Property Tax Exemption Stripped from New Jersey Hospital

Doctor holding calculator

A New Jersey medical center is struggling with the proper tax codes for a hospital that works both for profit and not for profit.
Image: Shutterstock

Morristown Medical Center, a New Jersey hospital that has mixed non- and for-profit work, was recently stripped of its property tax exemption by a tax court judge in that state. The issue first came to court in 2006 and has only recently been settled.

The issue, according to the judge, is that the hospital, and perhaps others like it, has mixed its non- and for-profit actions and revenues so much that, from a financial point of view, it’s impossible to tell where one ends and the other begins. The judge defended his decision as an issue of fairness, specifically toward for-profit hospitals, arguing that doing for profit work while sheltered under non-profit tax exemptions creates an unfair advantage for Morristown and possibly other hospitals.

The mayor of Morristown and others have shown their support for the hospital and are hoping to find a way to preserve the tax exemption for that hospital and others. Non-profit hospitals stripped of property tax exemptions could end up owing as much as $2.5 to 3 million dollars a year.

There are rumblings in the state legislature that such hospitals need some kind of state law to protect them, and hospitals that mix non- and for-profit activates in other states should be concerned, too. Although the ruling is currently only applicable to Morristown Medical Center, it could become precedent across the state, and then across the county, which is why so many people are concerned about acting on it quickly.

The hospital is reviewing appeal options, but turning to the state legislature might be the safest bet. An Illinois hospital faced similar problems recently, and that state moved to ensure its property tax exemptions despite its dabbling in for-profit work. Legislators in New Jersey have pointed to Illinois as a possible model, which, if they adopted something similar, could result in a precedent for the rest of the country.

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