The Ohio Supreme Court recently affirmed the denial of a charitable-use exemption for a dialysis center by the Ohio Board of Tax Appeals. In a 4-3 decision, the Ohio Supreme Court concluded that an institution is "charitable" under Section 5709.121 of the Ohio Revised Code (ORC) only if its core activities qualify under the standards for determining charitable use of property pursuant to ORC Section 5709.12(B). Dialysis Clinic, Inc. v. Levin, Slip Opinion No. 2010-Ohio-5071 (Oct. 26, 2010).
The owner of the center, Dialysis Clinic, Inc. (DCI), is a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code (IRC). DCI operates 195 outpatient dialysis centers in 26 states, including the West Chester facility in Butler County. As is common with end-stage renal dialysis centers, the majority of patients are covered by Medicare and Medicaid.
A key factor in holding against DCI was its indigent policy, which explicitly stated that it was "not a charity or gift to patients [and that] DCI retains all rights to refuse to admit and treat a patient who has no ability to pay." Although evidence was given that DCI did not turn away patients for the inability to pay, the majority of the court was not persuaded, given DCI's explicit policy statement. The minority opinion disagreed, reasoning that a reservation of the right to refuse treatment is not proof that DCI denied services to indigents.
In light of the recent Illinois Supreme Court decision in Provena, the question of whether a tax-exempt organization's medical facilities should qualify for local real estate tax exemption has become a national issue. Like Provena, the taxpayer's request for real estate tax exemption was denied. Similarly, both courts rejected the proposition that as long as an organization is "charitable" under IRC Section 501(c)(3), the property will qualify for local real estate tax exemption.
The similarities between the DCI case and Provena, however, generally end there. In an important victory for the Ohio Hospital Association, both the majority and minority opinions expressly rejected the Ohio Tax Commissioner's position that a threshold (or minimum) amount of unreimbursed care is required to qualify for real estate tax exemption. In reaching this conclusion, the majority opinion stated: "In the age of Medicare and Medicaid, the usual and ordinary indigent patient may have access to government benefits, and the modern healthcare provider is not required to forego the pursuit of those benefits to qualify for charitable status."
Finally, the majority also concluded that DCI could not base its exemption claim on the donation of surplus revenue to kidney research because such a claim would constitute a type of "vicarious exemption" that was rejected by the court in 1984.
Because it will be extremely unlikely that a tax-exempt hospital will have a written policy statement that explicitly reserves the right to refuse to treat indigent patients, this important decision of the Ohio Supreme Court should be distinguishable by tax-exempt Ohio hospitals.