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Bar Journal - March 1, 2000

The New Community Benefits Law


The tension between the encouragement of charitable enterprise and the need for tax revenue is not a twentieth century issue. As early as the sixteenth century, King Henry VIII of England stripped Catholic monasteries of their wealth for state revenues. Four hundred years later, government entities in the United States still face the challenge of providing adequate services to the public without creating an undue tax burden on their citizens. In an era of pressing social needs and the unwillingness of citizens to pay additional taxes, elected officials are beginning to examine their fiscal policies, including the real estate tax exemption routinely granted to charities. Increased litigation and legislative initiatives involving real estate tax exemption for charitable organizations is evidence of the ongoing benefit vs. burden debate currently taking place between government and the nonprofit sector.

A recently released study places the potentially taxable property of public charities at $239.17 billion.1 Of that amount, health care institutions represent $141.83 billion or 59% of the value of real estate held by nonprofits. Given the extent of these statistics, it is not surprising policy makers and government officials nationwide are taking a closer look at this issue.

While both sides of the debate acknowledge that charitable activity or community benefit should be performed in exchange for the tax exemption, there is no universal agreement on the specific form or amount that charitable benefit should take. Laws in the states of Texas and Utah require a quid pro quo for example, a hospital must provide uncompensated charity care in an amount at least equal to the total of its real estate tax exemption. Some states have adopted a community benefits formula which is applied to specific charitable activities, while others mandate no specific amount of charity care but do require the periodic distribution of a community benefits report to the general public. All state laws, with the exception of New Hampshire, apply the community benefits requirement to nonprofit hospitals only and not to other organizations providing health care services. Massachusetts has a voluntary community benefits program that applies to nonprofit hospitals and health maintenance organizations.

Federally, the Internal Revenue Service has defined its community benefit standard in Revenue Ruling 69-545. The ruling requires that "every federally tax-exempt hospital be governed by a board of directors composed of individuals drawn from the community, have an open medical staff, provide nondiscriminatory treatment to Medicare and Medicaid patients, and maintain an emergency room open to all without regard to ability to pay."2 Although the ruling provides the general community benefit standard for federal tax exemption purposes, it is not specific enough to assist state policy makers in prescribing how this standard should be implemented and applied.

"New Hampshireís lawmakers and Director of Charitable Trusts have a duty to ensure that non-exempt taxpayers are getting the fullest value of services from charitable organizations in exchange for tax subsidies. In todayís health care environment, fulfilling this duty requires the establishment of measurable, affirmative obligations to the indigent and to local communities as a prerequisite to charitable tax-exempt status for nonprofit hospitals."3

Since the early 1980ís, states, including New Hampshire, have been questioning whether the real estate tax exemption granted to nonprofit institutions provides an equal benefit to the community in the form of free or cost reduced goods and services, a benefit vs. burden test. This question is particularly asked of nonprofit hospitals due to the enormous amount of real estate owned by these institutions. This issue is presently the subject of litigation in Dartmouth Hitchcock Medical Center, et al v. City of Lebanon, Grafton County Superior Court Docket No. 98-E-0059.

Several significant events taking place in New Hampshire in the past 15 years have caused state lawmakers and local government officials to take a closer look at the issue of tax exemption vs. community benefit. The sale of Portsmouth Hospital and the Alexander-Eastman Hospital to the for-profit Columbia/HCA Corporation, issues surrounding the dissolution of Optima Health and the emergence of two separate nonprofit hospitals, and the Dartmouth Hitchcock case have caused the issue of community benefits to become a legislative priority.

"The appropriateness of the nonprofit hospital tax exemption has long been debated, and many theories have been advanced to justify the tax exemption of nonprofit hospitals. In a growing number of jurisdictions, however, state and local authorities have gone beyond the theoretical debate and are challenging the tax exemption of their nonprofit hospitals. At the heart of such challenges is the debate over the nature and extent of the duty charitable institutions owe to their communities."4

Nationally, two important cases in this debate have emerged: Utah County v. Intermountain Health Care, Inc., 709 P.2d 265 (1985) and an unreported case, State of Texas v. The Methodist Hospital, Travis County District Court (1993).

