Martha Jefferson Hospital – Request for Tax Exemption




Request of Martha Jefferson Hospital to be Exempted from County Property Taxes




Tucker, White, Davis, Herrick, Wiggans






August 3, 2005


ACTION:                              INFORMATION:   X



  ACTION:                           INFORMATION:   











By letter dated May 23, 2005 (attached), Martha Jefferson Hospital has requested that four of its properties located in the County be exempted from County property taxation.  At this time, these properties can be exempted from taxation only if the Board of Supervisors adopts an ordinance exempting the property by special designation.  The Board may, at its sole discretion, decide whether or not to proceed to public hearing to consider such an ordinance.




Goal 4.2: “Fund County Services in a fair, efficient manner and provide needed public facilities and infrastructure.”




Prior to January 1, 2003, local property tax exemptions could be granted only by the General Assembly.  Virginia Code §§ 58.1-3606 through 58.1-3622 set out the criteria by which properties of nonprofits could be exempted.  Some properties, such as state owned property, churches, some cemeteries, public libraries, and property used exclusively as a hospital were automatically exempt from taxation by classification without any additional legislative action if the property met all the qualifying criteria.  At least twice prior to 2003, Martha Jefferson requested exemption for the Crozet Family Medicine and Proffit Road office properties.  However, these properties could not qualify for automatic exemption by classification because they were not being exclusively used by the Hospital, as state law required.


Also prior to January 1, 2003, state law provided that property owned by a qualifying nonprofit organization not automatically exempt by classification could be granted tax-exempt status by the General Assembly by special designation. State law required that the nonprofit first seek a recommendation from the local governing body as to whether the request should be granted before asking the General Assembly to act. Ultimately, however, exemptions by designation were decided by the General Assembly.  Martha Jefferson never sought tax-exempt status by designation from the General Assembly.


Prior to 2003,  the General Assembly granted 1001 requests throughout the Commonwealth for tax-exempt status by specially designating property owned by nonprofits to be exempt.  During this time, however, the Albemarle County Board of Supervisors rarely recommended exemptions for County property owners.  As a result, properties of only four Albemarle County nonprofits were exempted by designation under prior state law:



After recommending the last tax exemption request (for JABA), on December 6, 1995, the Albemarle County Board of

Supervisors adopted a resolution (attached), establishing a policy against recommending future tax exemptions by designation.  The rationale was that instead of permanently reducing the tax base by creating tax-exempt property, qualifying nonprofits could participate in the annual  budget process and receive annual appropriations (perhaps in the amount equal to their property tax bills) instead of paying no property taxes.  That process provided greater accountability to the County and the public by those nonprofits seeking public support instead of providing them perpetual tax relief.


A state Constitutional amendment, effective January 1, 2003, shifted the authority for granting property tax exemptions from the General Assembly to local governing bodies.  On September 1, 2004, pursuant to state law enacted to implement the Constitutional amendment, the Albemarle County Board of Supervisors adopted Albemarle County Code § 15-1601 and  §15-1602.


Section 15-1601 readopted locally the property tax exemptions by classification that previously existed under state law.  One such classification exemption is for hospitals.  Under Albemarle County Code § 15-1601(A)(5), “Property belonging to and actually and exclusively occupied and used by” hospitals (among others) is exempt by classification.  If Martha Jefferson meets this exclusive use test, its property will be tax-exempt with no Board action required.  However, as described above, Martha Jefferson’s previous requests to exempt its properties were denied because the properties were not exclusively occupied by the Hospital itself.  Whether the future Hospital site is exclusively occupied and used by Martha Jefferson itself remains to be seen.


Section 15-1602 established the procedure for the Board to grant tax exemptions by special designation pursuant to the requirements of Virginia Code § 58.1-3651, if it chooses to do so.  Under current state law and County ordinance, the Board has the discretion as to whether or not to consider a request by a nonprofit to grant tax-exempt status by special designation.  If the Board chooses to process the request, it can be approved only by adoption of an ordinance.  Before adopting the ordinance the Board must hold a public hearing.  The notice of the public hearing must include the assessed value of the property subject to the request and the amount of taxes that would be exempted by the request.  In addition, the Board is required by state law to consider eight factors set forth in the Virginia Code relating to the nonprofit applicant.  Martha Jefferson’s letter of May 23, 2005 addresses each of the eight mandatory considerations outlined by state law.


