AN ACT Relating to tax exemptions for nonprofit hospitals; amending RCW 84.36.040 and 82.04.4289; adding a new chapter to Title 70 RCW; and creating a new section.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

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

(2) Individuals whose earnings are adequate to meet their day-to-day expenses may find themselves unable to pay the high costs of hospitalization, particularly at a time when illness or injury has reduced or eliminated their ability to work. These individuals may not be eligible for public assistance available to individuals with long-term financial need and must depend on the charitable care provided by hospitals in their community.

(3) Numerous private hospitals are exempted 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.

(4) 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.

(5) 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 chapter reserves the benefits of tax exemptions, formerly provided to all nonprofit hospitals, to those hospitals that provide their fair share of charitable care.

NEW SECTION. Sec. 2. DEFINITIONS. As used in this chapter, the following terms have the meanings indicated unless the context clearly requires otherwise.

(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 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.

NEW SECTION. Sec. 3. TAX EXEMPTION FOR HOSPITALS DEPENDENT ON PROVISION OF CHARITABLE CARE. No nonprofit hospital is eligible for the exemption from property taxes provided in RCW 84.36.040 or the exemption from the business and occupation tax provided in RCW 82.04.4289 unless the hospital provided charity care valued in an amount equal to or exceeding three percent of the total revenue of the hospital for that tax year.

NEW SECTION. Sec. 4. FORMULA FOR COMPUTING PERCENTAGE OF CHARITY CARE. The percentage of charity care provided by a hospital under section 3 of this act shall be computed by dividing the value of charity care provided during the hospital's fiscal year by the total patient revenue received by a hospital, including medicare, medicaid, and other third-party reimbursements for services, during the same period.

NEW SECTION. Sec. 5. ENFORCEMENT. The department of revenue may:

(1) Adopt any rules necessary for the administration and enforcement of this chapter.

(2) Require hospitals to report information necessary to administer and enforce this chapter.

(3) Audit the records of hospitals to confirm their tax status.

Sec. 6. Section 84.36.040, chapter 15, Laws of 1961 as last amended by section 1, chapter 31, Laws of 1987 and RCW 84.36.040 are each amended to read as follows:

The real and personal property used by nonprofit (1) day care centers as defined pursuant to RCW 74.15.020 as now or hereafter amended; (2) free public libraries; (3) orphanages and orphan asylums; (4) homes for the aged; (5) homes for the sick or infirm; (6) hospitals for the sick; and (7) outpatient dialysis facilities, which are used for the purposes of such organizations shall be exempt from taxation: PROVIDED, That the benefit of the exemption inures to the user: PROVIDED FURTHER, That nonprofit hospitals must meet the requirement for the provision of charitable care established in section 3 of this 1988 act.

To be exempt under this section, the property must be used exclusively for the purposes for which exemption is granted, except as provided in RCW 84.36.805.

Sec. 7. Section 10, chapter 37, Laws of 1980 as amended by section 2, chapter 178, Laws of 1981 and RCW 82.04.4289 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, and in the case of nonprofit hospitals, meets the requirement for the provision of charitable care established in section 3 of this 1988 act. In no event shall any such deduction be allowed, unless the hospital building is entitled to exemption from taxation under the property tax laws of this state.

NEW SECTION. Sec. 8. SEVERABILITY. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION. Sec. 9. CAPTIONS. As used in this act, captions constitute no part of the law.

NEW SECTION. Sec. 10. LEGISLATIVE DIRECTIVE. Sections 1 through 5 of this act shall constitute a new chapter in Title 70 RCW.