Hoping to reap some tax benefits by opening a hospital in Scottsdale, Ariz., the Mayo Clinic has touched off a legal battle by trying to persuade local authorities that its 11-year-old satellite clinic there also should be exempt from property taxes.
Mayo sued Maricopa County after it was turned down for an exemption last year. The lawsuit, which was filed in December, is scheduled for trial in August in state tax court in Phoenix.
It's another case on a growing list of legal challenges over whether not-for-profit healthcare providers do enough for their communities to avoid property taxes.
For the prestigious Mayo, whose home base is in Rochester, Minn., it's one more legal headache in Arizona.
Last month, a Mayo official confirmed that federal prosecutors in Phoenix are reviewing five years' worth of billing records from the Mayo clinics in Scottsdale, Rochester and Jacksonville, Fla. (June 22, p. 2). That inquiry concerns physician services at the three outpatient clinics, although the exact nature of the government's probe isn't clear.
In its property-tax lawsuit, Mayo is seeking an exemption for the 1997 tax year for its Scottsdale clinic, the land on which it sits and the medical equipment -- or personal property -- inside. The main clinic building is almost 421,000 square feet.
Mayo is a not-for-profit corporation, but its Scottsdale Clinic, which opened in 1987, has been paying property taxes.
According to court documents, Mayo has argued it's entitled to an exemption because Arizona allows such exemptions for property that is used for education, to treat the "indigent or afflicted," or to provide medical care to people 62 years of age or older.
Mayo spokesman Chris Gade declined to discuss the pending litigation, except to say that "we believe the clinic property falls within the scope of that exemption."
Maricopa County, while acknowledging such exemptions exist, "does not thereby admit" that Mayo's property is exempt, according to a May 5 response attorneys for the county filed countering Mayo's lawsuit.
"If you're claiming an exemption, you've got to prove it really well," said Ian Macpherson, a contract attorney representing Maricopa County in the case.
According to the Duval County Property Appraisers Office in Jacksonville, Fla., the Mayo Clinic there is exempt from property taxes.
The Olmsted County Auditor Treasurers Office in Rochester, Minn., said the Mayo Clinic there also pays property taxes. Its 1998 bill will be at least $535,000.
Mayo's Gade said certain areas of the Rochester clinic campus are exempt from property taxes, such as its laboratories and medical school campus, where research and educational activities go on.
In its defense against Mayo's lawsuit, Macpherson said one of the things the county will be looking at is the demographics of the patients Mayo serves.
In its lawsuit, Mayo also named the Arizona Department of Revenue as a defendant.
Fred Kelly, chief deputy assessor for Maricopa County, said Mayo is on the property tax rolls. In 1997, the year for which Mayo is seeking an exemption, the clinic paid almost $1.5 million in property taxes.
Kelly speculated Mayo likely applied for a tax exemption last year because it is building a new hospital in Scottsdale. Typically, clinics associated with not-for-profit hospitals are afforded a property-tax exemption, he said.
But Mayo's new 178-bed hospital in affluent Scottsdale isn't open yet and isn't expected to be open until this fall.
The current property-tax challenge doesn't involve the new hospital, which likely will qualify for an exemption, Kelly said.
