Morristown Memorial Hospital: The Nonprofit Property Tax Exemption Debate

• In Event: 3.02 Government Research Concurrent Session: Healthcare (Gov't & NPO) & Other - Cases

Abstract

This case highlights the changing role of nonprofit organizations and their relationship to their tax-exempt status and the communities they serve. Historically, nonprofit hospitals justified their tax-exempt status by meeting community health needs. However, over the years, to provide efficient and cutting-edge services, hospitals have evolved to include partnering with for-profit organizations to obtain the financial and technical resources necessary to provide state-of-the-art care. Unfortunately, these arrangements have raised issues regarding the tax-exempt status of nonprofit hospitals, making them an increasing target of property tax exemption challenges by cash-strapped municipalities.

That is precisely the case when in 2015, the Tax Court of New Jersey ruled that Morristown Memorial Hospital (“Hospital”) was not entitled to tax exemption on nearly all its property in the Town of Morristown. In the ruling, the judge pointed to a complex structure in which nonprofit and for-profit interests were inextricably intertwined, noting the Hospital essentially functioned as a for-profit business. The Court held that if it is true that all nonprofit hospitals operate like the Hospital in this case, then modern nonprofit hospitals are essentially legal fiction for purposes of the property tax exemption.

Students debate the changing nature of nonprofit healthcare organizations and the legitimacy of their tax exemption regarding their market behavior and formulate appropriate strategies to mitigate property tax exemption challenges.

Authors

• Michele McGowan, King's College

• Joseph Lohin, King's College

• Barry Williams, King's College