In a case of first impression, in a decision issued on Friday, June 26, the Tax Court of New Jersey invalidated the real property tax exemption of Morristown Memorial Hospital, a facility which is part of the Atlantic Health Care System. The town of Morristown had rejected the hospital's claims for property tax exemptions for the 2006, 2007 and 2008 tax years. The hospital had sought a continuation of its exemption as a nonprofit hospital for those tax years.
Under New Jersey law, generally only nonprofit entities are entitled to tax exemptions. While the Tax Court concluded that virtually the entire property was being used for an exempt purpose, i.e., a hospital use, the key issue was whether the health care activities at the hospital were being conducted for profit.
Following a trial, the court concluded that the hospital maintained relationships with a number of affiliated and unaffiliated for-profit entities, as well as owning all the stock in several for-profit professional corporations for physician practices. The employees of these entities were employed by the hospital, and the hospital provided loans termed "working capital" to these practices. There were also other for-profit affiliates, including an insurance company which maintained a line of credit guaranteed by the hospital.
Based on these and other facts, the court found that "By entangling its activities and operations with those of for-profit entities, the Hospital allowed its property to be used for a profit. This commingling of effort and activities with for-profit entities was significant, and a substantial benefit was conferred upon for-profit entities as a result."
The court also found that the hospital failed to meet its burden to establish the reasonableness of compensation paid to its executives, in contravention of New Jersey Supreme Court precedent, which requires that to maintain a tax exemption nonprofit salaries should be reasonable and not excessive. Moreover, the Tax Court found that physicians' contracts entered into by the hospital demonstrated a profit-making purpose. Hence, the court concluded that, with few exceptions, the town's denial of the hospital's property tax exemption was affirmed.The value of the hospital for property tax purposes was also challenged, and now that the exemption denial was affirmed, the town will have to defend the hospital's real property tax assessment, which approximates $63 million. The name of the case is AHS Hospital Corp. d/b/a Morristown Memorial Hospital v. Town of Morristown, Docket Nos. 010900-2007, 010901-2007 and 000406-2008. The decision has been approved for publication.
On January 11 and 12, Joy Harmon Sperling will be co-chairing the American Conference Institute’s 22nd National Forum on Residential Mortgage Litigation & Regulatory Enforcement.
The ABA Section of Taxation recently published its 21st Edition of The Property Tax Deskbook, which provides property tax managers, attorneys, accountants and other professionals the information they are most likely to need to address state property tax issues, planning and procedures.
Christopher Stracco and Kate Coffey wrote an article, "Can Use Variance Grants Be 'Reasonably Probable'?," for Law360. The article examines the significance of the case New Jersey Transit Corp. v. Franco.
Day Pitney Alert
Patrick McCarthy, Mary Rogers and Chris Stracco wrote an article, "What Will Become Of Jersey City's Tax Abatement Law?," in Law360. The article is about the significance of a ruling by Third Circuit in Associated Builders and Contractors Inc. v. City of Jersey City, 2016 U.S. App. Lexis 16654 (3d Cir., Sept. 12, 2016).
Day Pitney Press Release
Christopher Stracco was elected Treasurer of the New Jersey Interest on Lawyers Trust Accounts (IOLTA) by its Board of Trustees. IOLTA is a unique and innovative way to increase access to justice for individuals and families living in poverty and to improve our justice system. Stracco's term as Treasurer expires on February 28, 2017. Chris was appointed to the IOLTA Board of Trustees by the New Jersey Supreme Court in 2014.
On February 11, Christopher Stracco was appointed to the Board of Trustees of client Green Hill, Inc.
Chris Stracco was quoted in an article,"Will Veto Spark Litigation Over Nonprofit Hospitals' Tax Status?" in New Jersey Law Journal. In the article, Stracco discusses Governor Chris Christie's veto of S3299 in connection to the controversial New Jersey Tax Court decision of AHS Hospital v. Morristown. Stracco says the decision in the case, in which Morristown Memorial Hospital lost its tax-exempt status because it had for-profit business attributes, is unique. Given that case's uniqueness, he expects that the ruling and Christie's veto of S3299 will not likely result in a flood of nonprofit hospitals being hit with tax bills and suits to challenge them.
Christopher Stracco was quoted in an article, “Should hospitals pay property taxes?” in the Asbury Park Press. The story is about a recent tax ruling in New Jersey, in which a judge ruled that a hospital should have been assessed property taxes like any for-profit business. In the article, Stracco explains that nonprofit hospitals have received tax-exempt status, but if they lease out space to a for-profit business they are required to pay taxes.