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New Jersey nonprofit hospitals could face new community tax

Newly introduced legislation would institute 'Community Service Contributions' to help cover municipal service.

Beth Jones Sanborn, Managing Editor

New Jersey's Capitol building. Image via <a href="">Wikipedia</a>.New Jersey's Capitol building. Image via Wikipedia.

New Jersey's 63 nonprofit hospitals are facing millions in new municipal fees called "Community Service Contributions" each year if bipartisan legislation co-sponsored and just introduced by State Sens. Robert Singer, Steve Sweeney and Joseph Vitale becomes law.

The bill was crafted as part of the fallout from a June ruling by the New Jersey tax court, which found that Morristown Medical Center, though listed as a nonprofit for federal tax purposes, had over time morphed into a facility that was operating more like a for-profit organization. They will be paying roughly $5 million dollars in back taxes related to the years 2006-2008 to the municipality of Morristown over the next decade.

Under the new legislation, which was just proposed Monday, nonprofit hospitals would pay $2.50 per day for each hospital bed in the prior year, as well as $750 per day for each "Satellite Emergency Care" facility. Financially strapped hospitals that do not make money, sometimes called "safety net hospitals" could apply for an exemption.

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[Also: Atlantic Health loses tax case, spurs worry over nonprofit healthcare]

Senator Singer, R-Ocean, said they were looking to strike a balance between compensating municipalities for the use of local services like police, fire and rescue, and protecting the survival of nonprofit hospitals, especially from being stripped of their nonprofit status and having exorbitant tax judgements levied against them.

"Hospitals were, based on that decision, losing their nonprofit status and being taxed as for-profit entities. You're dealing with an industry that is subsidized through the state, through charity care, over a hundred million dollars a year," said Singer, "and you turn around and create a tax situation where the money given to them for charity would end up going just to pay taxes. It certainly isn't the intent of the state or the intent of the people of the state to cripple or put hospitals out of business so what we try to do is find a compromise."

There is some ambiguity in how the math would work out, as the number of hospital beds can fluctuate and, according to Singer, any voluntary contributions hospitals make to the community would be figured into the final numbers.

[Also: New Jersey nonprofit hospitals doled out $2.4 billion in community benefits in 2013]

New Jersey Hospital Association President and CEO Betsy Ryan said it's too early for them to take an official position on the bill.

"The devil is always in the details. The bill does have a provision for what I would call financially challenged hospitals to pursue an opt-out if the tax would put them over the edge if you will. So that's a positive as well but it's too soon to tell."

Singer said the bill is being rushed forward, and a vote in both houses of the New Jersey State Legislature is expected on Dec. 17, hopefully reaching the governor's desk that same day. Singer said if the bill isn't passed soon, come January first local tax assessors will start assessing hospitals, and the only way to question or appeal their findings is if they pay first, which could mean millions of dollars.

Despite her cautious approach to the bill itself, Ryan pointed out NJHA had been keeping an eye on the issue after the Morristown decision and was already looking for a solution.

"The judge in the decision said this was an issue that needed to addressed by NJ legislature. And the decision has created great uncertainty in our state. So it's actually a proposed solution to a problem."

However, Ryan said, certain provisions must be in the final draft of the bill to get the NJHA stamp of approval. She said the bill must recognize community benefit already provided, needs to clearly state that nonprofit hospitals are exempt from local property taxes, provide an opt-out for financially challenged institutions, and finally, protect hospitals from any further legal challenges.

"That's a big concern because ultimately if we sign on to pay an additional assessment, we don't want it to be challenged. We need some protection," said Ryan.

Twitter: @BethJSanborn