charitable hospital exemptions william a. rodda, cae, res forsyth county tax assessor/collector

Charitable Hospital Charitable Hospital ExemptionsExemptions

William A. Rodda, CAE, RESWilliam A. Rodda, CAE, RES

Forsyth County Tax Assessor/CollectorForsyth County Tax Assessor/Collector

G.S. 105-278.8 (Machinery Act)G.S. 105-278.8 (Machinery Act)

• Real & personal property held for or Real & personal property held for or owned by a hospital organized and owned by a hospital organized and operated as a nonstock, nonprofit, operated as a nonstock, nonprofit, charitable institution shall be exempted charitable institution shall be exempted from taxation if actually and exclusively from taxation if actually and exclusively used for charitable hospital purposes.used for charitable hospital purposes.

G.S. 105-278.8 (Machinery Act)G.S. 105-278.8 (Machinery Act)

• If part of a property that otherwise meets If part of a property that otherwise meets the above requirements is used for a the above requirements is used for a purpose that would require exemption if purpose that would require exemption if the entire property were so used, the the entire property were so used, the valuation of the part so used shall be valuation of the part so used shall be exempted from taxation. exempted from taxation.

G.S. 105-278.8G.S. 105-278.8

• A charitable hospital purpose is a A charitable hospital purpose is a hospital purpose that has humane and hospital purpose that has humane and philanthropic objectives; it is a hospital philanthropic objectives; it is a hospital activity that benefits humanity or a activity that benefits humanity or a significant rather than limited segment of significant rather than limited segment of the community without expectation of the community without expectation of pecuniary profit or reward.pecuniary profit or reward.

G.S. 105-278.8G.S. 105-278.8

• The fact that a qualifying hospital The fact that a qualifying hospital charges patients who are able to pay for charges patients who are able to pay for services rendered does not defeat the services rendered does not defeat the exemption.exemption.

Case NotesCase Notes

• An applicant will not be rejected simply An applicant will not be rejected simply because it charges patients who are able because it charges patients who are able to pay for their services. (In re to pay for their services. (In re Foundation Health Systems, 1989).Foundation Health Systems, 1989).


• What is a Hospital? “…an institution for What is a Hospital? “…an institution for the reception and care of sick, wounded, the reception and care of sick, wounded, infirm, or aged persons…” (In re infirm, or aged persons…” (In re Foundation Health Systems, 1989).Foundation Health Systems, 1989).


• Nonprofit outpatient surgical center with Nonprofit outpatient surgical center with operating rooms designed to render operating rooms designed to render hospital services was a “hospital” (In re hospital services was a “hospital” (In re Foundation Health Systems, 1989).Foundation Health Systems, 1989).


• Hospital day care center which assists in Hospital day care center which assists in the recruitment and retention of hospital the recruitment and retention of hospital employees is entitled to exemption (In re employees is entitled to exemption (In re Moses Cone Memorial Hospital, 1995).Moses Cone Memorial Hospital, 1995).

G.S. 131A-21 (Medical Commission)G.S. 131A-21 (Medical Commission)• If bonds or notes are issued by the If bonds or notes are issued by the

Commission to provide or improve a Commission to provide or improve a health care facility, then until the bonds health care facility, then until the bonds or notes are retired, the facility for which or notes are retired, the facility for which bonds or notes are issued is exempt from bonds or notes are issued is exempt from property taxes to the extent provided in property taxes to the extent provided in this section.this section.

G.S. 131A-21 (Medical Commission)G.S. 131A-21 (Medical Commission)• Property may be exempt from property Property may be exempt from property

taxes as provided in this section if a taxes as provided in this section if a timely application for the exemption is timely application for the exemption is filed with the assessor of the county in filed with the assessor of the county in which the property is located as required which the property is located as required under G.S. 105‑282.1. under G.S. 105‑282.1.

G.S. 131A-21G.S. 131A-21• The property tax exemption under this The property tax exemption under this

section shall not exceed the lesser of the section shall not exceed the lesser of the original principal amount of the bonds or original principal amount of the bonds or notes or the assessed value for ad notes or the assessed value for ad valorem tax purposes of the facility. valorem tax purposes of the facility.

G.S. 131A-21G.S. 131A-21• If bonds or notes are issued to finance If bonds or notes are issued to finance

more than one health care facility, only more than one health care facility, only that portion of the principal amount of the that portion of the principal amount of the bonds or notes used to provide or bonds or notes used to provide or improve the particular facility, including improve the particular facility, including any allocable reserves and financing any allocable reserves and financing costs, may be considered for the purpose costs, may be considered for the purpose of determining the amount of the of determining the amount of the exemption allowable under this section. exemption allowable under this section.