In the first case, the Utah County Board of Equalization appealed a decision of the Utah Tax Commission exempting nonprofit hospitals from paying property taxes. In its decision the Utah Supreme Court held that the nonprofit hospitals did not demonstrate that their property was being used exclusively for charitable purposes, and thus the hospitals were not entitled to property tax exemption.

Texas was the first state to undertake a formal examination of the amount of charity care provided by the stateís nonprofit hospitals. In 1988, Attorney General Jim Mattox appointed a special task force to study not-for-profit hospitals focusing specifically on unsponsored charity care. In his charge to the task force, Mattox stated, "At one time, mere existence as a hospital was considered a charitable purpose. The advent of proprietary hospitals, the competition for paying patients and the creation of public hospitals has irrevocably altered the concept of hospitals such that charity and hospital are no longer synonymous."5

The final report concluded that, while there were wide disparities in charity care among the hospitals surveyed, overall the poor and indigent populations did not have an acceptable level of access to health care at nonprofit hospitals. Mattox concluded the majority of nonprofit hospitals in Texas were not providing an acceptable level of unsponsored charity care and community benefits when compared to the advantages conferred upon these institutions by their nonprofit status. Based on this report, the attorney general brought suit against the Methodist Hospital in Houston in 1993. The State of Texas lost the case and subsequently appealed the decision.

The appeal was withdrawn upon the adoption of the Texas Health and Safety Code Sec. 311.031 Hospital Data Reporting and Collection System. This legislation contains a community benefits section which states: "A nonprofit hospital shall develop an organizational mission statement that identifies the hospitalís commitment to serving the health care needs of the community; and a community benefits plan defined as an operational plan for serving the communityís health care needs that sets out goals and objectives for providing community benefits that include charity care and government-sponsored indigent health care. . .and that identifies the populations and communities served by the hospital."6

Community benefit laws relating to nonprofit hospitals have now been enacted by the states of California, Georgia, Idaho, Indiana, Minnesota, New York, Pennsylvania, Utah, and New Hampshire. Massachusetts has adopted a voluntary program for reporting and includes health maintenance organizations. Community benefit legislation is currently under review in the states of Florida, Michigan, Nebraska, and Tennessee.


Senate Bill 69, an act relative to health care charitable trusts and community benefits, was introduced into the 1999 session of the New Hampshire Legislature by Senator Katherine Wheeler, Senator James Squires, Representative Lawrence Emerton, Representative Marion Copenhaver, and Representative Martha Fuller Clark. Focusing on a policy of public accountability, the legislation requires that health care charitable trusts develop a community benefits plan each fiscal year and submit the plan to the Attorney General, Director of Charitable Trusts. The director and each respective organization must provide full public access to these reports. The sponsors envisioned a system whereby the general public would be the ultimate judge of whether or not a particular health care charitable trust is meeting its community benefit responsibility. The New Hampshire approach of citizen participation and accountability to the public is the centerpiece of this new law.

How does the law define "community benefits"?

"Community benefits" means a health care charitable trustís activities that are intended to address community health care needs including, but not limited to, any of the following: charity care; financial or in-kind support of public health programs; allocation of funds, property, services or other resources that contribute to community health care needs identified in a community benefits plan; donation of funds, property, services or other resources which promote or support a healthier community, enhanced access to health care or related services; health education and prevention activities, or services to a vulnerable population; and support of medical research and education and training of health care practitioners."7 It is important to note that bad debt does not qualify as a community benefit.8

Charity care, if included in the community benefits plan, must be "provided in accordance with a written policy which is available to the public, which allows any individual to make application and receive a prompt decision on eligibility for and the amount of charity care, and notice of which is prominently displayed in the trustís lobby, waiting rooms, or other area of public access or otherwise is provided to service applicants and recipients who are served in their own homes or in locations other than a facility of the trust."9

When is the law effective and who does it effect?

