Role model

Tax ex­emp­tions in Ill. may have im­pact else­where

Modern Healthcare - - THE WEEK IN HEALTHCARE - Ashok Sel­vam

Illi­nois hos­pi­tals ne­go­ti­at­ing for bet­ter cri­te­ria for prop­erty tax ex­emp­tions are wary of their state be­com­ing a na­tional role model af­ter the state’s gov­er­nor gave of­fi­cials per­mis­sion to re­sume pulling ex­emp­tions from not-for­profit providers judged not suf­fi­ciently char­i­ta­ble.

“If we do not have a suc­cess­ful res­o­lu­tion to this case, cer­tainly we don’t want Illi­nois to be the first state in the coun­try to re­quire all hos­pi­tals li­able for prop­erty taxes,” said Maryjane Wurth, pres­i­dent and CEO of the Illi­nois Hospi­tal As­so­ci­a­tion.

Wurth and the IHA con­tinue to work with state law­mak­ers in hopes of in­tro­duc­ing leg­is­la­tion that would clar­ify the stip­u­la­tions. They missed a March 1 dead­line to reach an agree­ment af­ter months of talks trig­gered by the Illi­nois Rev­enue Depart­ment re­vok­ing ex­emp­tions for three hos­pi­tals, lead­ing Quinn to sus­pend the depart­ment’s rul­ings.

Last week, a bi­par­ti­san group of 18 Illi­nois con­gress­men sent a let­ter to Quinn on the be­half of the IHA warn­ing that re­vok­ing tax ex­emp­tions would have a neg­a­tive im­pact on hos­pi­tals and their pa­tients. “Non­profit hos­pi­tals pro­vide an ab­so­lutely vi­tal ser­vice to res­i­dents all across the state of Illi­nois, and tax­ing them threat­ens the care of low-in­come, un­der­served and unin­sured Illi­noisans,” Rep. Jesse Jack­son Jr. said in a news re­lease.

States, cities and coun­ties across the U.S. may see taxes from hos­pi­tals as a way to fill their bud­getary holes. The Ohio Hospi­tal As­so­ci­a­tion, for ex­am­ple, has a close eye on Illi­nois, as the Buck­eye State is see­ing de­vel­op­ments on the prop­erty tax front within its own borders.

The Ohio Depart­ment of Tax­a­tion has a back­log of more than 100 ap­pli­ca­tions from hos­pi­tals seek­ing ex­emp­tions. For com­par­i­son, the Illi­nois Rev­enue Depart­ment has a log of 16 hos­pi­tals, plus ap­peals by the three hos­pi­tals de­nied ex­emp­tions last year: 171-bed De­catur (Ill.) Me­mo­rial Hospi­tal, 330-bed Ed­ward Hospi­tal in Naperville and Prentice Women’s Hospi­tal at North­west­ern Me­mori- al Hospi­tal in Chicago. Sta­tus hear­ings on the ap­peals are sched­uled for later this month.

Ohio of­fi­cials stopped pro­cess­ing tax­ex­emp­tion ap­pli­ca­tions in 2008 and re­cently re­sumed. Re­vised cri­te­ria bet­ter re­flect that hos­pi­tals don’t turn away pa­tients who may not be able to pay their bill, ac­cord­ing to the OHA. “We’re just pleased the process has started back up,” said John Palmer, spokesman for the OHA.

How­ever, the def­i­ni­tion of char­ity care re­mains vague, said Matt Chafin, lead coun­sel for the Ohio Depart­ment of Tax­a­tion. Ohio’s def­i­ni­tion of char­ity stems from a 1966 court decision in­volv­ing the Planned Par­ent­hood As­so­ci­a­tion of Colum­bus. The Ohio Supreme Court over­turned two lower court rul­ings find­ing that Planned Par­ent­hood was not a char­i­ta­ble or­ga­ni­za­tion.

The opin­ion de­fines char­ity as “the at­tempt in good faith, spir­i­tu­ally, phys­i­cally, in­tel­lec­tu­ally, so­cially and eco­nom­i­cally to ad­vance and ben­e­fit mankind in gen­eral, or those in need of ad­vance­ment and ben­e­fit in par­tic­u­lar, with­out re­gard to their abil­ity to sup­ply that need from other sources and with­out hope or ex­pec­ta­tion, if not with pos­i­tive ab­ne­ga­tion, of gain or profit by the donor or by the in­stru­men­tal­ity of the char­ity.”

That murky 46-year-old def­i­ni­tion of char­ity is a lit­tle ob­so­lete, Chafin said. “It’s al­most im­pos­si­ble to fol­low be­cause we ob­vi­ously have such a flow­ery def­i­ni­tion of char­ity,” he said. “And the Gen­eral Assem­bly has not worked to re­de­fine that.”

The Ohio Supreme Court by­passed an op­por­tu­nity to clar­ify the tax ex­emp­tion in 2010, Chafin said, when the court ruled that a West Ch­ester dial­y­sis clinic didn’t qual­ify. That was the same year the Illi­nois Supreme Court set the stage for the cur­rent tur­moil there, rul­ing that Provena Covenant Med­i­cal Cen­ter, Ur­bana, pro­vided too lit­tle free care to merit an ex­emp­tion. The opin­ion did not sug­gest a thresh­old for what amount of char­ity care is enough (April 12, 2010, p. 17).

Some gov­ern­ments and providers have in­stead turned to ap­proaches in which providers make vol­un­tary pay­ments in lieu of taxes, of­ten re­ferred to as PI­LOT. Not-for-profit or­ga­ni­za­tions pay an an­nual fee to help coun­ter­act the lack of prop­erty tax pay­ments.

Bos­ton’s PI­LOT seeks pay­ments from not-for-prof­its hold­ing more than $15 mil­lion worth of prop­erty in the city. The city re­cently re­ported im­proved re­sults af­ter re­vis­ing it last year with a re­bate of up to half of the vol­un­teered con­tri­bu­tion to re­flect com­mu­nity ben­e­fits. In fis­cal 2011, six par­tic­i­pat­ing med­i­cal in­sti­tu­tions paid $6.1 mil­lion. Ac­cord­ing to the newly re­leased fig­ures, 13 in­sti­tu­tions paid $4.2 mil­lion in the first half of fis­cal 2012. The city could have net­ted $188 mil­lion, mean­while, if the in­sti­tu­tions were taxed in fis­cal 2011.

Other cities that have PI­LOT pro­grams in­clude Bal­ti­more, New Haven, Conn., and Philadel­phia. All those cities have aca­demic in­sti­tu­tions own­ing large amounts of land, noted An­thony Flint, di­rec­tor of public af­fairs for the Lin­coln In­sti­tute of Land Pol­icy. Lin­coln, based in Cam­bridge, Mass., in 2010 re­leased a pol­icy fo­cus re­port on PI­LOT pro­grams.

Flint said gov­ern­ments and hos­pi­tals should work to­gether to en­sure any vol­un­teered con­tri­bu­tions don’t place a bur­den on op­er­a­tions, and must be on the same page when ac­knowl­edg­ing what a not-for-profit pro­vides to the com­mu­nity. Hos­pi­tals pro­vide com­mu­nity ser­vices that they of­ten feel are “counted” as part of their con­tri­bu­tion, Flint said.


Prentice Women’s Hospi­tal in Chicago had its prop­erty tax ex­emp­tion re­voked by the Illi­nois Rev­enue Depart­ment.

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