WMC's exemption by classification position / Code of VA - 58.1 Taxation - Ch. 36 Tax Exempt Property

Mr. Merrill says, "We still feel firmly that we meet the exemption by classification and are eager to find out how the commissioner came to her conclusion that we do not meet that definition of exempt by classification. Once we have that information we then will look at what our options may be. An appeal or what other recourse we may have."

http://www.tv3winchester.com/home/headlines/104042003.html

 

Code of Virginia - Title 58.1 Taxation - Chapter 36 Tax Exempt Property

58.1-3603 Exemptions not applicable when building is source of revenue

58.1-3605 Triennial application for exemption; removal by local governing body

58.1-3606 Property exempt from taxation by classification

58.1-3650 Post-1971 property exempt from taxation by designation

58.1-3651 Property exempt from taxation by classification or designation by ordinance adopted by local govern...

Nothing at the local level that qualifies WMC tax-exempt nor state level

After reviewing the Commissioner of the Revenue's report.  There is no formal exemption from local taxes by either designation or classification in the City of Winchester with regards to Winchester Medical Center nor at the state level.

The commonwealth has never had a "community benefit" standard in place for a not-for-profit hospital to abide by, but rather followed those previous 1969 broad and vague guidelines.

Federal Tax-Exemption Criteria for Nonprofit Hospitals:

IRS's community benefit standard to qualify for tax-exempt status allows nonprofit hospitals broad latitude to determine the services and activities that constitute community benefit. Furthermore, state community benefit requirements that hospitals must meet in order to qualify for state tax-exempt or nonprofit status vary substantially in scope and detail.

In the 1969 revenue ruling that established the community benefit standard, IRS recognized five factors that would support a nonprofit hospital's tax-exempt status. These five factors were :

(1) The operation of an emergency room open to all members of the community without regard to ability to pay

(2) A governance board composed of community members

(3) The use of surplus revenue for facilities improvement, patient care, and medical training, education, and research

(4) The provision of inpatient hospital care for all persons in the community able to pay, including those covered by Medicare and Medicaid

(5) An open medical staff with privileges available to all qualifying physicians.

IRS further stated that tax-exempt status would be determined based on the facts and circumstances of each case, and that neither the absence of particular factors set forth in the 1969 revenue ruling nor the presence of other factors would be necessarily conclusive. 

Nonprofit hospitals that qualify for tax-exempt status are exempt from federal income taxation, have access to bond financing that generates tax-free interest earnings for the bondholder--allowing these hospitals to borrow funds at a lower cost than nonexempt entities--and are eligible to receive contributions that are tax deductible for the donors.

In addition, these hospitals may also be exempt under state law from state and local income, property, and sales taxes, which in some cases are of a greater value than the federal income tax exemption.
(Information was obtained from The Government Accountability Office report on hospital community benefit, page 11 and 12 of actual report but page 16 and 17 of the PDF file).

Case Where State Law Superseded Federal Law

City of Richmond v. Richmond Memorial Hospital. In City of Richmond v. Richmond Memorial Hospital, 202 Va. 86, 116 S.E. 2d 79 (1960), the issue was whether the right to exemption “depends solely upon the extent to which free service is rendered.” The court rejected that standard and concluded that the exemption depends not upon the number of patients who are treated free of charge, but upon the nature of the institutions and the purpose of the operations. The constitution of Virginia did not require that services be rendered for free as the basis for exemption.

Burkholder: No 'qualifying exemption' met by WMC

September 30, 2010

By Ann T. Burkholder

    

Tax questions regarding Valley Health and/or Winchester Medical Center have comprised a significant portion of my workload over the past lively nine months as Commissioner of the Revenue.

On Jan. 27, 2010, (City Attorney) Tony Williams, staff member Tina Butler, and I visited the Wellness Center in response to Valley Health's protest of the personal property tax and business license taxes of that site. At the time, Todd Way of Valley Health also asked about the questionnaires regarding the initial triennial review of tax-exempt properties, any need to apply for exemption of the new Diagnostic Center, and options for minimizing tax discussions regarding future construction and usage charges.

Consequently, Valley Health submitted an application for real estate tax exemption for the WMC campus in February 2010, which was scheduled for review at the March 23 City Council work session. Upon seeing the recommendation of the Assessor and Commissioner of the Revenue that Valley Health be denied a blanket exemption, Valley Health then withdrew its application. By filing and subsequently withdrawing this application, Valley Health clearly demonstrated its own awareness that no clear and irrefutable tax exemption exists for the WMC campus.