One option available to the Board for some properties granted tax-exempt status is to impose a “payment in lieu of real property taxation,” or service charge.  Virginia Code § 58.1-3400 et seq. allows localities to impose service charges on certain tax-exempt properties to offset the cost of providing police and fire protection and (where applicable) refuse disposal collection.  Such a service charge cannot exceed either (i) 20% of the real estate tax rate or (ii) the percentage amount of expenditures for police and fire protection as a percentage of total assessed property values in the County.  If the Board so chose, it could exempt some or all of Martha Jefferson’s properties from the burden of a full real property tax bill, yet still impose a reduced service charge to cover the cost of police and fire services for these properties.  However, unlike exemptions by designation, service charges must be imposed on classes of property and may not be imposed on a case-specific property-by-property basis.  The County already has a service charge ordinance (Albemarle County Code § 15-1300), but currently exempts all tax-exempt properties, except for some state-owned property, from the charge.  Amending the service charge ordinance could result in the imposition of a service charge on Martha Jefferson Hospital properties, but would also apply to all other tax-exempt property granted tax-exempt status by special designation in the future.




The table below shows the parcels for which Martha Jefferson is requesting tax exemption, and the current revenue that would be foregone if these exemptions were granted.



Parcel No.

2005 Assessed Value

Current Annual Tax

Percent Exemption Requested

Requested Exemption Amount

Crozet Family Medicine






3263 Proffit Road






Future Hospital Site






Outpatient Care Center












*When used by MJH.


As the table reflects, the current annual cost of the requested exemption would be in excess of $278,000.  Because the current assessment of the Future Hospital Site reflects only unimproved land, the assessed value of that Site (and the corresponding tax) would increase dramatically if and when the main hospital were constructed on the property, as Martha Jefferson is planning to do.  While the assessed value of the main hospital facility is difficult to project, the current assessed value of the Outpatient Care Center improvement alone is $18,629,000, representing $137,854.60 in annual revenue.  The City of Charlottesville assesses Martha Jefferson’s current improvements downtown in excess of $30,000,000, not including the underlying land.  Comparable facilities in the County would result in additional annual tax revenues in excess of $222,000.  Property granted tax-exempt status by designation does not qualify for tax exemption until such property is put into beneficial use by the qualifying nonprofit.  As a result, vacant land cannot qualify for tax exemption, under current state law, as long as the land remains unused, even if the Board grants it tax-exempt status by special designation.  Accordingly, the hospital site would continue to be taxed until the hospital or other qualifying use was established.


However, as discussed above, if a hospital is in fact constructed on the Future Hospital Site and if Martha Jefferson exclusively  occupies and uses that Site, that property may qualify for an (automatic) exemption by classification, pursuant to Albemarle County Code § 15-1601(A)(5), without any further action of the Board.  By requiring that Martha Jefferson exclusively occupy and use the Hospital Site, an automatic classification exemption places one constraint on Martha Jefferson that it may or may not choose to meet.  If granted tax-exempt status by designation, there is no requirement that the property be exclusively used by Martha Jefferson.  However, only the portion used by Martha Jefferson would be tax-exempt.




Staff recommends that Martha Jefferson’s properties not be granted tax-exempt status by special designation, and that the Board’s policy of disfavoring the creation of tax-exempt property be reaffirmed.  If the Board concurs, then staff recommends that the Board decline to process Martha Jefferson’s request.  If Martha Jefferson properties qualify for tax exemption by classification by meeting the classification requirements for tax-exempt hospital property, that property would be tax-exempt without any further action by the Board.  For property not exempted by classification, the owner can participate with other nonprofits in the County budget process to request County contributions in lieu of tax-exempt status.




Attachment A - Letter from Ronald J. Cottrell, Vice President of Martha Jefferson Hospital, dated May 23, 2005

Attachment B - Board of Supervisors Minutes and Resolution of December 6, 1995, reflecting Board policy on tax exemptions

Attachment C - Virginia Code §58.1-3651

Attachment D - County Code §§15-1601 and 15-1602

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