The town and its largest employer have been in court since 2008, when Morristown's tax assessor denied a property tax exemption for portions of the hospital that were deemed for-profit operations in 2006-08. The court ruled in 2010 that the hospital's Au Bon Pain cafe, children's hospital, and cancer center were taxable; now the fight is over whether the entire hospital is operating as a legal charity or a for-profit business. If Judge Vito Bianco rules that the entire facility is a for-profit business, and if that ruling were to be broadly written in a way that affects the wide range of institutions regulated under New Jersey's general exemption statute, healthcare and educational institutions across the state could see their property tax exemptions put at risk, David Wolfe, a property tax attorney, told NJ Advance Media. The ruling on the state property tax exemption will not directly affect the hospital's federal exemption.
Under New Jersey law, a property owned by a nonprofit has to be used "exclusively" for a charitable purpose to be entitled to a property tax exemption. Martin Allen, who is representing the town of Morristown in the case, said that because the center hires for-profit physician groups to operate many of its functions, including the radiology, pulmonary and anesthesia groups; runs a loan- forgiveness program for physicians; and, together with two other hospitals and an ambulance service, brings in $1.6 billion a year in profits, it is, de facto, a for-profit entity.
Kenneth Norcross, an attorney for Morristown Medical, said losing the exemption on the forty-acre property would cost the hospital between $2.5 million and $3 million a year, forcing it to cut back services it provides at a loss or at no cost to Morristown and surrounding communities. Such "community benefits" include charity care, Medicare services, training for future physicians, and operations at the Goryeb Children's Hospital. Morristown mayor Timothy Dougherty said in a statement that such cuts would be "inconsistent" with the hospital's position in court. "Their executive testified that [Atlantic Health System] can afford to pay their share of property taxes and that such payment would not have an adverse effect on services rendered to the community," said Dougherty.
Around the country, similar court battles have led to changes in the way states deal with some of their largest employers. In Illinois, after courts ruled against property tax exemptions for several hospitals in 2010, state legislators crafted a law allowing the hospitals to keep the exemption if they showed that they provide free or discounted care equal to or greater than their tax liability. Meanwhile, the University of Pittsburgh Medical Center backed off a federal lawsuit against the City of Pittsburgh last year after Mayor Bill Peduto dropped the city's challenge of UPMC's tax exemption. The mayor is now working with UPMC and other large nonprofits, including Highmark Blue Cross/Blue Shield, the University of Pittsburgh, and Carnegie-Mellon University, to find areas of mutual interest, said spokesperson Timothy McNulty. "Perhaps they can help us with long-term capital and debt needs that are holding the city back," he said. "They aren't good for the city and thus aren't good for the nonprofits."
While it is unknown when Bianco will issue his ruling, Norcross said Morristown Medical would "definitely appeal" if the hospital were to lose. "This won't just affect the hospital. All nonprofits would be subject to tax. If the town of Morristown prevails, the same thing would be applied to every nonprofit."