Policy Analysis | December 2020
Hospital Property Tax Exemptions in SLC States
The United States has an estimated 6,146 hospitals operating across the country, of which 85 percent are community, or public, hospitals. More than half of all community hospitals are nongovernmental non-profits, with the remaining balance split between investor-owned for-profit and state and local government-owned hospitals.1
Across the SLC region, states have enacted myriad policies governing the levying of property taxes on hospitals – whether blanket exemptions for all nonprofits or more targeted exemptions for specific hospitals and systems. Of note, Alabama is the only state in the SLC region to offer a statutory property tax exemption to for-profit providers with specific criteria and requirements.
Florida enacted legislation during the 2020 session to limit the property tax exemption of nonprofit hospitals up to the level of community benefit they provide, along with stricter reporting requirements.
According to Alabama Code, real or personal property used exclusively for nonprofit hospital purposes is exempt from property taxation.2 Under the same code, for-profit hospitals may qualify for a partial ad valorem tax exemption, up to $75,000 of assessed value, provided the hospital certifies its treatment of charity patients constitutes at least 15 percent of its services.3
The two applicable statutes also exempt a group of specific nonprofit hospitals and systems from state, county and local ad valorem property tax collections which are: Stringfellow Memorial Hospital, Community Health Systems Inc. and Walker Regional Medical Center.4,5
Pursuant to the state constitution, hospital buildings and grounds used exclusively for public charity are exempt from property tax. Court rulings have specified that to qualify for these exemptions, hospitals must be open to the general public, provide services to patients regardless of ability to pay and reinvest profits to fund further charity care.6,7 A recent court case, decided by the state Supreme Court in October 2019, expanded this exemption to also include the land on which a hospital system operates outpatient clinics – as long as the aforementioned charity standards are met.8
Only hospitals registered as not-for-profit Florida corporations, which also qualify as federally exempt 501(c)(3) organizations, are qualified for the charitable exemption to property tax assessment.9 Statutes do not allow the exemption of portions of hospital property leased as parking areas and operated by private businesses from property taxes.10
On April 8, 2020, Governor Ron DeSantis signed House Bill 7097 (2020) – effective January 1, 2022 – which establishes certain community benefit reporting requirements for hospitals that apply for property tax exemptions. The legislation limits a hospital's property tax exemption to the amount of community benefit that it provides.11
Only nonprofit hospitals are exempt from property taxes, per state statutes, as long as they are open to the general public; have no stockholders; distribute no income or profits to the benefit of an individual; and are subject to the state laws governing nonprofit and/or charitable organizations.12
Nonprofit hospitals are exempt from property taxes under the "pure public charity" designation in the state Constitution.13
According to the state Constitution, nonprofit hospitals are exempt from ad valorem taxation as long as no net profits are distributed for the benefit of any private shareholder and the hospital qualifies for an exemption from federal or state income tax.14
Nonprofit hospitals are exempt from property taxation subject to the maintenance of one or more charity wards for low-income or uninsured patients.15
State statutes exempt real and personal property held exclusively for charitable purposes from property taxation. For nonprofit hospitals to qualify under this statute, they must not be held for private or corporate profit or be used as an investment.16
State law exempts nonprofit hospitals from real and personal property taxation if used for charitable hospital purposes. Charitable purposes are defined as humane and philanthropic objectives benefiting humanity or a significant portion of the community without the expectation of profit or reward.17
Nonprofit and charitable hospitals are exempt from state property taxes if their property is used directly, solely and exclusively within the state for charitable purposes and no income inures to private benefit. Additionally, they must serve and be open to the general public without discrimination and regardless of a patient's ability to pay.18
