Lawsuit seeks to block tax breaks for nonprofit hospitals

By: - September 30, 2021 7:00 am

HackensackUMC at Pascack Valley in Westwood (Photo by Michael Loccisano/Getty Images)

A progressive group and a teacher’s union have lodged a lawsuit seeking to strike a recent law that exempts nonprofit hospitals from taxation regardless of whether they host for-profit activities.

The suit filed by New Jersey Citizen Action, the American Federation of Teachers, their leaders, and two New Jersey residents Tuesday seeks to undo a law the plaintiffs claim runs afoul of multiple provisions of the state constitution.

“My attitude at this point is call a spade a spade,” said Renée Steinhagen, counsel for the plaintiffs. “You’re either a for-profit hospital or not. If I was really being nasty, I would have gotten for-profit hospitals to join this lawsuit. How are you operating any different?”

A spokesman for the governor, who is named as a defendant along with the state, declined to comment, citing the pending nature of the litigation. Attorneys for the state had not filed a response Wednesday.

The February law was billed as a response to a 2015 court ruling that found portions of property belonging to nonprofit hospitals that host for-profit services can be taxed. The judge in that case ruled the nonprofit Morristown Health Center was subject to taxation because it operates in a way that is indistinguishable from its for-profit counterparts.

The decision, AHS Hospital Corporation v. Morristown, set off a wave of municipal lawsuits as towns around the state sought to reclaim property tax payments — sometimes worth millions of dollars — from hospitals that had been exempt for years.

The law, which cleared the Senate in a near party-line vote but won more Republican backing in the Assembly, allows for-profit activities on nonprofit hospital grounds to be taxed but only if that space is not used exclusively for hospital purposes, as for-profit health services would be.

Under the law, hospitals are required to make contributions to their host municipalities of $3 per licensed hospital bed, or $300 per day for satellite emergency care facilities, though they are allowed to negotiate different rates. If hospitals had prior arrangements with their towns to pay more, those agreements still stand.

The suit argues the law violates the uniformity and exemption clauses of the state constitution, which require assessments be uniform across a taxing district and impose similar rules on property tax exemptions.

The law gives nonprofit hospitals a tax advantage over other taxpayers, including other nonprofits, and their tax exemptions also raise residents’ property tax bills, the complaint says.

The plaintiffs are also taking aim at a provision enacted under the same bill that bars residents from challenging tax assessments for third-party properties. That rule appears to extend past nonprofit hospitals.

“There’s a constitutional provision that protects people’s right of review of municipal action, and it seems that they attempted to take it away,” Steinhagen said.

Plaintiffs argue the ban should be blocked because it tramples on the right to “petition for the redress of grievances” afforded by the state constitution

New Jersey Citizen Action and the state branch of the American Federation of Teachers in August sought to join a similar suit filed by Vineland, Livingston, Elizabeth, and Plainsboro, but that application was denied last week. That lawsuit says any tax-exempt entity that started providing for-profit services on its property could be stripped of their exemption and required to pay taxes.

On Monday, New Jersey Citizen Action and the American Federation of Teachers petitioned to join that suit as amici. A judge will decide whether to allow that on or before Oct. 8.


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Nikita Biryukov
Nikita Biryukov

Nikita Biryukov most recently covered state government and politics for the New Jersey Globe. His tenure there included revelatory stories on marijuana legalization, voting reform and Rep. Jeff Van Drew's decamp to the Republican Party. Earlier, he worked as a freelancer for The Home News Tribune and The Press of Atlantic City.