Non-profit healthcare organizations in Tacoma will most likely begin paying a business and occupation tax soon. It is now a matter of when the tax will begin being collected and at what rate.
For the past few months, the council has considered eliminating a tax exemption for these organizations as it struggles to find ways to fill a $31 million budget gap. Enough members have expressed support for eliminating the tax exemption that it would pass once a vote is taken.
Everett and Bellevue tax non-profit hospitals. Seattle and Bellingham tax those non-profit medical facilities that have no religious affiliations. The state already taxes non-profit hospitals at a rate of 1.5 percent.
The council is considering several options, with exemptions set at various income levels. If the tax is collected as of April 1 at a 90 percent exemption of the combined annual gross revenue of the city's hospitals, the city would generate $188,000 in 2012. The amount generated at other percentage rates for this year would be: 85 percent, $282,000; 75 percent, $470,000; 50 percent, $941,000; 25 percent, $1,411,000; or $1,881,000 if the exemption was eliminated entirely.
Councilmember Anders Ibsen said small, private doctor's offices pay this tax while major operations like Franciscan and MultiCare are exempt. "That seems a little bizarre to me." He said big non-profit healthcare operations pay their chief executives high salaries and offer generous perks such as country club memberships. Ibsen favors a complete repeal of the exemption.
Councilmember Joe Lonergan said executive compensation should not be taken into consideration. "That is not something that weighs into my decision."
Group Health was brought up. The council was told it falls into a different classification, since it is a cooperative and falls under a different taxing structure. Councilmember Jake Fey said it bothered him that Group Health is not included in the conversation on taxes. "There is some unfairness here."
Councilmember Marty Campbell suggested starting the exemption at 25 percent. Councilmember Ryan Mello suggested exempting 50 percent of income, while Councilmember David Boe said 75 percent was the highest exemption he would support.
Councilmember Lauren Walker voiced apprehension about levying this tax at all, noting the number of jobs created in her district by Franciscan and MultiCare.
Another factor the council has examined is the considerable number of medical practices that have moved under the fold of large healthcare organizations. Lonergan said someone recently told him this is due to government mandates requiring doctors to keep electronic medical records. This would be so time-consuming for small practices that some doctors are aligning with big organizations to utilize their information technology departments.
Mello said the conversation underlines the ongoing shift of the American economy from manufacturing to service industries. "Our tax system needs to roll with the punches," he remarked.
