The availability of property tax exemptions for nonprofit healthcare providers continues to be an issue. Recently, the Illinois Court of Appeals found a 2012 law intended to resolve this issue to be unconstitutional. In New Jersey, pending legislation would establish a program of payments in lieu of property taxes. KPMG observation: This report (originally provided on January 11, 2016) has been updated to reflect recent developments as of January 26, 2016. The updates are included in the following discussion.
In 2012, largely in response to an Illinois Supreme Court decision that upheld the denial of a nonprofit hospital’s property tax exemption (Provena Covenant Medical Center v. Department of Revenue, 925 N.E.2d 1131 (Ill. 2010)), Illinois enacted a law that establishes quantifiable standards for the issuance of charitable property tax exemptions. The Illinois law requires that, for a property to be exempt from tax, the total dollar value of services provided that address healthcare needs of low-income individuals or that relieve governmental burdens must exceed what would otherwise be the exempt property's tax liability for that year.
Law held unconstitutional
Recently, the Illinois Court of Appeals found the 2012 statute to be inherently unconstitutional because it requires a hospital to “pay for its property tax exemption with certain services of equivalent value." In contrast, the Illinois Constitution requires exempt property to be used exclusively for charitable purposes. The case is: The Carle Foundation v. Cunningham Twp. (Ill. Ct. App. January 5, 2016). Read the decision [PDF 149 KB]
Update: January 26, 2016
According to various news reports, the Illinois Department of Revenue will temporarily halt its review of property tax exemption applications for nonprofit hospitals during the pendency of appeals.
In 2015, the New Jersey Tax Court upheld the denial of a medical center's property tax exemption, with limited exceptions, finding that the hospital properties were substantially used for profit. Read TaxNewsFlash-Exempt Organizations
New Jersey Senate and Assembly committees on January 7, 2016, approved proposed legislation that would require nonprofit hospitals to make “community service contributions” to maintain their property tax exemption. If the legislation is enacted, a New Jersey non-profit hospital would pay: (1) $2.50 per hospital bed each day to the municipality in which the hospital resides; and (2) $250 per day for each satellite emergency care facility to the municipality where the facility is located. These payments would be made in lieu of property tax. Read the bill's text [PDF 302 KB]
Update: January 26, 2016
Governor Christie "pocket vetoed" the measure by taking no action within the requisite timeframe after the end of the legislative session.
For more information, contact the Managing Director-in-Charge of KPMG's Washington National Tax Exempt Organizations Tax group:
D. Greg Goller | +1 (703) 286- 8391 | firstname.lastname@example.org
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