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Wednesday, 08 June 2016 13:59

Stakes high in tax dispute with Haywood hospital

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haywoodA dispute over how much Haywood Regional Medical Center owes in county property taxes is headed for a showdown this month.

The county stands to gain — or lose — up to $150,000 annually depending on which side wins. The final verdict on the hospital’s tax bill will come down to a not-so-easy question: what’s the hospital worth? Taxes are calculated according to its worth. 

“All property is supposed to be assessed at fair market value,” said David Francis, Haywood County Tax Administrator. “The hospital is certainly a little trickier.”

The county has pegged the value of the hospital’s main campus and adjunct facilities at $43.18 million.

But the hospital’s owner, the national healthcare network Duke LifePoint, claims Haywood Regional’s holdings are worth only $17.9 million.

It amounts to a difference of $100,00 per year on the hospital’s real estate taxes.

Meanwhile, another dispute is brewing over how much the hospital owes in property taxes on its equipment. Business entities must pay taxes on all their furnishings and equipment. For the hospital, that means every MRI, every X-ray machine, every IV pole, every bed, every computer and so on — not only for the main hospital, but the rehab center, outpatient surgery center, hospice, fitness center, urgent care and every doctor’s practice under the LifePoint umbrella.

The county claims the hospital has $16 million in equipment assets. Duke LifePoint claims it’s only $7 million — amounting to another $50,000 discrepancy in its annual property tax bill.

From the hospital’s perspective, it doesn’t want to get soaked by the county for more than its fair share. But just what that fair share is, for now, is in the eye of the beholder.

Both sides will have a chance to make their case at a property value hearing at the end of June, presided over by a local five-member panel known as the Board of Equalization and Review, appointed by county commissioners expressly for the purpose of hearing property value appeals each year.

“Everybody has the legal right to file an appeal on the property,” Francis said. “Just because it has a big number beside it, it will be handled in the same manner as any other appeal.”

The pseudo-legal proceeding will be loaded with real estate experts and appraisers on each side explaining how they arrived at their claimed number.

Pegging a hospital’s value isn’t easy. An appraisal is typically based on the sale price of similar properties nearby. But there aren’t any other hospitals in Haywood County to go by. The sale price of liked-sized hospitals elsewhere in the state could offer some insight, but there are so many variables between hospitals that an apples-to-apples comp value doesn’t exist.

 

How we got here

Until recently, the county didn’t get any property taxes out of Haywood Regional. It was a nonprofit hospital, and nonprofits are exempt from property taxes.

That changed two years ago when the hospital was sold to LifePoint. Haywood Regional gave up its title as a locally-owned, independent nonprofit for the security, economies of scale and strong capital footing that a corporate, for-profit network like LifePoint offered.

Francis doesn’t want the property tax dispute to color the county’s rapport with the hospital.

“Haywood County values our relationship with Duke LifePoint and the progress they’ve made for citizens of Haywood County,” Francis said.

The boon to county tax coffers was often cited as a plus in the sale of the hospital, since it would join the property tax rolls when the sale went through.

On paper, the county has always assigned the hospital a property value. But the value was always more of a guesstimate — neither side split hairs over how accurate it was because it didn’t matter anyway, Francis said.

When the hospital sale went through in the summer of 2014, the county got to work on coming up with a more accurate value for the hospital’s main campus and its various adjunct facilities around the county.

The value listed on the county’s books prior to the sale was $55 million.

“After the sale we went out there and measured every building, the entire parking lot, and did a walk through of every floor and of every building,” Francis said.

Based on the thorough survey, the county recalculated Haywood Regional’s real estate value at $43.1 million.

The first year following the sale, Duke LifePoint paid the property taxes according to the county’s value. But this year, Duke LifePoint countered.

Before launching a formal appeal, Duke LifePoint made a customary informal appeal. But the county didn’t back down from its appraised value. So Duke LifePoint filed a formal appeal in April.

Meanwhile, a dispute over the hospital’s property taxes on equipment and furnishings has been in play since last year. Before the hospital became a for-profit, the county didn’t bother to keep a close accounting of its equipment and medical devices due to its tax-exempt status.

When the hospital sold, itemizing every piece of equipment in the hospital and various facilities under the hospital’s umbrella became a monumental undertaking.

The ball was initially in LifePoint’s court to provide the county with a list of its equipment and assets. But the county claims it wasn’t complete.

“We felt like there was some information missing,” Francis said. “We thought it needed another set of eyes so we hired an independent auditor.”

The auditor crafted his own list for the county, but not based on a floor-by-floor, room-by-room inventory of the hospital. That would be too time consuming, Francis said.

Instead, the auditor compared the equipment list from Duke LifePoint against the hospital’s internal depreciation schedule — an itemized list of assets and their depreciation rate for accounting and income tax purposes. The two didn’t jive.

The hospital’s internal depreciation schedule doesn’t appear to be comprehensive, either, however.

The county came up with $16 million in equipment and furnishings, compared to $7 million that Duke LifePoint claimed. Duke LifePoint paid equipment taxes last year based on its own claim of $7 million, but if the final determination ends up being higher, it will have to pay the difference along with discovery penalties.

LifePoint executives nor LifePoint’s consultant in the property tax dispute returned messages seeking comment for this story.

 

What next

The Board of Equalization and Review will hear both appeals — the one on the hospital’s real estate value and its equipment value — on June 29.

The board will then issue a ruling on what it thinks the values are. It could side with the county, with LifePoint, or comprise somewhere in between.

The county and Duke LifePoint could come to an agreement following the Equalization and Review board hearing.

If not, either party could take their dispute to the next level, namely a hearing before the state Property Tax Commission in Raleigh. If either side is still unsatisfied, the next step is an appeal to the N.C. Court of Appeals.

 

 

By the numbers: Haywood hospital tax dispute

Haywood Regional Medical Center’s property holding* 

• $43.14 million: value according to the county

• $17.9 million: value according to Duke LifePoint

• $244,000: yearly property tax bill based on the county’s pegged value

• $101,000: yearly property tax bill based on Duke LifePoint’s purported value

*The real estate property value includes all land and buildings owned by the hospital, including the main hospital and its 56-acre campus, the fitness center, Haywood Hospice House, and outpatient surgery center.

Haywood Regional Medical Center’s equipment assets*

• $16 million: value according to the county

• $7 million: value according to Duke LifePoint

• $90,000: yearly tax bill on equipment based on the county’s value

• $40,000: yearly tax bill on equipment based on Duke LifePoint’s value

*The equipment value includes all devices and furnishings — from X-ray machines to IV poles — at all hospital facilities and doctor’s practices under the Duke LifePoint umbrella countywide. 

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