Since then, the city and Valley Health have gone back and forth on the matter, accelerated by recent meetings between the two parties. In a letter dated Sept. 2, James Daniel, attorney for Valley Health, wrote, "We understand that it is not in dispute that charitable, nonprofit, Virginia hospitals are exempt by classification from local real estate and personal property tax."

I do not agree with this statement; rather, whether Valley Health/Winchester Medical Center qualifies for exemption under that section of the Code of Virginia is specifically what is in question. It is the position of this office that the entity is subject to taxation unless City Council enacts a classification or designation otherwise.

It is likely that the City of Winchester considered the original Winchester Memorial Hospital, on the Stewart Street site, and the naissent Winchester Medical Center to be tax-exempt under liberal interpretation of the language of the 1902 Virginia Constitution. While post-1971 updates to the Code of Virginia include stricter guidelines, nothing has been found which clearly establishes WMC's entitlement to tax exemption under either the current or earlier version of the Constitution.

While correspondence from prior administrations suggests that the issue was examined, by all parties' accounts, the mission and business of today's Winchester Medical Center have substantially evolved from the hospital of yore. As a result, the commissioner has little basis on which to conclude that ownership, use of the property, and, in fact, the property itself, are the same as when the exemption initially came into use.

On Sept. 23, Valley Health officials held a press conference at the Wellness Center to discuss their 2009 Community Benefit Report. As stated by the Valley Health Board Chair, the point was to show what Valley Health gives to the community in lieu of paying taxes. Of the $71.3 million in benefits claimed, over 63 percent consists of bad debt expense and Medicare Reimbursement Shortfall, both of which more accurately fall under the cost of doing business.

Valley Health avers its not-for-profit status and charitable contributions undermine any claim of ineligibility for exemption, yet neither point is relevant to the matter at hand. Not-for-profit does not automatically equate to non-taxable. Moreover, while the City of Winchester is very appreciative of the generosity and community benefits provided by Valley Health, these are not a substitute for the benefits provided by tax revenue. Here in the city, we are blessed with many citizens and businesses that willingly donate goods, money, and services to designated charities, yet also pay their fair share of local taxes for the common good.

Assisted by the City Attorney, City Assessor, and my staff, I have reviewed applicable state and local code, local records of council action, numerous legal opinions and proceedings, and information provided by Valley Health. Considerations in evaluating tax-exempt status have included:

Categories of taxation, to include real estate, gross receipts business license and personal property taxes.

Usage of real property, including undeveloped land, property leased to outside entities, and property used for personal and professional services.

Variety of business units operating under Valley Health, including traditional hospital functions, as well as those in direct competition with fully taxable entities, such as the Wellness Center and physician office practices under Valley Physician Enterprise.

Fair and equitable distribution of local taxpaying responsibility, recognizing that Valley Health will continue to expand its vision, mission, and revenue stream.

The role of Valley Health as a valuable community partner.

At this point, my findings indicate the property and activities of the WMC Campus do not meet any qualifying exemption by classification or by designation and thus are taxable. Within the next two weeks, absent compelling evidence to the contrary, my office will begin preparing the current year real estate tax bills for the WMC Campus and will proceed with other applicable billings.

Ann T. Burkholder is commissioner of the revenue for the City of Winchester.

The Pub's perspective on WMC being voted not tax-exempt

For those who want to start screaming at City Council and the new commissioner of the revenue, do some research and learn more about VHS and how profitable an organization they have been over the last 10 years.


But don’t be misled here, for-profit hospitals that pay taxes, has charity care too, bad debt and also gives back to respective local communities as well that they serve.

Wonder why Mr. Whitworth Jr. did not share nor the community benefit chart in The Winchester Star on September 24th display the excess of revenue over expenses figures for 2005-2009 last Thursday during the press conference when they discussed the VHS's 2009 Community Benefit?  To be more precise, profit/loss figures.

Based on information shared by a VHS official in December of 2009, Valley Health System's five year profit total for years 2004-2008 was a little over $218.6 million.

An internet poster on WincStar’s website Tuesday made a comment that the staff at WMC has not received at least a cost-of-living increase since 2007. Wonder if this is true?

Reference http://winchesterstar.com/articles/view/wmc_might_lose_tax_exemption  and post#2 which is below:

Well...for all those in favor of this...just remember it when you, your friend, neighbor or family member don't qualify for a write off or reduction, or there IS an increase in the rates....WMC is just like every other buisness...budget is already set for the year...AND they are behind budget...just like alot of businessess...

