New Jersey Wants Tax-Exempt Hospitals to Pay Host Towns

Legislators take aim at ‘nonprofit’ institutions with for-profit businesses on site

New Jersey’s nonprofit hospitals, which are traditionally exempt from paying taxes, would have to make payments to their host communities to cover the cost of municipal services under a new bill making its way through the state legislature, according to a report from BloombergBusiness.

Lawmakers are responding to a June court ruling that found that the 40-acre Morristown Medical Center owed local property taxes because of “blurred lines” between its nonprofit and for-profit businesses. The 687-bed hospital’s owner agreed to pay the town $15.5 million over the next decade.

The decision opened the door for other municipalities that host nonprofit businesses, including hospitals and universities, to challenge their tax-exempt status. Hospitals in Illinois, Pennsylvania, and Iowa also have come under scrutiny as towns struggle to balance budgets.

The judge who issued the Morristown ruling is also presiding over a lawsuit against Princeton University. Residents are challenging the university’s tax-exempt status because it collects drug-patent royalties that it shares with faculty.

Democratic New Jersey Senator Joseph Vitale is co-sponsoring a bill that would establish a payment formula for nonprofit hospitals that have for-profit businesses, such as doctor groups. The legislation would obligate the hospitals to make “community service contributions” of $2.50 per bed per day to host municipalities to defray costs such as police, fire, and ambulance crews. Many poor, inner-city hospitals or those deemed money-losing by the state would be exempt under the bill, which passed a Senate committee this month.

In New Jersey, property taxes make up almost all of the local revenue used to fund town, county, and school budgets. While hospitals can serve as a community’s economic anchor, the towns –– and their residents –– are footing the bill for the cost of services, such as police and fire.

Source: BloombergBusiness; December 28, 2015.