Municipalities looking to address budget concerns have shifted their focus to historically tax-exempt not-for-profit entities:
A long-running legal case in Morristown could lead to millions of dollars in additional property taxes for New Jersey hospitals, as well as more revenue and tax relief for municipalities.
The town government is seeking to remove Morristown Medical Center’s property-tax exemption, arguing that it is no longer effectively operating as a nonprofit, due to its reliance on for-profit doctors’ practices and its steep prices.
The medical center argues that its business model is the traditional approach used by all nonprofit hospitals and that it has little control over what it’s paid for its services.
While I’ve heard of instances of municipalities trying to get hospitals to pay real estates taxes, or payments in lieu of taxes, on newly constructed buildings, it’s a very bold move by the city to try to reverse the tax exemption on everything the hospital owns. On the MMC campus, that could equate to a tax bill totaling several million dollars. Given that most not for profits operate at very thin surpluses (single digit margins), real estate tax expenses may take a sizable bite out of that.
I think the city’s argument, that the hospital is no longer effectively operating as a nonprofit, is weak sauce considering one of the reasons that the not-for-profit hospitals receive tax benefits is the charity care and other benefits they provide to the community. For Atlantic Health System, the system that operates MMC, that number is in excess of $100 million. That hospitals seek revenue streams in order to maintain an operating surplus doesn’t necessarily mean that they are following a for-profit model. If anything, it is those revenue streams that allow the hospitals to be able to fulfill their mission directives and provide uncompensated care to those that can’t afford it.