Senate Bill 69 has two effective dates which create three levels of compliance. The first, January 1, 2000, applies to any health care charitable trust with a fund balance of over $1,000,000. The second, January 1, 2001, applies to any health care charitable trust with a fund balance of over $100,000. Finally, any health care charitable trust with a fund balance below $100,000 is exempted from the law.

The New Hampshire statute is unique in its scope. While all other state community benefit laws, with the exception of Massachusetts, pertain to hospitals only, the New Hampshire law has a much broader focus. Under our statutes, a health care charitable trust is defined as "a charitable trust organized to directly provide health care services, including but not limited to, hospitals, nursing homes, community health services, and medical-surgical or other diagnostic or therapeutic facilities or services. Health care charitable trust shall not include any testamentary or inter vivos trust which is not organized to provide health care services."10 (emphasis added). The words "directly provide" are important in this context. The legislative committee wanted to ensure those institutions providing funding for health care services are not required to comply with the provisions of this law. Therefore, nearly all health care foundations and trusts are exempt.

What is the purpose of the law?

The purpose is "to ensure that health care charitable trusts provide the communities they serve with benefits in keeping with the charitable purpose for which the trusts were established and in recognition of the advantages the trusts enjoy. It acknowledges that each community is unique and its particular health care problems and needs should be examined and the community benefits provided by health care charitable trusts which serve it should be directed toward addressing the issues and concerns of that community."11 The importance of public input and community participation is emphasized in the community needs assessment process which will be addressed later in this article.

How is the law enforced?

N.H. Revised Statutes Annotated Chapter 7 codifies the authority of the director of charitable trusts. This law is an amendment to that chapter and the enforcement authority is, therefore, under the jurisdiction of the director of charitable trusts. The specific enforcement authority is found in the following sections: RSA 7:32-e which gives the responsibility for developing the community benefits form to the attorney general; RSA 7:32-g I, which requires the health care charitable trust to submit its community benefits plan to the director of charitable trusts within 90 days after the start of the trustís fiscal year; RSA 7:32-g II, which requires the director of charitable trusts make all community benefits plans available to the public and gives the director the authority to grant an extension of time for filing the plan; RSA 7:32-g III, which gives the director the authority to impose administrative fines for failure to submit the plan in a timely manner; RSA 7:32-i, which upholds the common law authority of the director of charitable trusts; and RSA 7:32-j, which gives the director the authority to grant suspensions to health care charitable trusts in those situations where compliance with the law would be a financial or administrative burden to the organization. The suspension, when granted, is valid for three years.

Critical dates

The community needs assessment must be updated every three years; the community benefits plan must be filed with the Director of charitable trusts annually; the trust shall adopt a mission statement which must be reaffirmed annually; the community benefits plan is due 90 days from the start of the trustís fiscal year.

Specific requirements

"Every health care charitable trust shall, either alone or in conjunction with other health care charitable trusts in its community, conduct a community needs assessment to assist in determining the activities to be included in its community benefits plan."12

Because community needs assessments may be expensive and time consuming the legislation encourages collaboration between health care charitable trusts under the provisions of RSA 7:32-l.

The elements of a community needs assessment are as follows:

  • A clearly defined mission
  • Define the community and/or service area for which the health care charitable trust provides services
  • Determine whether or not the organization should collaborate with other health care charitable trust(s) in preparing the community needs assessment
  • Prepare a plan for consulting with members of the public, community organizations, service providers, and local government officials in the trustís service area, e.g. do you want to use focus groups, telephone surveys, community town meetings, face-to-face interviews, etc.
  • Identify data sources both primary and secondary
  • Collect the data and formulate a hypothesis about the communityís health needs
  • Present community needs assessment findings to the community
  • Prepare the community benefits plan

Community benefits plan: six statutory requirements

"I. The trust shall adopt a mission statement which shall be included in its plan and which shall be reaffirmed by the trust on an annual basis.

