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Hospital's tax ruling could have ripple effect

Thursday, July 2, 2015   (0 Comments)
Share | 07/02/15

A ruling in state tax court that has taken away the property-tax exemption of a major medical center because it operates more like a for-profit business than a charitable institution could have implications for other non-profit hospitals around the state if the municipalities that host them seek to collect property taxes. Judge Vito Bianco declared in a closely watched opinion that Morristown Medical Center failed “to qualify for property tax exemption” for three years beginning in 2006. The case has been in the court system for the better part of a decade. It is unclear how the ruling applies to later years.

“For purposes of the property tax exemption, modern non-profit hospitals are essentially legal fictions,” Bianco wrote, saying that it was time for the Legislature — and not the courts — to set a new standard for such an exemption. The tax code that provides hospitals with property-tax exemptions was written in 1913. “He’s reversing 100-some years of tradition in the state of New Jersey,” said Frank Ciesla, who represents hospitals as head of the health law practice at Giordano, Halleran & Ciesla. For most municipalities, “this is obviously a potentially huge source of revenue,” he said. “I’ve got to believe that if this was sustained, the hospital would be largest ratable in many communities.”

Local governments are taking a wait-and-see approach to the prospect of new tax revenues, said Michael J. Darcy of the New Jersey League of Municipalities. “The smart folks are saying, let’s see how this finally plays out,” Darcy said. “Wait until the ruling is really finalized, then take that and have a conversation with your local hospital. “It’s important for everyone in the community to contribute to the tax base,” Darcy said. “The bills have to be paid to pick up the trash and clean the streets. Whatever is not being contributed by a non-profit has to be picked up residents and commercial entities.”

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