New Jersey Governor Chris Christie has announced an agreement that places a two-year delay on the imposition of property taxes on New Jersey’s nonprofit hospitals. The agreement preserves the real property tax exemption for New Jersey’s sixty-two (62) nonprofit hospitals until January 1, 2018. In the meantime, the governor will be working with legislators and other stakeholders to try to resolve the exemption issue, including through the formation of a Property Tax Exemption Study Commission to conduct a comprehensive study of exemptions for all nonprofits in the state.
The issue flared up last year when the New Jersey Tax Court revoked the property tax exemption of a nonprofit hospital in Atlantic Health Systems v. Morristown, finding that the hospital operated like a for-profit hospital, largely on the basis that it entangled its activities and operations with those of for-profit entities, provided subsidies in the form of loans to for-profit entities, paid its executives excessive salaries and used the property at issue substantially for profit. The decision ultimately contributed to the enactment by the state legislature of legislation, pocket vetoed by the governor, that would have required nonprofit hospitals with for-profit medical providers to make community contributions to retain its property tax exemption.
Property tax exemption of nonprofit hospitals, private colleges and universities, and other nonprofit organizations is currently a hot topic in states across the country. Real property taxes are a significant economic benefit to many nonprofits, and in some cases, are more valuable than income tax exemption. Nonprofits and their advisors should continue to be on alert as further administrative, legislative and judicial developments occur.
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