Four PA Hospitals Lose Property Tax Battle

Four formerly for-profit hospitals in Pennsylvania purchased in 2017 by an LLC recognized as a charitable organization by the IRS just lost appeals regarding whether they were exempt from property tax under Pennsylvania law.  

From the Bloomberg story:

“The “eye popping” compensation paid to executives at four hospitals owned by Tower Health LLC disqualifies the nonprofits from charitable tax-exempt status, a Pennsylvania appeals court ruled in four related cases. . . . 

The Pennsylvania Commonwealth Court ruled Friday that the hospitals failed to prove they’re entitled to the tax exemption. It reversed the ruling in favor of Pottstown Hospital, finding that Tower Health’s large executive salaries and 40% bonus incentives tied to the hospital’s financial performance show that the hospital had a private profit motive rather than a charitable purpose.”

Pennsylvania requires charities to be “institutions of purely public charity” to qualify for exemption. The PA SCT in Hospital Utilization Project v. Commonwealth adopted what is known as the HUP test, which has 5 criteria:1. Advances a charitable purpose; 2. Donates or renders gratuitously a substantial portion of its services; 3. Benefits a substantial and indefinite class of persons who are legitimate subjects of charity; 4. Relieves the government of some of its burden, and 5. Operates entirely free from private profit motive.

The cases involved are:  Pottstown Sch. Dist. v. Montgomery Cty. Bd. of Assessment Appeals , Pa. Commw. Ct., No. 1217 C.D. 2021, 2/10/23 ; Phoenixville Hosp., LLC v. Chester Cty. Bd. of Assessment Appeals , Pa. Commw. Ct., No. 1281 C.D. 2021, unpublished 2/10/23 ; Brandywine Hosp., LLC v. Chester Cty. Bd. of Assessment Appeals , Pa. Commw. Ct., No. 1279 C.D. 2021, 2/10/23 ; and Jennersville Hosp., LLC v. Chester Cty. Bd. of Assessment Appeals , Pa. Commw. Ct., No. 1286 C.D. 2021, unpublished 2/10/23 .

Philip Hackney