The property of charitable institutions - including hospitals and institutions caring for the infirmed, handicapped, aged, children and indigent patients – is exempt from ad valorem taxation as long as its profits are not applied to private use.19,20
Nonprofit hospitals, as charitable institutions, are exempt from state property taxation on any property that is used in carrying out its exempt purposes – including parking facilities, but not including unoccupied hospital property under construction.21
The property of private act hospitals – those owned or operated by one or more local government(s) and/or created by an act of the General Assembly – also are exempt from property taxation if they meet certain requirements. Specifically, the property within the boundaries of the political subdivision which created the hospital is exempt; outside property may be exempt only if it meets the same standards required for charitable hospitals.22
Nonprofit hospitals are exempt from property taxes if they meet statutorily required charity care and community benefits requirements. 23 Specifically, hospitals or hospital systems must meet at least one of the following requirements:
- Provide charity care, government-sponsored indigent care and community benefits at one of the following levels:
- At a reasonable level in relation to a community needs assessment, the available hospital resources and the tax-exempt benefits received by the hospital or system;
- In an amount equal to at least 4 percent of the hospital or system's net patient revenue;
- In an amount equal to at least 100 percent of the hospital or system's tax-exempt benefits, excluding federal income tax; or
- In a combined amount equal to at least 5 percent of the hospital or system's net patient revenue, provided charity and government-sponsored indigent care is provided in an amount equal to at least 4 percent of net patient revenue;
- Be designated as a disproportionate share hospital under the state Medicaid program;
- Operate on a nonprofit basis in a county with a population of less than 58,000, and in which the county has been designated as a health professionals shortage area; and/or
- Provide medical care to patients regardless of the ability to pay.24
Property belonging to – and actively and exclusively occupied and used by – a nonprofit hospital is exempt from real and personal property taxation.25
Nonprofit hospitals are exempt from property taxation under the state's charitable purpose designation. Specifically, property belonging to any hospital not held or leased under for-profit purposes qualifies for the exemption.26
For purposes of a hospital ad valorem exemption, charitable purpose is defined as meeting any one or more of the following:
- Providing healthcare to patients unable to pay in a volume and frequency determined by the hospital board of trustees, as articulated in the charity care plan of the hospital; and/or
- Providing healthcare to promote the health of the community it serves and/or decrease the burden on state, county and municipal governments.27
1 "Fast Facts on U.S. Hospitals, 2020," American Hospital Association, July 24, 2020. https://www.aha.org/infographics/2020-07-24-fast-facts-infographics.
2 Alabama Code, Section §40-9-1(1).
3 Alabama Code, Section §40-9-1(2).
4 Alabama Code, Section §40-9-1.1.
5 Alabama Code, Section §40-9-29.
6 Arkansas Constitution, Article 16 §5(B).
7 Arkansas Code Annotated, §26-3-301.
8 "Are Hospital Clinics Tax Exempt in Arkansas? Court of Appeals Weighs in on the Bounds of the Public-Charity Tax Exemption," Mitchell, Williams, Selig, Gates & Woodyard PLLC, October 28, 2019. https://www.jdsupra.com/legalnews/are-hospital-clinics-tax-exempt-in-49317/.
9 Florida Statutes, §196.196.
10 Florida Statutes, §196.197.
11 Florida House Bill 7097 (2020).
12 Official Code of Georgia Annotated, §48-5-41.
13 Kentucky Constitution, §170.
14 Louisiana Constitution, Article VII §21.
15 Mississippi Code Annotated, §27-31-1(f).
16 Missouri Revised Statutes, §137.100(5).
17 North Carolina General Statutes, §105.278.8.
18 Oklahoma Statutes, Title 68 §2887(10).
19 South Carolina Constitution, Article X §3(b).
20 South Carolina Code, §12-37-220(A)(2).
21 Tennessee Code, §67-5-212(a)(1).
22 Tennessee Code, §67-5-209.
23 Texas Tax Code Annotated, §11.18(d)(1).
24 Texas Tax Code Annotated, §11.1801.
25 Virginia Code, §58.1-3606(A)(5).
26 West Virginia Code, §11-3-9(a)(12) and (17).
27 West Virginia Code of State Rules, 110-3-24.2.