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Wis. Supreme Court rules not-for-profit clinic can't be taxed


By Joe Carlson
Posted: July 19, 2011 - 5:45 pm ET
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With cash-strapped governments across the country looking to levy assessments against not-for-profit healthcare providers, the Wisconsin Supreme Court on Tuesday overruled a decision by a local assessor in a Milwaukee suburb to tax an outpatient clinic that included a 24-hour urgent-care center.

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The assessor for Wauwatosa, Wis., had ruled that the St. Joseph Outpatient Clinic was taxable, even though three of its five floors were occupied by an outpatient clinic operated by two not-for-profit organizations, Wheaton Franciscan Healthcare and Felician Services, through the organizations' holding company, Covenant Healthcare System.

After mixed rulings in the lower courts, Wheaton Franciscan won the six-year-old litigation on Tuesday when the state's highest court ruled in a 42-page opinion that the three floors occupied by the St. Joseph Outpatient Clinic should be exempt from taxes. At issue were about $7 million in taxes assessed between 2003 and 2006.

The local assessor had argued that the outpatient clinic floors should be taxed because they falls under a provision in a 1977 Wisconsin law that says doctor's offices cannot be exempt from taxes, even though not-for-profit hospitals are.

Wisconsin Supreme Court Justice Michael Gableman noted in his majority opinion that the clinic's urgent-care center cannot turn patients away for inability to pay and that it is accredited by the Joint Commission, which does not review doctor's offices. Even though most of the services at the outpatient clinic are performed during normal business hours, the same is true of St. Joseph's unquestionably tax-exempt sister hospital in downtown Milwaukee.

Supreme Court Chief Justice Shirley Abrahamson dissented from the majority opinion, noting that modern outpatient medicine allows doctors to perform services previously provided only in acute-care hospitals, which challenges the 34-year-old legal definition of "doctor's office."

"The large integrated health-system model we have today strains the distinction created by the statutory language," she wrote, urging state lawmakers to take a fresh look at the law.


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