Nonprofit Hospital Real Estate Potentially Exempt from County Property Taxes | Mitchell, Williams, Selig, Gates & Woodyard, LLC
Check the IRS by verifying your parcel usage
Naturally, most hospital accounts payable services are good for paying bills that come in the mail. However, when it comes to paying bills from the county tax collector, Arkansas nonprofit hospital accounts payable departments must pause briefly before issuing payment. Indeed, chances are that a tax bill for property taxes is a tax bill that a nonprofit hospital in Arkansas does not owe.
For the reasons detailed below, Arkansas nonprofit hospital accounts payable departments would do well to stop and double-check at which specific lot (e.g., a specific area of real estate similar to a lot defined) the invoice is for and if this parcel is used exclusively for its hospital operations and if certain other legal requirements are met. If all the conditions are met, it is time for the hospital to contact the county assessor in an effort to have the parcel removed from the taxable list and placed on the county’s exempt property list.
Arkansas has a long history of exempting nonprofit hospitals from county property taxes. This exemption comes from the Arkansas Constitution itself. Section 16, § 5(b) of the Arkansas Constitution of 1874 provides for the exemption from taxation of all “buildings, lands, and materials used exclusively for public charity”. This constitutional provision was first recognized as applicable to hospitals in 1893. It was the nuns Sisters of Mercy of Hot Springs who, in 1907, first obtained an exemption under Section 16, § 5(b) of the Arkansas Constitution for a hospital they operated. and which had 24 beds for “charity patients” and other beds for “paying patients.”
A recent reaffirmation of the property exemption held by the Sisters of Mercy case happened in 1988, and he actually applied his hospital exemption standard not to a hospital but to a mental health counseling facility. In Sebastian City. Equalization bd. against W. Ark. Counseling & Guidance Ctr., Inc.296 Ark. 207 (1988), the Arkansas Supreme Court summarized the hospital exemption standard first established by the Sisters of Mercy hospital case:
property of a voluntary and charitable organization used as a hospital may be constitutionally exempt from taxation if (1) it is open to the general public, (2) no one may be denied services due to inability to pay, and (3) all profits from patient payment are applied to the maintenance of the hospital and the extension and enlargement of its charity.
Here is a checklist of what an Arkansas nonprofit hospital should do when it receives a tax bill for a piece of real estate it owns or leases for more than ten (10) years:
The first step
Confirm whether your hospital meets the three operational requirements described in the Sebastian County Case:
- is the hospital open to the general public?
- is it hospital practice that no one is denied services due to inability to pay?
- Are all profits from payment of patients applied to the maintenance of the hospital and the extension and enlargement of its charity?
Note that the second requirement is separate from whether or not a patient may be eligible (after services have already been provided) for a reduction or cancellation of a hospital bill under the policy. financial aid from a hospital. The second requirement relates to whether the provision of medical care is conditional, at the outset, on the hospital determining its ability or inability to pay. The authors are not aware of any hospital that uses such a litmus test.
If the three operational requirements discussed in the Sebastian County cases are met, then determine whether the specific plot on which property taxes were levied is directly used for hospital operations. This issue relates to the “used . . . for” requirement under Section 16, § 5(b) of the Arkansas Constitution. For example, land that a hospital leases or leases to private parties, such as neighboring homes and commercial buildings that generate rental income for the hospital, are unlikely to qualify for exempt status because they are not directly used for hospital operations. future hospital development could be safely classified as non-exempt as they are not directly used for hospital operations. However, the tax-exempt status of undeveloped plots has been called into question by a recent development in the law, and so if a hospital wishes to apply for tax-exempt status for undeveloped plots, they may do so but may s expect resistance and will probably need to involve a lawyer. On the contrary, parcels used for hospital parking lots, hospital maintenance or storage, hospital clinics or the staging of hospital helicopters or ambulances should all meet the direct use requirement.
