Arkansas Court of Appeals Upholds Charitable Exemption for Hospital Clinics

In a unanimous opinion, the Court of Appeals has upheld a charitable exemption from property tax for clinics and lots acquired by a charitable hospital.  Hardesty v. North Arkansas Medical Services, Inc., 2019 Ark. App. 410 (Sept. 25, 2019).  This straightforward opinion reaffirms existing case law about the requirements for charitable exemption for a hospital, which do not include a minimum percentage of charity care.  With this opinion, Arkansas avoids the kind of high-stakes property tax exemption controversy that has surrounded hospitals in other states (at least for the time being).

The Hardesty case comes out of Boone County, where the hospital system acquired several adjoining parcels containing health clinics, parking lots, and one vacant lot.  The hospital sought exemption for these parcels, which was denied by the assessor.  The Circuit Court granted the exemption, and the assessor appealed.

The Arkansas property tax charitable exemption comes from the constitution, providing an exemption for "buildings and grounds and materials used exclusively for public charity."  Ark. Const. art. 16, § 5(b).  Case law provides a three-factor test for hospitals to qualify under this exemption.  Charitable hospitals must:

  1. Be open to the general public;
  2. Not refuse services based on inability to pay; and
  3. Apply all profits to maintaining the hospital and extending and enlarging its charity.

The Court of Appeals upheld the determination that all factors were met.  The assessor's argument that the hospital provided insufficient free services and medical debt relief for the property to be considered used "exclusively for public charity" was rejected.  The assessor had been seeking to apply a primary use principle to consider whether the property was used primarily for free care rather than fee-for-service care.

It remains to be seen whether the assessor will seek review by the Arkansas Supreme Court.  Given the textualist orientation of some recent Supreme Court opinions, it is conceivable that the assessor's arguments based on the plain language of the constitution could find a more receptive hearing.  But, as it stands, this Court of Appeals decision soundly affirms Arkansas nonprofit hospitals' entitlement to property tax exemption.


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