Payments in Lieu of Taxes (PILOTs)
Payments in Lieu of Taxes, or PILOTs, are voluntary payments from a tax-exempt entity to a local government. Although not-for-profit organizations are exempt from paying property and sales taxes, sometimes an organization will voluntarily offer to provide an annual PILOT equivalent to the amount of taxes that would have been paid by a comparably sized, for-profit enterprise.
Not-for-profit organizations are exempt from some–but not all, federal, state and local taxes, including property taxes, because such institutions enhance the general welfare of communities and may relieve the burdens of government. In the health care industry, this is called community benefit. Not-for-profit hospitals are required to demonstrate the value of benefits they provide to a community annually. This community benefit value includes the cost of providing free or discounted care to low-income, uninsured patients, the costs of maintaining essential community services, such as as trauma care and neonatal intensive care, and services provided to the community such as health screenings and health education. The intent is to ensure that resources are not diverted away from the charitable missions of nonprofits. The requirements for exemption from federal taxation are found under subsection §501(c) (3) of the IRS Code.
Sometimes a not-for-profit organization may offer a PILOT to the local government as part of a business agreement to support essential government services such as police, fire and roads or to help defray costs of adding, improving or expanding infrastructure necessary to growth. The decision of how much to pay in a PILOT rests solely in the agreement between the not-for-profit agency and the government that is to receive the funds.
Relevance to Floyd
As not-for-profit providers of health care services, Floyd Medical Center and Polk Medical Center are exempt from paying property taxes. This is because not-for-profit organizations like Floyd and Polk provide benefits to their communities that far exceed the value of any property taxes they otherwise would owe.
The Cedartown-Polk County Hospital Authority asked for a payment in lieu of taxes (“PILOT”) commitment during the lease negotiations for a new Polk Medical Center. Polk Medical Center Inc. and the Cedartown-Polk County Hospital Authority entered into an agreement that obligates Polk Medical Center Inc. to make an annual PILOT on behalf of the Cedartown-Polk County Hospital Authority to the City of Cedartown and/or Polk County. The agreement establishes an amount to be paid annually by Polk Medical Center, Inc. equal to the taxes that would have been owed had Polk Medical Center, Inc. been a for-profit entity. Polk Medical Center Inc. and the City of Cedartown also entered into a Utility Services Agreement for which Polk Medical Center Inc. agreed to a substantial financial commitment with respect to the sewer system to service Polk Medical Center Inc. and to expand the sewer system in a manner of mutual benefit to the City of Cedartown and Polk County. The PILOT agreement as amended allows for Polk Medical Center Inc.’s PILOT obligation to be reduced by the amounts paid by Polk Medical Center Inc. to the City of Cedartown under the Utility Services Agreement. The PILOT ensures local governments have a revenue source the same as if taxes had been collected and that those revenues are available to finance the infrastructure improvements that have been made to benefit the City of Cedartown and Polk County. Polk County ranks second in the volume of patients that Floyd Medical Center receives, just behind Floyd County. This relationship is vitally important to Floyd Medical Center, and to the economic well-being of the medical community and the entire region.
In Floyd County, the scenario is much different. Floyd Medical Center provides as a community benefit more than $32 million in medical care to patients who cannot afford to pay for their own health services. This amount far exceeds the amount of property taxes Floyd would pay on the assessed value of its property. If Floyd Medical Center paid a PILOT to local governments, the hospital could not absorb those costs and the hospital’s ability to provide other important community benefits would be significantly impacted.
These benefits include trauma care, medical care to low-income and uninsured citizens, clinical training for physicians and nurses and lifesaving treatment for premature infants. Local government does not provide these services, and they are only available in Floyd County because Floyd Medical Center has the financial resources to do so.