Property Tax Exemptions for Hospitals: A Blunt Instrument Where a Scalpel is Needed

Santos, Eric J.

In this Note, I argue that the state level property tax rules governing tax exemption for hospitals are in dire need of reform. Other commentators have suggested changing the metrics used to determine eligibility for tax exemption, usually focusing on federal level exemptions, but these proposals are insufficient.[12] Hospitals are complex institutions with viable for-profit analogues. Yet, they perform socially beneficial services that are worthy of subsidy through the tax system. An effective system must acknowledge and embrace this complexity. I argue that an all-or-nothing exemption is inadequate in the hospital sector and should be replaced by a more flexible system of tax credits. Credits should be provided to hospitals to offset the cost of performing traditional charity care and providing services that would otherwise be difficult for communities to access. This will allow state governments to focus their subsidies on the socially beneficial functions that hospitals offer and avoid interfering in legitimately competitive markets. While the critiques and proposed reforms I discuss could be applied to all tax exemptions for hospitals at both the state and federal levels, there are compelling reasons to begin with state property tax exemptions.

In this Note, I argue that the current system of property tax exemptions in every state is in need of reform. In Part II, I provide background information on the history of United States hospitals; the history of tax exemption for hospitals at the federal and state levels; and an overview of current federal and state tax exemption standards for hospitals. I discuss the federal standards because federal policy currently informs state level exemptions to a significant degree. In Part III, I discuss why reform is needed. Finally, in Part IV, I propose a solution that replaces traditional property tax exemptions with a series of tax credits based on the costs hospitals accrue from performing socially beneficial functions that serve the indigent or extend access to underserved populations.


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Columbia Journal of Tax Law

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November 16, 2017