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Saturday, October 03, 2009

Ind. Law - "Requests for retroactive property tax exemptions threaten county budgets"

Adding to a number of stories from papers around the state (see below), each adding more information, Lesley Stedman Weidenbener has this story in today's Louisville Courier Journal:

Indiana counties could be forced to refund millions of tax dollars if for-profit nursing homes and other health care providers succeed in arguing they’re eligible for retroactive charitable property tax exemptions.

In all, 21 for-profit health care providers – mostly nursing homes – have filed for the exemptions in Clark, Floyd and Harrison counties to seek refunds for tax years back to 2001. In Clark County alone, eight applications represent $32 million in assessed value.

Officials haven’t yet calculated how much that could cost the county in refunds, but county attorney Greg Fifer estimated it could be several million dollars for each tax year.

“It’s a potential budget crisis of a magnitude we’ve never seen before,” Fifer said.

Floyd County has a dozen applications for the exemptions, and Harrison County has one.

Similar applications have been filed in dozens of other Indiana counties.

The private companies argue that a combination of court decisions makes them eligible for the exemption, while the state budget that was passed in June allows them to ask for retroactive refunds.

“I think the law we’re operating under for nursing homes is clear,” said Pete Mallers, a Fort Wayne attorney who is representing a number of the nursing homes, including some in Southern Indiana.

But Senate Tax Chairman Brandt Hershman, R-Monticello, said Friday the General Assembly never intended to give for-profit corporations any charitable tax breaks. Instead, lawmakers created the retroactive language to give nonprofit groups that missed filing deadlines time to apply for the charitable exemption and recoup money lost in previous years.

Hershman said there was never a discussion about nursing homes or for-profit companies taking advantage of the law.

“If there’s a need to clarify the law or the tax court decisions, I’m sure we’ll take that under consideration,” Hershman said. “Obviously, the tax revenue impact could be significant and that was not the intent of the law. If it needs a correction, I’ll work with my colleagues to correct it.”

According to a memo filed with one of the Clark County nursing home applications, Indiana Tax Court decisions over the years have defined some health care services, particularly those for the elderly, as charitable purposes. Then in 2005, the Indiana Appeals Court said “the fact that an organization earns a profit is not necessarily determinative of whether it serves a charitable purpose.”

Mallers, whose firm wrote that memo, had been seeking tax exemptions for nursing homes even before the General Assembly passed the retroactive provision. He’s been successful in four counties where local property tax boards charged with reviewing the applications have granted exemptions for the for-profit nursing homes.

Other counties have said no, however, and Mallers’ appeals are pending before the state’s property tax board.

The disputes were relatively quiet until the General Assembly allowed retroactive refunds. But that led to a wave of applications from Mallers’ clients and others, leading to a Sept. 1 deadline specified in the budget to apply for such refunds.

Since then, “the only decisions we have received have been denials,” Mallers said. “We’re not surprised. We fully anticipate that this is ultimately going to be handled at a higher level.”

The local property tax boards in Clark, Floyd and Harrison counties have not yet considered the applications, a process that Fifer said could take another four to six weeks in Clark’s case. Meanwhile, several county assessors have sought guidance from the Indiana Department of Local Government Finance and outside tax attorneys.

The state agency has urged local officials to “review each property tax exemption application carefully” to see if it meets the test for charitable use, said Mary Jane Michalak, a spokeswoman for the local government finance agency.

But it has not given specific direction for dealing with the nursing home cases.

Carmel property tax attorney Marilyn Meighen said the legal issues are largely untested. She said the tax and appeals court decisions that the private companies are using to make their case don’t necessarily speak to the specifics of for-profit nursing homes using charitable exemptions.

“This is a fight for both sides,” said Meighen, who is working with at least 40 counties on the issue. “It’s not a lay-down win for either one.”

She expects whatever decisions are made locally to be appealed through the state board, tax court and appellate court. Ultimately, she said, the issue will likely be settled by the Indiana Supreme Court – unless the General Assembly intervenes first.

The drawn-out legal process would at least give local officials some time to find the money to pay refunds if they are ordered, she said.

“The financial ramifications are just enormous,” Meighen said. “This is real money and nobody has budgeted for it.”

Most of these earlier stories were referenced in ILB entries with the heading: "Did an amendment to this year’s state budget open the door to tax refunds for nursing homes across the state?"

For more on this year's budget bill and its issues, see:

Posted by Marcia Oddi on October 3, 2009 09:02 AM
Posted to Indiana Government | Indiana Law