners of tax-exempt properties toward the cost of the services.” The Senator explained: “There are nonprofit organizations out there that are sitting on high-valued, tax-free real estate. If they sold this land, these nonprofits would make a handsome profit.”
Additional Issues Raised by Sandusky's Charity
As previously blogged, Second Mile, the youth charity founded by former Penn State Football coach Jerry Sandusky, and its activities continue to raise issues both in the nonprofit sector as well as the community at large. In a recent Washington Post article, a nonprofit practitioner questions the structure of the charity's operations and board of directors. He first questions the various, and purportedly conflicting, roles of Sandusky as founder, an officer, and chair of the board. He also questions the large size of the charity's board (36 members). As discussed in the previous blog entry referenced herein, until there are more facts and information, there should be no rush to judgment regarding the board's historical actions or inactions leading up to the revelation of the current scandal.
The Nonprofit Quarterly reports that a California assemblyman has introduced legislation that would revoke a nonprofit's tax-exempt status if it is found that the organization fostered or concealed the sexual abuse of children. The article further discusses calls by some lawmakers to have such changes instituted at both the state and federal levels.
November 23, 2011
A New Resource for the Church Tax Exemption Debate
In doing some trolling on the web, I came across a fairly new web site that addresses the pros, cons and history of tax exemptions for Churches. The site is well-done, and with the exception of a few minor nitpicks (the exemption for churches goes back farther in history than Constantine; there are references to exemptions for churches in the Old Testament of the Bible and in ancient Egypt), gives a good overview of the issues involved in this continuing debate (about which I am sure we will hear more during the upcoming election cycle).
Check it out: http://churchesandtaxes.procon.org/
October 17, 2011
Michigan "Blues" Conversion Sparks Controversy
A legislative effort to convert Blue Cross Blue Shield of Michigan, a nonprofit organization that controls 70% of Michigan's insurance market, into a for-profit insurance company is encountering strong opposition from the chair of the state's Senate Insurance Committee. The Detroit News reports that the 31-year-old statute granting the Blues' nonprofit status is up for review, which prompted the Governor to call for a "fresh look" and consideration of a for-profit conversion that could arguably stimulate competition, decrease rates, and improve overall access to health care. The company is opposed to the proposed conversion, arguing that "[a] nonprofit, community-governed Blue Cross allows the company to do more to improve health care quality and security for all the people of Michigan, rather than operate as a profit generator for stockholder owners."
This Michigan development is not a new nor unique one, as Blues have been converted in other states. As aptly raised by The Nonprofit Quarterly in its related article, a for-profit conversion customarily results in the creation of a charitable foundation - does this adequately account for the loss of charitable assets that results from such a conversion? Will there be any tangible effect from the Blues operating as a for-profit insurer, especially in light of the Affordable Care Act?
Illinois - The Fight Over Tax Exemption for Hospitals Continues
The Chicago Tribune reports on the continually evolving issue of a charity care prerequisite for hospitals' state property tax exemption. As previously blogged by John Colombo (see posts here and here), the Illinois Supreme Court determined in March 2010 that Provena Covenant Medical Center in Urbana did not meet the state law's definition of "charitable" necessary for real property tax exemption; specifically, that a hospital must provide some substantial amount of charity care in order to be granted an exemption. Relying on that Provena decision, in August 2011, the Illinois Department of Revenue revoked the property tax exemptions for three Illinois hospitals on the basis of too minimal amounts of charity care (see John's post on this development here). After these revocations, the Illinois Governor declared a moratorium until March 1, 2012 with respect to hospitals' tax exemption determinations. In the interim, the State and other stakeholders are supposed to reach a resolution.
Although the Provena decision adopted a charity care standard for hospital tax exemption, there are no bright-line rules on what constitutes charity care and how much should be conferred by a hospital to maintain its tax-exempt status. Hospitals are arguing that a definite charity care standard (say, 5% of the hospital's revenues) would be more burdensome on some hospitals than others. Hospitals are seeking legislation that would set clear and definable standards for tax exemption.
In light of these recent developments, local assessors are addressing the taxability of hospitals with varying approaches. Some are are assessing taxes on hospitals thereby leaving it to the State's Department of Revenue to determine if each hospital qualifies for tax exemption under standards hopefully reached prior to the lift of the moratorium next March. Other assessors are forgoing assessments of hospitals, but requesting that such hospitals file new applications for exemptions. Regardless of the approach adopted, the issue of whether to tax or not tax a hospital is certain to create an "administrative nightmare" for Illinois and its local governments. And, perhaps more importantly, will the feds use the eventual Illinois resolution as a basis for reexamining the federal income tax treatment of nonprofit hospitals?