On appeal from the Tax Court of New Jersey, Docket Nos. 1064-2000, 269-2001, 663-2002, 467-2003, 1414-2004, 1302-2005.
The opinion of the court was delivered by: Axelrad, J.T.C. (temporarily assigned)
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued: December 19, 2006
Before Judges Axelrad, R.B. Coleman and Gilroy.
Hunterdon Medical Center ("HMC"), the operator of a hospital in Flemington, appeals from a judgment of the Tax Court denying exemptions from local property taxation for the 2000 through 2002 tax years for portions of a building it owned in Readington Township. HMC operated a Wellness Center, a Physical Therapy Service ("PT Service") and a Pediatric Practice in the building.*fn1 The court found that these three activities did not meet the statutory "use" test to qualify for hospital purposes, and the Pediatric Practice further failed to meet the statutory "not-for-profit" requirement, thus disqualifying those portions of the building from exemption under N.J.S.A. 54:4-3.6. At issue in this appeal is the propriety of the Tax Court's articulation and application of a three-component analytical framework to distinguish off-campus facilities qualifying for a "hospital purposes" exemption, and those merely housing health-related activities, which are not exempt. We agree with the criteria developed by the Tax Court and their application to the facts in this case. Therefore, we affirm.
The facts adduced during the eight-day trial are set forth at length in Hunterdon Medical Center v. Readington Township, 22 N.J. Tax 302 (Tax 2005). The property under appeal is located about nine and one-half miles from the hospital campus, and contains a three-story structure totaling 26,055 square feet. During the years under appeal, the Wellness Center contained a total of 18,546 square feet, with about l6,000 square feet located on the first floor of the building and about 2500 square feet located on the second floor; the PT Service treatment room was located on the second floor of the Wellness Center; and the Pediatric Practice occupied 4584 square feet on the third floor of the building.
The Wellness Center, which was open to the public for a fee, contained facilities and equipment similar to a commercial fitness center or health club. During the years under appeal, its membership was primarily public-based. The Center's director, whose background was in commercial health clubs and not in medically-based fitness programs or facilities, hired all staff, without participation from HMC's human resources department or the Wellness Center's medical director. The Center also offered classes and seminars on topics such as healthy snacks, before and after pregnancy exercise, ballroom dancing and yoga. No member of HMC's physical therapy or cardio-pulmonary rehabilitation staff, dieticians or nutritionists served as instructors. The medical director conducted only a few lectures during the years under appeal.
The medical director was a part-time, independent contractor, who was not obligated to be physically present at the Center. He was able to fulfill his three and one-half hour per week contractual commitment almost exclusively by telephone conversations with the Center's director. No physician had any office or hours at the Center. Although Center members were required to complete a Physical Activity Readiness Questionnaire similar to many commercial fitness centers, those with medical restrictions were neither monitored by the fitness staff nor a physician, and were primarily responsible and accountable to themselves for the guidelines recommended to them by their physicians.
HMC operated one of three off-site PT services in this facility. The PT Service occupied a treatment room on the second floor of the Wellness Center, and the exercise equipment and facilities at the Center were available to persons receiving therapy. Anyone from the general public having an appropriate prescription from a physician could obtain therapy from the PT Service. The staff - physical therapists, rehabilitative aides, and physical therapy aides - consisted exclusively of non-physicians. There were no physicians on site and no member of the hospital's medical staff reviewed or supervised the therapy provided. Nor was any information communicated to the Wellness Center's medical director concerning therapy provided by the PT Service.
The Pediatric Practice existed as a private practice before its acquisition by HMC in l997. The space in the building was like any other primary pediatric physician's office; it had examining rooms, physicians' offices, a nurses' station, laboratory, reception and waiting room, and ancillary facilities. The practice had weekday office hours, with after-hours emergency access directed by "911" to a centralized triage facility, which allocated patients among hospitals. Reciprocity of patient referrals between the hospital and the Practice occurred on occasion. The pediatricians were compensated by HMC pursuant to a short and long-term incentive plan similar to the one that had been in place under the prior private ownership, which provided for a specified base salary plus profit sharing.
N.J.S.A. 54:4-3.6 provides exemptions from local property tax for "all buildings actually used in the work of associations and corporations organized exclusively for hospital purposes." The three statutory criteria that must be satisfied to qualify for exemption are: (1) the entity owning the property must be organized exclusively for the exempt purpose; (2) the property must be actually used for the exempt purpose; and (3) the operation and use of the property must not be conducted ...