July 16, 2024
In a case involving a municipal tax assessment on personal property – in this instance, medical equipment – the Connecticut Supreme Court concluded that The William W. Backus Hospital, part of the Hartford Healthcare network, could not avoid the tax. The William Backus Hospital v. Town of Stonington (SC20805), slip op. (July 12, 2024). In so holding, the Supreme Court relied upon and specifically cited to the arguments advanced by Murtha Cullina attorneys Kari L. Olson, Marilyn B. Fagelson and Rachel Snow Kindseth on behalf of the Connecticut Conference of Municipalities (CCM) as amicus curiae.
The Hospital had argued that it was exempt from taxation on medical equipment in its Stonington, Connecticut facility where it provided outpatient rehabilitation, physical and occupational therapy and sports medicine within the town of Stonington. The trial court had concluded that the Hospital’s property qualified for an exemption under two statutory provisions: Connecticut General Statutes § 12-81(7) (property used for charitable purposes) and § 12-81 (16) (property of hospitals and sanatoriums). The Supreme Court reversed, holding that another statute trumps those exemptions. Specifically, Connecticut General Statute § 12-66a is directed at large healthcare systems, such as Hartford Healthcare, that have “net patient revenue from facilities located within the state of one billion five hundred million dollars or more . . . ’’ and it voids the exemptions for taxes on “(1) Real property that is acquired by a health system on or after October 1, 2015, that, at the time of such acquisition, is subject to taxation … and (2) any personal property incident to the rendering of health care services at the real property described in subdivision (1) of this section.”
The Hospital had argued that because it leased (instead of owned) its rehabilitation facility, it had not “acquired” any real property and § 12-66a did not apply at all. The Supreme Court rejected this narrow interpretation of the term “acquired” that would limit the application of the statute to instances where the healthcare system purchased real property. Citing to dictionary definitions and case law, the Supreme Court construed the term “acquire” more broadly to include the lease involved here.
In its amicus brief, Murtha had explained that for many years prior to the adoption of § 12-66a, big healthcare systems had been purchasing private medical practices throughout Connecticut and in many instances taking those businesses off of the tax rolls as part of a hospital or charitable organization. In concluding that § 12-66a applied to the Hospital here, the Supreme Court specifically cited these arguments in deciding that “acquired” could refer to leased as well as purchased property: “As the town and the amicus argue, [the Hospital’s narrower] construction would invite the structuring of transactions to frustrate the evident purpose of § 12-66a—protecting the tax base of municipalities in the face of local health-care facilities that are subject to property taxes being purchased by large hospital based health-care systems, which would render them tax-exempt in the absence of the statute.”
The Supreme Court also rejected the Hospital’s argument that it did not fall within the statutory definition of a health system, which was required for the application of § 12-66a. It concluded that the statute defines health system broadly to include “both the health system itself and the affiliated hospitals or entities.” In so concluding, the Court quotes from Murtha’s brief. “As the amicus aptly observes, this definition prevents ‘health systems that would otherwise be subject to § 12-66a’ from ‘easily rearrang[ing] their corporate structure to avoid its application’ by ‘cabin[ing] their various outpatient practices as subsidiaries of the hospital.’”
Although the amount of taxes challenged by The William W. Backus Hospital was relatively small, the stakes for municipalities throughout Connecticut was very significant. The Supreme Court rejected the Hospital’s efforts to avoid municipal taxes merely because it leased instead of purchasing property, or by virtue of a creative corporate structure or leasehold arrangement.
Established in 1966, CCM is the largest nonpartisan organization of municipal leaders in the State. CCM currently has 168 member towns, meaning its membership represents almost every town or city in the State. One of CCM’s many purposes is to advocate for member towns on issues of general concern. Advancing the interests of its members through participation as amicus curiae in cases throughout Connecticut is an important part of CCM’s work. Murtha Cullina is pleased to have written the amicus brief on behalf of CCM.
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