Feb 24, 2021

New State Law Reinstates Property Tax Exemption for Nonprofit Hospitals in New Jersey

By Daniel O. Carroll, Esq.

On February 22, 2021, Governor Phil Murphy signed into law the much-anticipated legislation (A-1135; P.L. 2021, c.17) designed to reinstate the property tax exemption afforded to New Jersey nonprofit hospitals (“New Law”). The New Law is in response to a rash of litigation following a tax court opinion that threatened the long-standing tax exemption from real property taxes benefiting nonprofit hospitals in New Jersey.  However, even with the New Law, New Jersey nonprofit hospitals can no longer merely rely on their tax-exempt status and operating in furtherance of a charitable mission to ensure the benefit of real property tax exemption. Under the New Law, New Jersey nonprofit hospitals must pay for the benefit of real property tax exemption. 

The New Law establishes a system for New Jersey nonprofit hospitals to pay annual community service contributions intended to offset costs of municipal services provided by the hospital’s municipality. The annual contributions are payable in quarterly installments and are equal to $3 a day per licensed hospital bed and $300 each day for each satellite emergency facility. This contribution amount will increase annually 2% over the prior tax year. 

Notably, the New Law does not do away with agreements voluntarily entered into between municipalities and hospitals for payments in lieu of taxes or other agreements compensating for municipal services provided to the hospital. However, the hospital must pay the greater of the amount voluntarily agreed to with the municipality or the community service contribution amount calculated in accordance with the New Law.

A permanent commission known as the Nonprofit Hospital Community Service Contribution Study Commission has been established to study the system created under the New Law and issue periodic reports analyzing the financial impact on hospitals and adequacy of the annual community service contributions.  Should you have any questions regarding the impact of the New Law or related issues, please contact the attorneys in Schenck Price’s Nonprofit Organizations or Health Care Law Practice Groups.

DISCLAIMER: This Alert is designed to keep you aware of recent developments in the law. It is not intended to be legal advice, which can only be given after the attorney understands the facts of a particular matter and the goals of the client.