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Ohio Supreme Court grants charity tax exemption to certain dialysis centers

By Todd Barnett | Jul 5, 2017

COLUMBUS, Ohio (Legal Newsline) – On June 15, the Ohio Supreme Court ruled that Dayton dialysis centers engaged in charity work are entitled to a partial property tax exemption.

The Supreme Court awarded partial tax exemptions to four locations of the Dialysis Centers of Dayton LLC (DCD), and in the process overruled the findings of the state tax commissioner and the Ohio Board of Tax Appeals (BTA). 

The court ruled that parts of the four DCD locations were used by private practice physicians, and therefore are not eligible for a tax exemption. However, the dialysis centers operating on-site under the canopy of the nonprofit Miami Valley Hospital system served uninsured patients and patients who could not pay for treatment, and thus qualified for a charitable tax exemption.

The state tax commissioner declined property tax exemption for the DCD locations for 2006 and 2007 based on the finding that “the evidence indicated that no more than minimal charitable care was provided at the sites and the DCD itself was a for-profit entity.” 

The BTA concurred, noting that the DCD locations leased space to the private practices of for-profit physicians. While the court agreed that the portions of the properties leased to private practices were subject to property tax, it found that the dialysis clinics providing free and reduced-cost care should be granted partial exemptions, because the “the excessive focus by the tax commissioner and the BTA on the quantum of charitable care is a reversible legal error.”

The Miami Valley Hospital and five physicians jointly organized and became members of the DCD in 1998. In 2006, the Miami Valley Hospital, a nonprofit institution, became the only member and took sole ownership of the DCD. Claiming nonprofit status as an arm of the Miami Valley Hospital system, the DCD applied for a 2006 property tax refund and an exemption for 2007. 

The DCD treated all patients, regardless of insurance status or ability to pay for services. It calculated that it provided an estimated $435,000 in free care in 2007 and provided free care to 28 percent of its patients. However, the tax commissioner and the BTA ruled that the amount of charitable care provided was not enough to claim a charitable tax exemption, noting that the DCD sought payment from Medicare and Medicaid for patients qualified to receive benefits from those programs.

The court upheld the decision by the tax commissioner and the BTA to deny the DCD a refund for the 2006 year because the DCD was still partly owned by private practice physicians for about half of that year. Conversely, the court reversed the decision to deny tax exemption in 2007 based on the quantity of charitable care provided and the use of third-party funds.

The court decided that “Non-discrimination, rather than quantum of charitable care, is the criterion for exemption,” and found that “DCD’s attempt to obtain third-party reimbursement on a patient-by-patient basis can be interpreted as a prudent and diligent use of charitable assets.” 

Consequently, the court granted a tax exemption to the dialyses clinics in the DCD buildings, and ordered the tax commissioner to recalculate the 2007 property tax assessment to reflect only the portions of the buildings leased to private practice physicians.

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