Tuesday, August 25, 2015

NJ Hospital Loses Property Tax Exemption

In a recent opinion, AHS Hospital Corp. v. Town of Morristown, 2015 WL 3956132, the Tax Court of New Jersey revoked the property tax exemption of a non-profit hospital. In a lengthy and wide-ranging opinion, the court surveyed the history of hospitals, finding it important that the modern hospital has changed greatly from the hospitals in existence at the time property tax exemptions were granted. The court noted that “Like their new for-profit competitors, today's non-profit hospitals have evolved into labyrinthine corporate structures, intertwined with both non-profit and for-profit subsidiaries and unaffiliated corporate entities. . . . Today's non-profit hospitals generate significant revenue and pay their professionals salaries that are competitive even by for-profit standards. Furthermore, private physicians and medical practices associated with non-profit hospitals earn and retain income generated on hospital property.” The court praised the quality of care provided by the hospital but said that it “must not succumb to emotion” in reaching its decision. In denying property tax exemption for much of the hospital property because of a for-profit use, the court observed that “If it is true that all non-profit hospitals operate like the Hospital in this case, as was the testimony here, then for purposes of the property tax exemption, modern non-profit hospitals are essentially legal fictions.” No doubt this issue will continue to reverberate in New Jersey and in many other states revisiting the policy behind property tax exemptions, for hospitals and other nonprofits. RC


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