G.S. 131A-21G.S. 131A-21• The exemption authorized by this section The exemption authorized by this section

shall begin with the first full tax year of shall begin with the first full tax year of the taxpayer following the issuance of the the taxpayer following the issuance of the bonds and notes. This section does not bonds and notes. This section does not affect a health care facility's eligibility for affect a health care facility's eligibility for a property tax exemption under a property tax exemption under Subchapter II of Chapter 105 of the Subchapter II of Chapter 105 of the General StatutesGeneral Statutes..

G.S. 105-282.1G.S. 105-282.1• Application – Every owner of property Application – Every owner of property

claiming exemption or exclusion from claiming exemption or exclusion from property taxes under the provisions of property taxes under the provisions of this Subchapter has the burden of this Subchapter has the burden of establishing that the property is entitled establishing that the property is entitled to it. to it.

G.S. 105-282.1G.S. 105-282.1• Annual Review of Exempted or Excluded

Property. – Pursuant to G.S. 105‑296(l), the assessor must annually review at least one‑eighth of the parcels in the county exempted or excluded from taxation to verify that the parcels qualify for the exemption or exclusion.

TipsTips• Who is the owner of the property?Who is the owner of the property?

– Owned by a nonstock, nonprofit Owned by a nonstock, nonprofit charitable hospital charitable hospital

– Exemption by IRS under Section 501(c)(3) Exemption by IRS under Section 501(c)(3) is not the sole determining factor!is not the sole determining factor!

• What do they do?What do they do?– “…“…an institution for the reception and care an institution for the reception and care

of sick, wounded, infirm, or aged of sick, wounded, infirm, or aged persons…”persons…”

TipsTips

• What do they do?What do they do?– Is there an emergency room?Is there an emergency room?

– Do they perform actual surgical Do they perform actual surgical procedures?procedures?

– Do they treat “sick, wounded, infirm or Do they treat “sick, wounded, infirm or aged” people?aged” people?

– Leasing space or treating patients?Leasing space or treating patients?

TipsTips

• Does the facility have a charity Does the facility have a charity care policy?care policy?

– Self executing?Self executing?

– Application required? Other Application required? Other obstacles?obstacles?

• Does the facility truly accept Does the facility truly accept anyone without regard to their anyone without regard to their ability to pay?ability to pay?

TipsTips

• Are the prices charged for the Are the prices charged for the uninsured patient the same as uninsured patient the same as charges for insurance plans, charges for insurance plans, Medicare and Medicaid?Medicare and Medicaid?

• Does the facility accept Medicare Does the facility accept Medicare and Medicaid?and Medicaid?

TipsTips

• What was the amount of actual What was the amount of actual charity care provided by the charity care provided by the facility?facility?

– What is “charity care”?What is “charity care”?

““Charity Care” according to IRSCharity Care” according to IRS

“ “free or discounted health services free or discounted health services provided to persons who meet the provided to persons who meet the organization’s criteria for financial organization’s criteria for financial assistance and are thereby assistance and are thereby deemed unable to pay for all or a deemed unable to pay for all or a portion of the services”portion of the services”

““Charity Care” according to IRSCharity Care” according to IRS

• Does not include:Does not include:

– Bad debtBad debt

– Difference between the cost of Difference between the cost of Medicaid and Medicare and the Medicaid and Medicare and the revenue derived therefromrevenue derived therefrom

– Contractual adjustments with third-Contractual adjustments with third-party payersparty payers

TipsTips

• Many of these question will be Many of these question will be answered by the IRS form 990 and answered by the IRS form 990 and accompanying Schedule H.accompanying Schedule H.

– Schedule H is required effective in Schedule H is required effective in 2009.2009.

• www.guidestar.orgwww.guidestar.org

Wake Forest University Baptist Wake Forest University Baptist Medical CenterMedical Center

Forsyth Memorial HospitalForsyth Memorial Hospital

Medical Park HospitalMedical Park Hospital

Downtown Health PlazaDowntown Health Plaza

Hawthorne Surgical CenterHawthorne Surgical Center

Salem Family PracticeSalem Family Practice

AegisAegis

Piedmont PlazaPiedmont Plaza

Hawthorne InnHawthorne Inn

Policy ConsiderationsPolicy Considerations

• Should a clear, concise definition for Should a clear, concise definition for “charitable hospital” and “charitable “charitable hospital” and “charitable hospital purpose” be developed?hospital purpose” be developed?

• Should a minimum level of charity care Should a minimum level of charity care (5 to 10% of revenues) be required for (5 to 10% of revenues) be required for exemption?exemption?

Policy ConsiderationsPolicy Considerations

• Should local hospitals assist in covering Should local hospitals assist in covering the costs of local ambulance services, the costs of local ambulance services, police and fire protection?police and fire protection?

• Should the “medical commission bond” Should the “medical commission bond” exemption be repealed?exemption be repealed?

Charitable Hospital Charitable Hospital ExemptionsExemptions

William A. Rodda, CAE, RESWilliam A. Rodda, CAE, RES

Forsyth County Tax Assessor/CollectorForsyth County Tax Assessor/Collector