The 14-year legal battle over property-tax exemptions for not-for-profit hospitals in Utah has ended with hospitals emerging victorious over tax assessors.
On Sept. 1, the Utah Supreme Court, which started the ball rolling with a controversial legal opinion years earlier, upheld the constitutionality of the state tax commission's exemption standards and, in doing so, preserved the property-tax exemptions of nine not-for-profit hospitals in the case.
In a 17-page opinion, the five-member court said the exemption standards were consistent with the public charity provisions of the Utah Constitution and with previous case law. And, it said the tax commission was within its authority to draft and implement such standards.
"We are pleased the court upheld the tax commission's accountability standards," said Steven Kohlert, senior vice president at Intermountain Health Care, which has fought to preserve hospitals' property-tax exemptions in Utah. "IHC's...hospitals fully meet and will continue to meet all state and federal requirements for exemption from property taxes."
Karl Hendrickson, a deputy county attorney for Salt Lake County who has legally challenged Intermountain for years, saidhe was shocked by the decision. He said the counties are at the end of their legal rope and will instead focus their attention on attempts by hospitals to stretch the exemption standards to cover unrelated business activities, such as insurance.
It was the perceived business-like operations at Salt Lake City-based Intermountain that attracted the attention of local tax assessors in the first place.
In 1993, Intermountain said it provided more than $100 million in community benefits throughout the state based on the tax commission's exemption standards. That year, Intermountain earned $51.9 million in net operating income on net patient revenues of $897.7 million, according to MODERN HEALTHCARE's most recent Multi-unit Providers Survey (May 23, p. 36).
Not-for-profit Intermountain operates 19 hospitals in Utah.
In 1980, Utah County challenged the property-tax exemption of one of Intermountain's hospitals, Utah Valley Re-gional Medical Center in Provo. Intermountain and the county battled all the way to the state Supreme Court, which in 1985 opened the door to nine years of tax challenges and litigation with its decision. The court created a six-point test for organizations to be considered worthy of an exemption from property taxes.
Years of tax challenges and inconsistent applications of the court's ruling led the Utah State Tax Commission to suspend all property-tax decisions regarding hospitals and nursing homes and draft a common set of exemption standards.
The commission did so in December 1990, outlining six standards for organizations to meet to qualify for exemptions.
Of the standards, the most noteworthy is the requirement that organizations provide an annual "gift" to their communities in excess of their potential annual property-tax liability. The gift may include charity care; bad debt; Medicare and Medicaid payment shortfalls; and donations of time, materials and services (Dec. 24/31, 1990, p. 4).
Intermountain executives and other not-for-profit hospital representatives described the standards as the toughest of any in the country. At that time, they were the only such standards in the country, and all sides in the Utah dispute acknowledged that every not-for-profit hospital in Utah could pass them.
Sure enough, 13 county boards of equalization used the standards to exempt 22 of the 25 private acute-care hospitals in Utah from property taxes.
Three counties mounted appeals, arguing that the standards were too lenient and, thus, violated the intent of the Utah Constitution and of the court's previous 1985 decision. The court heard the case in January and rendered its opinion eight months later, giving the state's not-for-profit industry the victory it's been seeking since 1980.
