N.J. Tax Court Hospital Ruling Unlikely to Spread: Fitch

A New Jersey tax court ruling stating that one of the state's nonprofit hospitals isn't exempt from property tax payments for a three-year period is unlikely to have implications for other states, according to Fitch Ratings.

The Garden State's tax court ruled last month that the Morristown Medical Center's operations didn't meet certain criteria under state law for tax-exempt status from 2006 to 2008, since most of its property was used to operate for-profit businesses. Fitch Ratings analyst James LeBuhn noted in a July 15 report that the ruling against Morristown is a rare instance in the last few decades where a non-profit hospital hasn't prevailed in the courts fighting over their nonprofit status.

"In many more cases, hospitals have prevailed as attempts to deny their tax-exempt status by local tax assessors and tax boards resulted in providers strongly defending their community benefit to local and state political leadership," LeBuhn said. "Fitch believes the challenge to the sector's tax-exempt status was a greater risk during the recession when property assessment declines related to the housing crash created property tax pressures for many local governments."

LeBuhn emphasized that few hospitals were hurt in the aftermath of the 2008 Great Recession and the legal risk has declined for them due to the housing market recovering. He said a bigger risk to hospital' nonprofit statuses may be expected mergers and acquisitions since this "will lead to the exploration of alternative partnership structures."