Ohio Supreme Court rejects “quantity of charity care” argument in property tax exemption case
On June 15, 2017, the Ohio Supreme Court issued a decision overturning a decision of the Board of Tax Appeals in part and finding that a nonprofit dialysis center owned by a hospital did not need to meet a “quantum of charity care” test to achieve exemption from property taxes. All but one justice joined in the majority holding.
While this case is consistent with prior rulings on this issue, it is significant in rebuffing attempts by the Tax Commissioner to impose a quantity of charitable care test on health care providers. In this case, Miami Valley Hospital bought out physician investors in the Dialysis Centers of Dayton (DCD) in August 2006. Later, DCD sought property tax exemption for both 2006 and 2007, arguing its use of the property was public and charitable. The Tax Commissioner initially denied the tax exemption after asking DCD to quantify the amount of charitable care it provided to those who could not pay. DCD provided free care to about 28 percent of its total patients. The commissioner held that this was insufficient, maintaining that DCD was providing no more than “minimal charitable care” and, therefore, was not entitled to a charitable exemption.
The Board of Tax Appeals affirmed the Tax Commissioner’s decision. The Ohio Supreme Court affirmed it for purposes of 2006, since DCD still had physician investors during that year, but reversed the decision beginning with 2007. The Court held that nonprofit-owned medical properties qualify as charitable as long as medical services are “provided on a nonprofit basis to those in need, without regard to race, creed, or ability to pay.” Such properties remain entitled to exemption, even if a “substantial amount”in this case, approximately 72percent—of care was paid for by patients who pay through insurance or federally funded health programs.
Importantly, this decision affirms the notion that nondiscrimination, rather than quantum of charitable care, is the criterion for charitable-use exemption. In following a prior Supreme Court ruling in another dialysis clinic case from 2010, the Court held that “[a] crucial factor in the charitable status of property use is whether a facility is open to serve the general public—or to that part of the general public that has a special need—in order to meet the needs of that whole segment of the public.” As a result, the amount of free care DCD provided was not relevant to determining whether it was entitled to the exemption. Instead, the Court focused on whether DCD provided free care in a nondiscriminatory manner and whether DCD’s centers were open to serve the general public. Specifically, the Court held that DCD’s attempt to have others pay for patient care through insurance or otherwise was a “prudent and diligent use of charitable assets” and that the commissioner’s focus on the amount of charitable care provided diverged from well-established precedent.
The Court also held that portions of the DCD space that was leased for private physician offices were not eligible for exemption.
This is a good decision for nonprofit hospitals and health care providers, as it confirms that proof of the specific level of unreimbursed patient care is unnecessary when seeking exemption from property taxation. In addition, it supports the proposition that charitable status will not be destroyed simply because some patient care is paid for by government or private insurance programs.
Given that the Court’s composition has changed since its last decision on the issue, this outcome is particularly reassuring and suggests that the Court will adhere to its prior, favorable precedent.
This is for informational purposes only. It is not intended to be legal advice and does not create or imply an attorney-client relationship.Download PDF