If it is confirmed that the specific plot from which property taxes were levied is used directly for hospital operations, then determine whether alone the hospital is using the plot or if other non-hospital users are also using the property. This issue relates to the requirement of “exclusivity” under Section 16, § 5(b) of the Arkansas Constitution. To qualify for exempt status under the Arkansas Constitution, the property must be used “exclusively” for public charity. This means that if other non-hospital uses are made of the property, it may not be subject to reduction for exempt status. For example, if two floors of a four-story hospital clinic are occupied by physicians and medical professionals affiliated with the hospital, but the other two floors are leased to a group of private physicians for its use, the parcel will likely not be eligible for exempt status. . Similarly, if retail cafes and flower shops rent and occupy the ground floor of a hospital building, the plot will likely not qualify for exempt status. On the other hand, if a hospital allows another company to install vending machines for profit in its four-story office building occupied solely by doctors and health care professionals employed by the hospital or if it rents to the public on occasion the auditorium of the building, such de minimus income is not likely to destroy eligibility for exempt status.
If the specific parcel from which property taxes were levied is expected to meet all of the requirements outlined in Steps 1-3, the next step is to compare the parcel to other similarly located parcels. Online tools to find all nearby parcels can be found at Data Scout (https://www.actdatascout.com/) and AR County Data (https://www.arcountydata.com/index.asp). You may find that other similarly located packages have been correctly classified as exempt and the assessor has simply erred and omitted the particular package for which an invoice was sent. If so, it could be something as simple as a phone call to the assessor’s office to cause the classification of the package to be exempted to be corrected and the tax account received to be reversed.
On other occasions, you may find that your county assessor insists that the hospital complete and deliver a sworn waiver application documenting its satisfaction with all of the requirements outlined above. See page 28 of the Evaluator’s Guide here. Given its formality, it is prudent to have the hospital attorney review such a request and its attachments before submitting it.
If things can’t be resolved by working with the appraiser’s office, litigation is your next step. Since these are county taxes, the lawsuit must first be filed in county court and decided by the county judge. If either party doesn’t like the decision, they can appeal to the County Circuit Court and, ultimately, to the Arkansas Supreme Court.
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Modern non-profit hospitals often occupy large campuses spread over several acres of land and are composed of a multitude of buildings housing various hospital and clinical departments. Hospitals often purchase adjoining land and buildings over a period of time as they become available, which to hospital staff may be considered a “campus”, while county tax records may reflect a patchwork of different land . Such a campus could be made up of dozens of separate parcels registered with the county assessor’s office. A single property tax bill for a single plot used for hospital purposes may not be worth much thought, but a handful of such erroneous bills, paid year after year by a nonprofit hospital, are likely to add up. to a considerable amount of money at the door. Care should be taken to investigate all county tax bills that reach a nonprofit hospital to determine which may relate to properties that Arkansas law considers tax-exempt.
 Brodie vs. Fitzgerald57 Ark. 445 (1893).
 Hot springs Sch. Dist. v. Sisters of Mercy of Little Rock Women’s AcademyArk., 84 Ark. 497 (1907).
 Tax exemptions based on public charity were granted when evidence showed varying percentages of patients who ultimately turned out to be charity patients. See, for example, Sebastian County.296 Ark. at 211, 752 SW2d at 758 (35% of patients were seen without charge); Burgess v. Four Member States. Hospital., 250 Ark. 485, 489, 465 SW2d 693, 694 (1971) (“only three charity patients were treated in hospital”)
 Hardesty v. N. Ark. Med. Servs., Inc., 2019 Ark. App. 410, 2, 585 SW3d 177, 179 (2019) (vacant lot was deemed exempt).
 Robustness, 2019 Ark. App. 410, 2, 585 SW3d 177, 179 (excluding parcels used for clinic buildings and parking lots located across from the main hospital campus).
 Sebastien Cty., 296 Ark. at 211.
 Robustness, 2019 Ark. App. 410, 2, 585 SW3d 177, 179 (there was no doubt that the main hospital itself and the adjoining lots and facilities were already considered tax-exempt and later acquired by the hospital).