Tax-Exemptions for Nonprofit Hospitals

Nonprofit hospitals traditionally have been expected to accept social and economic responsibilities for public services that forprofit enterprises and government are either unsuited, unable, or unwilling to provide. In turn, the operations of nonprofit hospitals have created economic benefits for the communities and states in which they are located.

During the 1980s, nonprofit hospitals were encouraged by public policy (in the form of cost and quality controls) to operate in a more competitive manner. Nonprofit hospitals responded in part by adopting commercial financial and management strategies, including attempts to diversify incomes bases, and the inclusion of forprofit affiliates in their corporate structures. While such efforts have not always achieved the intended financial goals, they have altered the traditional public perception of a nonprofit hospital.

The combination of the changing public perception of a nonprofit hospital, the entry of commercial firms into the health care services sector, and the budget crises at all levels of government has resulted in an increased frequency of political challenges to the taxexempt status of nonprofit hospitals. Nonprofit hospitals are particular target because the typically high values of their property bases.

The situation existing within the Commonwealth of Pennsylvani

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ntage) with consideration for taxes. Alternatives The exemption of the property of nonprofit organizations from taxation is intended to produce societal benefits through the encouragement of socially desirable activities. In effect, the taxing jurisdictions subsidize these activities. Taxing jurisdictions which experience significant impacts as a consequence of exempt property are hit with twin problems. First, the tax base from which they may derive revenues is reduced. Second, as a minimum, their demands for services do not decrease. In actual practice, service demands typically increase to a significant extent. Three alternative courses of action for government in Pennsylvania with respect to the taxexempt status of nonprofit hospitals are considered. These alternative courses of action are as follows: 1. The removal of the purely public charity status of nonprofit hospitals under the Pennsylvania Constitution is the first alternative considered. The loss by nonprofit hospitals of their purely public charity status (scenario number one) would expose the institutions to Pennsylvania taxes on real estate, business privilege, and sales and use. 2. The second alternative considered is the removal from no
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Approximate Word count = 3302
Approximate Pages = 13 (250 words per page)

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