S-1126.2          _______________________________________________


                                 SENATE BILL 5574



State of Washington              52nd Legislature             1991 Regular Session


By Senators Niemi and McDonald.


Read first time February 8, 1991.  Referred to Committee on Health & Long‑Term Care.Limiting the business and occupation tax exemption for certain nonprofit hospitals.

     AN ACT Relating to business and occupation tax exemptions for nonprofit hospitals; amending RCW 82.04.4289; and creating a new section.




     NEW SECTION.  Sec. 1.      (1) Significant numbers of the citizens of this state lack medical insurance or other third-party coverage for medical costs.

     (2) Numerous hospitals are exempt from state and local property taxes and from the state business and occupation tax as nonprofit hospitals.  These tax exemptions are justified by the long tradition carried on by many of these institutions of providing necessary medical care to individuals who are unable to pay for such care.

     (3) In the increasingly competitive health care market, some hospitals have reduced the charitable care they once provided and others provide no charitable care.  Other hospitals continue to provide necessary services, despite increasing financial pressure to abandon this long-standing tradition.

     (4) In the interests of recognizing the value of the services provided by those hospitals that continue to provide charitable care and of equalizing the competitive position of those hospitals that do fulfill this need and those that do not, this act limits the business and occupation tax exemption, formerly provided to all nonprofit hospitals, to those hospitals that provide their fair share of charitable care.


     Sec. 2.  RCW 82.04.4289 and 1981 c 178 s 2 are each amended to read as follows:

     In computing tax there may be deducted from the measure of tax amounts derived as compensation for services rendered to patients or from sales of prescription drugs as defined in RCW 82.08.0281 furnished as an integral part of services rendered to patients by a hospital, as defined in chapter 70.41 RCW, which is operated as a nonprofit corporation, a kidney dialysis facility operated as a nonprofit corporation, whether or not operated in connection with a hospital, nursing homes and homes for unwed mothers operated as religious or charitable organizations, but only if no part of the net earnings received by such an institution inures directly or indirectly, to any person other than the institution entitled to deduction hereunder.

     ((In no event shall any such)) No deduction ((be)) is allowed((,)) under this section for a hospital unless the hospital building is entitled to exemption from taxation under the property tax laws of this state and the hospital provided charity care in the reporting period valued in an amount equal to or exceeding one and one-half percent of the total patient revenue of the hospital for the reporting period.

     As used in this section, the following terms have the meanings indicated.

     (1) "Charity care" means necessary hospital health care rendered to indigent persons to the extent that the persons are unable to pay for the care or to pay deductibles or coinsurance amounts required by a third-party payer.  Charity care does not include the difference between the cost of services and the amount of reimbursement for the services by medicare, medicaid, or any other third-party payer, or other amounts owed to the hospital, by a patient who is not indigent, that the hospital has been unable to collect.

     (2) "Indigent persons" means those patients who have exhausted all third-party sources, including medicare and medicaid, and whose gross income is below two hundred percent of the federal poverty standards, adjusted for family size.

     (3) "Total patient revenues" means total revenues from patients, including medicare, medicaid, and other third-party reimbursements for services.