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liability

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Little Falls Hospital v. Board of Assessors of City of Little Falls, 75 Misc.2d 731, 348 N.Y.S.2d 856

Facts

Little Falls Hospital occupied a building at 4 Whited Street, which had been used as a residence for nurses. Recently, parts of the building were rented to practicing physicians and the Herkimer County Mental Health Clinic, while other areas were used for storage and living quarters for a nurse. The physicians treated patients outside of the hospital and charged for their services. The hospital argued that the nominal rental was intended to attract physicians to the area and ensure their availability for hospital patients.

For many years a building located at 4 Whited Street was occupied as a residence for nurses employed in the hospital. In recent times portions of the building have been rented to practicing physicians and to the Herkimer County Mental Health Clinic. Other portions of the building are used for storage of hospital materials and for living quarters for one of the hospital's nurses. The physicians who have office space in the building examine and treat people other than hospital patients and make charges to those people for their services.

Issue

Did the leasing of portions of the hospital's property to practicing physicians for private medical practice result in a loss of tax exemption for the property?

The City claims that the leasing of this property is not incidental to the administration or treatment given at the hospital but rather the property in question is being used for business purposes and, therefore, is subject to taxation.

Rule

The court determined that property used for business purposes, rather than for hospital operations, is subject to taxation and that the use of the property must be incidental to the hospital's purposes to maintain tax exemption.

In the opinion of this Court that portion of the building used as rental property is subject to assessment and tax liability.

Analysis

The court analyzed the nature of the leasing arrangement and concluded that the physicians were conducting their private practices, which was not incidental to the hospital's operations. The court noted that if the physicians were only treating hospital patients, the rental might be considered incidental; however, since they treated other patients and charged for their services, the use of the property was deemed a business purpose.

However, the doctors using these offices are conducting their private practice of medicine which is not incidental to the purposes and the operation of the hospital.

Conclusion

The court concluded that the portion of the building used as rental property is subject to assessment and tax liability, resulting in a loss of tax exemption for the hospital.

If the only people treated and examined by these physicians were hospital patients, the renting of the office might very well be incidental to hospital purposes even though the patients were charged by the doctor for the care and treatment.

Who won?

The City of Little Falls prevailed in the case because the court found that the hospital's leasing practices constituted a business use of the property, which disqualified it from tax exemption.

The court held that the hospital's leasing of portions of building to practicing physicians… resulted in loss of tax exemption.

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