Are you aware staff have not had a cost of living raise since 2007? How many of you, in favor of this have rec'd a raise? Many positions have been reduced..so the next time you are a patient and feel like your nurse, aide or Dr aren't giving you enough attention...remember, they have to work HARDER just to maintain the income they have now....

tiredmom

The “Winchester Medical Center” has been very profitable for years 2001-2007 where their profits increased 460% but dropped off in 2008.

* 2001 - $11.8 million (Quad State Biz Journal)
* 2002 - ?
* 2003 - ?
* 2004 - ?
* 2005 - $54,346,679 (per IRS990)
* 2006 - $57,422,678 (per IRS990)
* 2007 - $66,617,961 (per IRS990)
* 2008 - $ 9,500,911 (per IRS990)
* 2009 - ?

Based on those figures, can anyone tell us why the staff at WMC has not received at least a cost-of-living increase since 2007 according to an individual who posted on WincStar’s website on Tuesday (if those comments are factual by tiredmom)?

For the record, The Pub has advocated that the nurses and blue collar workers are under compensated. Reference this link dated October 14, 2009 ...

thepibbsterspub.blogspot.com/2009/10/valley-health-has-made-epic-strides-in.html

A huge problem for the City of Winchester is that two of the top 5 employers are non-profit (VHS & SU) and that is not a good thing for the tax-base.

The perception is that previous city councils did not have a denied stamp when tax exempt applications came across the table. This present council group has a difficult task of cleaning it up and trying to get a solid tax base again before any further decisions are made about raising Winchester City resident’s taxes.

Is it not time for everyone start stating "regional community" for Valley Health Systems since VHS serves many counties outside of Winchester and Frederick County. VHS is no longer just Winchester and Frederick County.

VHS serves 18 counties to be exact in VA, MD and WV.

How many employees at the WMC campus live outside the City of Winchester?

How many live across the state line?

The charity care and bad debt are isolated benefits to those individuals in need.

The WMC campus is the home base of all of those 18 counties that VHS serves/resides in.

How many of those patients of charity care are actual Winchester and Frederick County residents?

Burkholder's memo challenges the report's "total community benefit and other measures" figure of $71.3 million for 2009. "... Over 63 [percent] consists of bad debt expense and Medicare Reimbursement Shortfall, both of which more accurately fall under the cost of doing business."

Reference the Community Benefit chart in The Winchester Star on September 24th. Maybe the more realistic "community benefit" number is the line labeled "total community benefit" for the 18 counties that VHS serves.

Valley Health System's 2009 Community Benefit Chart

Wonder if the folks with regular insurance are actually making up the majority of differences on Medicaid shortfalls, charity-care and bad-debt?

So really, how can anyone determine how much VHS is actually giving away locally in Winchester and Frederick County? One would think that with the technology and record keeping systems available today, VHS must be aware of that solely based on a zip code of the patients/customers.

The new Wellness & Fitness Center had $1.1 million in revenue during its first three months of operation when it opened their doors in September of 2008.

Wonder how much revenue it brought in for 2009 with their current 5,800 members?

Bottom-line, the perception is that those taxes will be very minimal to WMC overall once compared to the profits that WMC has turned out over the last 10 years. But will have a significant impact on the city’s tax base with hopes of getting it back to a respectable operating status so that City Council will not have to look into raising the city resident’s taxes in the future.

Unfortunately, this will not be an easy task for City officials as it will most likely end up being a long legal battle.

City Councilman Milt McInturff called the council's endorsement "appropriate," but said the issue includes "legal ramifications" that likely will be challenged in court.

"It's just the beginning of a long road," he said. "I think the commissioner of revenue is doing her job, and I respect the job she's doing."

Winchester Medical Center ruled not tax-exempt

City Council votes 7-0 to authorize first-half real estate tax bill of more than $1 million

By Vic Bradshaw

The Winchester Star
September 29, 2010

WINCHESTER- The not-for-profit Winchester Medical Center is not exempt from property taxation, according to a report prepared by the commissioner of the revenue and endorsed Tuesday by the City Council.

In a decision that likely is the first of its kind in Virginia, the council voted 7-0 to authorize Commissioner Ann Burkholder to prepare a first-half real estate tax bill for the portion of the WMC campus that has not been billed, unless compelling evidence is presented that the property is exempt.

That bill would total slightly more than $1 million, Burkholder said, and bills for personal property taxes and up to three years of back taxes could follow.

For the remainder of the story, click below ...
http://winchesterstar.com/articles/view/wmc_ruled_not_tax_exempt