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Medical groups file lawsuit over tax status

Two Boise-based health care organizations formed by St. Luke’s Regional Medical Center and the Idaho Elks Rehabilitation Hospital have filed a lawsuit against the Idaho Tax Commission disputing the state agency’s determination they aren’t tax-exempt and owe $400,000.

The Idaho Statesman reports that St. Luke’s-Idaho Elks Rehabilitation Services and the Center for Wound Healing and Hyperbaric Medicine filed the lawsuit in state court last month.

The two nonprofit hospitals don’t have to pay a 6 percent sales tax to the state on purchased equipment. The two groups they formed, rehabilitation services in 1996 and hyperbaric medicine in 2005, contend they’re departments of Elks and “indistinguishable as a separate entity from Idaho Elks,” and therefore are tax-exempt.

The groups also argue in court documents that they work on behalf of the hospital and that profits, when they exist, go back to St. Luke’s and Elks.

But the state tax commission determined in December the two entities formed by the hospitals are for-profit and owe the state sales tax. It ruled the entities owned $323,959 in back taxes and $77,126 in interest.

The state contends the two groups are separate legal entities from the nonprofit hospitals and have their own names and file their own tax returns.

Saul Cohen, a tax policy specialist for the commission, said the nonprofit hospitals couldn’t create for-profit entities “and just simply have that entity ride on the coattails of (their tax) exemption.”

In Idaho, there are 7,481 tax-exempt nonprofit organizations, according to the Internal Revenue Service.

Cohen said the recent lawsuit is the second dispute of its kind in recent memory.

“This is not new to us,” he said. “How common it is, I don’t know.”

A result in the lawsuit isn’t expected for at least six months.

 

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