Susan A. Feeney, Partner in the Tax and Employee Benefits Group, was successful in a significant New Jersey Supreme Court decision for Hunterdon Medical Center. The case is noteworthy as it will establish new law as to how "hospital purpose" will be defined in the property tax exemption area in the future under New Jersey's property tax exemption statute.
Ms. Feeney's practice focuses on state taxation and local property taxation for all types of industries. She has been recognized by New Jersey Monthly magazine as among the Top 50 female lawyers in the state. She currently serves as Second Vice President of the New Jersey State Bar Association and will become NJSBA President in 2011.
In a decision that will have wide-ranging effects on the health care provided to New Jersey residents, on July 14, 2008, in the matter of Hunterdon Medical Center v. Township of Readington, the New Jersey Supreme Court reversed, in part, the decision of the Superior Court, Appellate Division (affirming the Tax Court's decision) to deny a property tax exemption pursuant to N.J.S.A. 54:4-3.6 for space devoted to the hospital's outpatient physical therapy services. In doing so, the Supreme Court remanded the case to the Tax Court for further proceedings.
The Supreme Court ruled that the definition of a hospital as a twenty-four hour continuous care operation is overly restrictive for purposes of an exemption analysis under N.J.S.A. 54:4-3.6. As a result, the Supreme Court expanded the definition of "hospital purposes" and concluded any medical and diagnostic service that a hospital patient may require, whether pre-admission, during a hospital stay or post-admission, presumptively constitutes a core "hospital purpose" under N.J.S.A. 54:4-3.6.
The Supreme Court accepted much of the "Analytical Framework" devised by the Tax Court for determining whether a service was a "hospital purpose" pursuant to N.J.S.A. 54:4-3.6. However, the Court stated that "[t]he test is not to determine the worthiness of the ‘hospital purpose' but rather the importance of the integration of the proposed use to the hospital's accomplishment of a legitimate task." The Supreme Court further detailed the specific factors that must be considered for determining whether a service is a hospital purpose: 1) the nature and extent of the services provided at the off-site location; 2) the extent to which the activity is under the control or supervision of the hospital medical staff personnel; and 3) whether the facility serves primarily hospital patients or employees or primarily members of the general public. The Supreme Court further added two factors for consideration, although neither should be treated as dispositive: 1) whether the facility competes with like commercial or privately owned facilities; and 2) whether the facility, or the particular disputed part, is actually used predominately by patients and hospital employees or by commercial members.
Of note, the Supreme Court rejected the Tax Court's narrow view of "medical supervision" which was originally incorporated and required by the Tax Court's Analytical Framework.
Based on the factors to be considered for determining whether a service is a "hospital purpose" pursuant to N.J.S.A. 54:4-3.6, the Supreme Court questioned whether the Tax Court's determination with respect to the physical therapy services should be affirmed. In particular, while the Tax Court found that the cardiopulmonary rehabilitation services offered at the subject property were a hospital purpose, it found that the physical therapy services were not. The Tax Court made this determination even though, in the Supreme Court's view, the integration of the physical therapy services offered at the subject property seemed to be coextensive with that found for the cardiopulmonary rehabilitation services. In addition, the Supreme Court acknowledged that the definition of core "hospital purposes" would presumptively include physical therapy services on an out-patient basis, which could be, and were at one time, provided at the main campus. The Supreme Court remanded for re-examination of the physical therapy services.
The Supreme Court's ruling will likely ensure that legitimate hospital services are afforded property tax exemptions. This will allow hospitals to continue to provide services needed to serve the public without the added economic difficulties associated with increasing property taxes.
FOR FURTHER INFORMATION, PLEASE CONTACT:
Susan A. Feeney, Esq.
Disclaimer by McCarter & English, LLP: This publication is for informational purposes only and is not offered as legal advice as to any particular matter. No reader should act on the basis of this publication without seeking appropriate professional advice as to the particular facts and applicable law involved.
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