Legislation “Solves” Property Tax Issue For Hospitals

by: Anthony F. Della Pelle
25 Feb 2021

More than five years after a landmark decision by the New Jersey Tax Court that threatened the local property tax exemption enjoyed by non-profit hospitals, the State has finally acted.  Under a bill signed by Governor Murphy this week, those hospitals will retain their tax-exempt status but will make a “community service contribution” toward the cost of local police, fire and other services.  The enactment of this law is the ended several years of litigation between towns and hospitals and intense lobbying over various legislative solutions.

Hospital Tax Exemption Ruling

In AHS Hospital Corp., dba Morristown Memorial Hospital v. Town of Morristown, 28 N.J. Tax 456 (Tax Ct. 2015), the Town denied the hospital’s property tax exemption leading to a challenge by the hospital.  There, the court found that the majority of the hospital facility operated as a for-profit enterprise and upheld the denial of the exemption on all but a few areas of the hospital’s facilities.  Six months after that decision, the two sides settled with an agreement for a payment by the hospital of $15.5 million over a 10-year period.

Not unexpectedly, the Morristown decision regarding the hospital tax exemption resulted in a wave of similar litigation with more than three dozen actions filed.  While about 20 of those matters settled similar to the Morristown agreement, more than one dozen appeals remained.

Shortly after the Morristown decision, the New Jersey Legislature jumped into the fray with legislation introduced in December 2015 to maintain property tax exemptions but requiring those hospitals to pay a community service contribution.  A bill passed by both houses in January 2016, but was “pocket vetoed” by then-Governor Christie.  At the time many observers believed Governor Christie’s refusal to sign the bill was the result of insufficient time to vet all of the issues associated with this critical policy change.  The same bill was reintroduced in the following session and each one thereafter.

It seems the “vetting” is complete and the bill enacted requires a community service contribution in the amount of $3 per day for each hospital bed and $300 per day for each satellite emergency care facility.  Those payments will increase by 2 percent annually.    The also provides 5% of such payments are to be turned over to the county.

As to the existing settlement agreements, the new law requires the hospital pay to pay the greater of the amount established therein or the settlement amount (for the duration of that agreement).

A copy of the new law may be found here.