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Healthcare, Property Tax Exemptions and Implications from Recent Court Cases
Unformatted Document Text:  24 Furthermore, the health system’s CEO had heard criticism from fellow business colleagues that Alegent was trying to avoid paying its fair share of taxes. The affirmative decision for Mercy Health System of Kansas gave the health system the green light it needed to establish a fitness center within its newly constructed hospital building and to quadruple membership. The taxing authorities and county attorneys in each of the cases were satisfied to have more clarity on this type of case which was a new area of exemption analysis and just beginning to be tested in various states. The county attorney in Fort Scott, Kansas did not agree with the outcome and believes that the retail services provided within the hospital facility should be exempt. However, Kansas’ exemption law does not provide for partial exemptions. The Douglas County Attorney (Omaha) and officials at Ohio Department of Taxation indicated their availability to speak with hospital management about how they interpret criteria for exemption, not as a tax advisor but in an effort to be transparent about what is expected of a tax exempt organization. PHYSICIAN GROUP PRACTICE CASES Throughout the 1980s and 1990s hospitals and physician groups engaged in a variety of the organizational models designed to increase efficiency, financial performance, and improved patient services. Hospitals and health systems have claimed that vertical integration has been necessary for the health systems’ economic viability. Courts, however, have not always been persuaded that exemption of clinics is warranted even though they operate under the guiding mission of the nonprofit parent. In Chisago v. Commissioner of Revenue the court observed that The difficulty with granting tax exemption to auxiliary properties which help an exempt institution to survive financially is two-fold. First, it is difficult to know

Authors: Fanning, Mary.
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24
Furthermore, the health system’s CEO had heard criticism from fellow business
colleagues that Alegent was trying to avoid paying its fair share of taxes.
The affirmative decision for Mercy Health System of Kansas gave the health
system the green light it needed to establish a fitness center within its newly constructed
hospital building and to quadruple membership.
The taxing authorities and county attorneys in each of the cases were satisfied to
have more clarity on this type of case which was a new area of exemption analysis and
just beginning to be tested in various states. The county attorney in Fort Scott, Kansas did
not agree with the outcome and believes that the retail services provided within the
hospital facility should be exempt. However, Kansas’ exemption law does not provide for
partial exemptions. The Douglas County Attorney (Omaha) and officials at Ohio
Department of Taxation indicated their availability to speak with hospital management
about how they interpret criteria for exemption, not as a tax advisor but in an effort to be
transparent about what is expected of a tax exempt organization.
PHYSICIAN GROUP PRACTICE CASES
Throughout the 1980s and 1990s hospitals and physician groups engaged in a
variety of the organizational models designed to increase efficiency, financial
performance, and improved patient services. Hospitals and health systems have claimed
that vertical integration has been necessary for the health systems’ economic viability.
Courts, however, have not always been persuaded that exemption of clinics is warranted
even though they operate under the guiding mission of the nonprofit parent. In Chisago v.
Commissioner of Revenue the court observed that
The difficulty with granting tax exemption to auxiliary properties which help an
exempt institution to survive financially is two-fold. First, it is difficult to know


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