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Hunterdon Medical Center v. Township of Readington

195 N.J. 549, 951 A.2d 931 (2008)

TAXATION; ASSESSMENTS; HOSPITALS — Although the term “hospital purposes” is not defined in New Jersey’s real property tax exemption statute, it does not only mean a place where a patient can obtain twenty-four hour continuous care and could include any location where hospital patient medical services, such as pre-admission or post-admission services are provided.

A rural hospital owned an off-site building. It housed a Health and Wellness Center through which the hospital provided physical therapy (PT) and cardio-pulmonary rehabilitation (CP Rehab) services. An issue arose whether the building was exempt from local property taxation. During the tax years in question, the Center was open to members of the general public who paid membership dues. The area of the Center open to the public was primarily located on the first floor. It included a pool, running track, weight training and aerobic exercise equipment and classroom areas. The second floor housed the suite for the center’s PT service program.

The hospital challenged the tax assessor’s revocation of an exemption for the property and filed a complaint with the Tax Court. The Tax Court concluded that only the space dedicated to the CP Rehab service qualified for an exemption. It found that the hospital failed to establish that the Wellness Center and the PT Service were used for exempt purposes. The Appellate Division affirmed. The hospital appealed to the New Jersey Supreme Court.

The Supreme Court modified the Tax Court’s opinion and remanded the matter for a determination whether the space in the off-site building housing the PT service was eligible for the property tax exemption. It noted that the statutory property tax exemption applied to hospital purposes, though the term “hospital purposes” was not defined under the statute. The Court held that a narrow definition of a hospital as a place where a patient can obtain 24 hour continuous care did not control what should be recognized as legitimate hospital purposes under property tax exemption laws. According to the Court, any medical service for which a hospital patient might require pre-admission during a hospital stay, or post-admission, would constitute a presumptive core “hospital purpose” under the governing statute. The Court continued that when an entity, organized for hospital purposes, claims an exemption for an off-site building that is allegedly being used to provide hospital integrated medical services, certain factors should be considered in determining the building’s eligibility for exemption. They are: (1) the nature and extent of the services provided at the off-site location; (2) the extent to which the activity conducted in the facility is under the control or supervision of hospital medical staff, or personnel; (3) whether the facility serves primarily hospital patients and employees or primarily members of the general public; (4) whether the non-licensed activity at the off-site location competes with like commercial or privately owned facilities; and (5) whether the facility, or the particular disputed part, is actually used predominantly by patients and hospital employees or by commercial members. The Court concluded that a remand was required for a determination whether the space in the off-site building housing the PT service program was eligible for property tax exemption.

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