Four New Jersey municipalities, a deputy tax assessor and a handful of individual taxpayers have filed a lawsuit seeking to overturn a recently-enacted law which would grant hospitals a tax exemption in exchange for a direct per-bed payment to the municipality in lieu of traditional property taxes.
The case was filed in Mercer County Superior Court, but Tax Court Presiding Judge Mala Sundar was transferred temporarily to the Superior Court for the purpose of hearing the case. Understandably, the court considered the case to be one in which expertise in taxation was desirable, thereby triggering the Tax Court's limited jurisdiction. Cross-motions for summary judgment have been filed, and a hearing is scheduled for mid-November.
The plaintiffs' primary argument is that the New Jersey Constitution requires any exemptions to be granted by general laws - essentially, the law singles out hospitals for preferential tax treatment. The law, which was enacted in response to the Tax Court's 2015 decision finding that the Morristown Medical Center was not entitled to a property tax exemption because that for-profit activities were conducted at the hospital. This watershed case led to a flurry of litigation in the Tax Court as municipalities sought to recapture revenue from hospitals that had been previously considered exempt. The new law under attack brought an end to the appeals and provided the hospitals with an exemption provided they make "community service" to the municipality. A portion of the fees go to the county. However, none is passed on to the school district, which is typically commands the largest portion of the property tax levy.
Why does this case matter? Quite simply, the revenue to municipalities under traditional tax structure would far exceed the "community service" payments permitted by the law. As New Jersey taxpayers are all too aware, one less dollar that someone else pays in property tax means that the rest of the property owners in town will be picking up the tab. The esoteric question animating the legal discussion is thus - should property owners bear a portion of the cost of a local hospital? Or, should the users, insurers, employees and others associated with the hospital bear the cost in the potential form of increased care costs, decreased salaries, or increased insurance premiums? To be sure, there is certainly some benefit to be had from having a local emergency room available to a township, which is part of the "quid pro quo" analysis for granting an exemption in the first place. However, is the windfall to hospital stakeholders justified by the mere presence of a hospital in town? These questions may not be answered or even addressed in the course of the litigation, but the stakes in this challenge are unquestionably high regardless.
The case is captioned Colacitti et al. v. Murphy, docket no. MER-L-738-21