Nonprofit Hospital Report Could Have Troubling Ramifications for Nonprofit Tax Exemption

Last updated: January 28, 2022

David Heinen, Vice President for Public Policy and Advocacy, North Carolina Center for Nonprofits

On January 26, 2022 the North Carolina State Treasurer released a report on charity care at nonprofit hospitals in North Carolina. The report notes that some nonprofit hospitals spent less on charity care in 2020 than the value of their tax exemptions and mentions the possibility of limiting or eliminating tax exemptions for nonprofit hospitals and imposing payments-in-lieu-of-taxes (PILOTs) on nonprofit hospitals and other large 501(c)(3) entities.

While the report’s findings about medical bills for low-income North Carolinians are troubling, the Center is concerned that the report misrepresents the community benefits provided by nonprofit hospitals and the challenges facing charitable nonprofits across North Carolina after nearly two years of the COVID-19 pandemic. Specifically:

1. The report does not mention that North Carolina remains one of 12 states that continues to opt out of Medicaid expansion. By declining Medicaid expansion, North Carolina policymakers have deprived more than half a million North Carolinians of adequate health coverage and eliminated a significant revenue stream for hospitals and other nonprofit health care providers.
2. The report doesn’t address the current nonprofit workforce shortage that is creating financial and operational challenges for nonprofits across North Carolina, including nonprofit hospitals.
3. Nonprofit hospitals provide a wide variety of community benefits beyond charity care, including significant financial and in-kind support to other nonprofits in their communities. Policy decisions that create new taxes or other challenges for nonprofit hospitals will ultimately harm thousands of other nonprofits across the state by weakening hospitals’ ability to be effective partners with other community-based nonprofits.
4. Aside from the myriad community benefits they provide, nonprofits – and nonprofit hospitals in particular – contribute significant tax revenue to the state. A 2020 analysis from the Center estimated that North Carolina nonprofits pay $1.1 billion to the state in taxes and fees each year, while receiving tax benefits valued at about $700 million in the form of tax exemptions, sales tax refunds, and tax-deductible contributions.

The Center is particularly concerned that the report could encourage policymakers to consider limiting or eliminating nonprofit sales tax refunds and/or property tax exemption. The Center has long held the position that all 501(c)(3) nonprofits should be exempt from state and local taxes. As we noted in a 2019 post highlighting potential threats to nonprofit tax exemption, “it is essential for all 501(c)(3) nonprofits to work together as a sector to preserve – and improve upon – nonprofit tax exemption. New taxes and fees on nonprofits – even if they initially only apply to a few organizations – ultimately harm our communities by taking resources away from the work of charitable nonprofits throughout North Carolina.”