Tipping the Scale to the Benefit of Our Community

1
Tipping the Scale to the Benefit of Our
Community
January 2005

• The Real Value of Our Hospitals Nonprofit Tax
  Status
• Issue Brief available at www.chanet.org

2
Nonprofit Tax Status of Hospitals

• Most hospitals are nonprofit / 501(c)(3)
  organizations
• 61 nationally, 83 in Ohio
• Recognition of tax exemption for charities has
  been around for about a century
• Tax exemptions acknowledge the role charities
  play in either reducing government burden or
  providing community benefit

3
Federal Exemptions for 501(c)(3) Organizations

• Exempt from federal corporate income taxes
• Access to tax-exempt debt in the bond market
• Hospitals use this to invest in long-term capital
  projects, such as IT
• Donors can claim charitable donations as a tax
  deduction

4
State and Local Exemptions for 501(c)(3)
Organizations

• Exempt from state corporate income taxes
• Exempt from state and local sales taxes
• Exempt from property taxes
• Hospitals must apply to obtain real property tax
  exemptions for each of their facilities. The Ohio
  Department of Taxation reviews applications and
  makes a determination.

5
Why Hospitals Merit Their Nonprofit Tax Status

• Uncompensated care
• Necessary services, research and education
• Trauma and burn care units
• Community services
• Support groups, educational lectures, health
  screenings, safety classes, etc.
• Community accountability
• Nonprofit hospitals more likely to be governed
  locally than for-profit hospitals

6
A Growing Threat

• At least 3 Congressional committees examining
  tax-exempt status of nonprofits
• Senate Finance Committee
• House Ways and Means Committee
• House Energy and Commerce Committee

7
A Growing Threat (contd)

• Internal Revenue Service (IRS)
• Heightened enforcement efforts
• Cuyahoga County
• Specific challenges around hospital-affiliated
  medical buildings not located on a main hospital
  campus

8
Implications of Changes to Tax-Exempt Status

• Creates incentives for hospitals to behave like
  for-profit businesses
• Who will provide crucial services that are money
  losers, i.e. neonatal intensive care units?
• Potential for less focus on research, fewer
  community services, more cautious capital
  investments, more deal-shopping

9
Protecting the Regions Economic Hub

• Healthcare is a strong economic anchor in
  Northeast Ohio
• Northeast Ohio hospitals had a 11.58 billion
  economic impact in 2002
• Created 109,107 jobs throughout a variety of
  industries in 2002
• 254 million in state and local tax revenues in
  2002