II. The plan shall take into consideration a community needs assessment and shall identify the health care needs that were considered in development of the plan.

III. The plan shall identify the activities the trust expects to undertake or support which address the needs determined through the community needs assessment process or which otherwise qualify as community benefits and shall include all charity care in a discrete category.

IV. The plan shall include a report on the community benefit activities undertaken by the trust in the preceding year and information describing the results or outcomes of the trustís community benefits activities. The report shall also include the means used to solicit the views of the community served by the trust, identification of the community groups, members of the public, and local government officials consulted on the development of the plan, and an evaluation of the planís effectiveness.

V. To the extent practicable, the plan shall include an estimate of the cost of each activity expected to be undertaken or supported in the ensuing year; and a report on the unreimbursed cost of each activity undertaken in the preceding year.

VI. The process for development of the plan shall include an opportunity for members of the public in the trustís service area to provide input into development of the plan and comment upon the trustís proposed plan."13

If the provisions of this law are deemed to be an administrative or financial hardship to a health care charitable trust, how can an exemption be obtained?

Pursuant to RSA 7:32-j, the attorney general is responsible for establishing the criteria and procedure to be used in requesting an exemption from the provisions of the law. It will be necessary for the health care charitable trust to meet the hardship test and to explain in detail why collaboration with another nonprofit is impossible or impracticable. The exemption, if granted, is valid for three years and may be revoked by the director of charitable trusts at any time.

How does this new law effect eligibility for property tax exemption?

"Compliance with this subdivision shall not establish eligibility for a property tax exemption under RSA 72:23, V, but may be considered if relevant to the criteria established in RSA 72:23, RSA 72:23-l, and at common law."14

Because this is a major new policy initiative for New Hampshire, the legislature has provided a legislative review provision under RSA 312:3.

The attorney general will be posting forms, instructions, and other information regarding the implementation of the community benefits law on the Charitable Trusts Unit website at


1. Richard Steinberg and Marc Bilodeau, Should Nonprofit Organizations Pay Sales and Property Taxes? National Council of Nonprofit Organizations, July, 1999, p. 9
2. Coalition for Nonprofit Health Care, State Law Approaches to Ensuring the Social Accountability of Nonprofit Health Care Organizations, July, 1999, p. iii.
3. Jennifer L. Frizzell, Nonprofit Hospitals and Charitable Tax Exemptions: Reexamining the Quid Pro Quo, New Hampshire Bar Journal, December, 1998, p. 34
4. Alice A. Noble, Andrew L. Hyams, Nancy M. Kane, Charitable Hospital Accountability: A Review and Analysis of Legal and Policy Initiatives, Journal of Law, Medicine & Ethics, 26, no. 2 (1998): 116-37
5. Jim Mattox, Special Task Force to Study Not-For-Profit Hospitals and Unsponsored Charity Care. July, 1988, page 1.
6. Texas Health and Safety Code, Subtitle F., Chapter 311, Section 311.044 (a).
7. New Hampshire Revised Statutes Annotated d 7:32-d III (1999).
8. New Hampshire Revised Statutes Annotated d 7:32-h I (1999).
9. New Hampshire Revised Statutes Annotated d 7:32-h II (1999).
10. New Hampshire Revised Statutes Annotated d 7:32-d V (1999).
11. New Hampshire Revised Statutes Annotated d 7:32-c (1999).
12. New Hampshire Revised Statutes Annotated d 7:32-f (1999).
13. New Hampshire Revised Statutes Annotated d 7:32-e (1999).
14. New Hampshire Revised Statutes Annotated d 7:32-k (1999).

The Author

Terry M. Knowles is the Registrar of Charitable Trusts, Department of the Attorney General Charitable Trusts Unit, Concord, New Hampshire.

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