Court of Appeals Denies Nonprofit Medical Clinics from Claiming Property Tax Exemption
The Wisconsin Court of Appeals recently held that a hospital owned by a non-profit entity failed to demonstrate that three medical clinics it also owns are not used as “doctor’s offices,” and therefore are not exempt under Wisconsin’s nonprofit hospital property tax exemption. Mile Bluff Medical Center, Inc. v. Village of Necedah, City of New Lisbon and City of Elroy, No. No. 2017AP751, 2018 WL 1040203 (Wis. Ct. App. Feb. 22, 2018) (slip opinion) (unpublished.) Mile Bluff is the most recent decision in a line of cases addressing whether medical clinics owned by a nonprofit hospitals qualify for the exemption.
Mile Bluff is a non-profit entity that owns a hospital in Mauston and the three medical clinics at issue in this case. Mile Bluff sought an exemption from property taxation for the clinics under Wis. Stat. § 70.11(4m)(a). Under § 70.11(4m)(a), real property owned and used exclusively for the purposes of a non-profit hospital of 10 beds or more devoted primarily to the diagnosis, treatment or care of the sick, injured or disabled is eligible for the exemption provided, among other things, that the property is not used as a doctor’s office.
In concluding that the Mile Bluff medical clinics are used as doctor’s offices, and therefore not exempt from property taxation, the court considered seven factors previously articulated by other courts as relevant in determining whether a facility is a doctor’s office. The seven factors the Court analyzed include whether the:
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physicians at the clinics owned or lease the facility or equipment;
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physicians at the clinics received “variable compensation,” that is, compensation based on their “productivity”;
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physicians at the clinics employed or supervised non-physician staff, or received extra compensation for such duties;
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clinics and hospital generated separate billing statements or use separate billing software;
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physicians at the clinics had office space in the clinics;
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clinics provided services of the type that had been formerly performed inpatient at the hospital; and
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clinics were open during regular business hours during which time the physicians generally saw patients by appointment.
The Court sided with Mile Bluff on the first factor and assumed, without analysis, that the second factor also supported Mile Bluff’s position. The Court found that the fourth factor did not favor either of the parties. The Court sided with the municipalities with respect to a majority of the factors—the third, fifth, sixth and seventh factors. The Court further concluded that the clinics lacked typical hospital amenities, like a gift shop, and did not offer urgent care services, making the clinics more like doctor’s offices.
The Court also rejected Mile Bluff’s argument that the fact that the clinics were “rural health clinics” and are required by federal and state law to have a certain level of integration with the non-profit hospital that owns them should be considered in determining whether the clinics were hospitals or doctor’s offices. The Court found that this status did not result in any significant change in the nature or manner of patient services, a critical element in determining whether a clinic is a doctor’s office, and therefore was not enough to tip the scales in favor of Mile Bluff’s argument.
Based on these findings, the Court held that the clinics were in fact doctor’s offices and therefore not exempt under the non-profit hospital exemption.
The case makes clear that there is no bright line test for whether, on balance, property owned by a non-profit is a doctor’s office. Assessors should carefully weigh the particular facts of each case against the guidelines relied upon by the Court.
If you have questions on this case or on other property taxation related matters, contact Meg Vergeront at (608) 259-2663.
