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June 29, 2015

Ruling Could Mean Millions in Taxes for N.J. Hospitals

In a decision that could cost New Jersey nonprofit hospitals millions of dollars, a tax court judge has ruled that the town of Morristown can assess property taxes on a medical center local officials said effectively operated as a business, NJ Spotlight reports.

Judge Vito Bianco said it was impossible to disentangle nonprofit and commercial finances and services at Morristown Medical Center, which hosts services by both its own doctors and self-employed physicians with for-profit practices.

The judge also cited a former hospital CEO's compensation of $12.5 million over three years in siding with Morristown officials who have long sought to tax the medical center. "Clearly, the operation and function of modern nonprofit hospitals do not meet the current criteria" for tax-exempt status, he wrote. Atlantic Health System, the hospital's parent organization, said it was evaluating appeal options.

The ruling was condemned by the New Jersey Hospital Association but praised by Mike Cerra of the New Jersey State League of Municipalities, who said it could be "a significant victory down the road for other municipalities who face the same issues" with nonprofit medical facilities. State Assemblyman Herb Conaway Jr., a physician, said the legislature might explore measures to enshrine hospitals' tax exemptions, as Illinois leaders did in 2012 after courts there revoked one institution's tax break.