Key Difference in Senate v House Tax Reform hints at Medicaid expansion

This is a handy comparison of HB 998 v. Senate modifications to it, released yesterday (h/t Elizabeth Malm via twitter). Several points following up on yesterday’s post:

  • The Senate version reduces General Fund tax receipts by $684 Million from FY 2013-15; about a $300 Million larger tax cut than the House over this time period. Will the total collected add up to planned spending? (impt question, not my focus here)
  • One of the larger, and most consequential differences from a health policy perspective is that the Senate version caps the sales tax refund (state and local) that a 501-c-3 corporation (Non Profit) receive from the state. Below is a cut from page 5 of the comparison document (column to the left is the House proposal, the one of the right is the Senate’s).

ScreenHunter_01 Jun. 12 10.17

Currently, non profits are exempt from state and local sales taxes, and apply every 6 months to have them refunded by the State. Here is a 2011 North Carolina Tax Expenditure report laying out the cost to the state of that year.

ScreenHunter_02 Jun. 12 10.33

I am trying to explicitly nail down how much of the $228.2 Million in 2011 flowed to hospitals, but I suspect it to be a very large proportion based on estimates of what several hospitals think the proposed change will mean for them. Update: this report shows that hospitals received between 75-81% of the total (h/t Ed McLenaghan).

Back to the Senate proposal. In 2014, only the first $5 Million in purchases will be exempt from sales tax (all are now exempt, which would be continued by the House), but by 2016 this will drop to a $100,000 exemption. Most NP are small operations, but hospitals are big operations with many purchases that are subjected to sales tax, and most of them are organized as nonprofits. In short, for a place like Duke Health System, UNC, WakeMed, etc. this will result in a huge tax increase (the aggregate tax increase on all now exempt nonprofits implied by the Senate proposal is ~ $730 Million from 2014-18). I have the increase under a proposal like this as quite an eye popping number for Duke University Health System, but I am not going to give the number because I cannot confirm it.  In one sense, what has been proposed by the Senate is better that what it might have been when there was discussion of the full sales tax on professional-to-professional services in addition to this, which under some interpretations might have meant every time a Duke physician consulted in Duke’s hospital, a sales tax would be levied (because of how they were organized).

Anyway, the line of folks in North Carolina mourning for the woes of Duke is pretty short, but my main point is this. When the Senate moved from its tax reform that heavily relied on sales tax increases toward what they proposed yesterday, they kept a very large sales tax increase on nonprofit corporations in place, the most consequential of which are hospitals. I have been saying all along it was only a matter of time until N.C. expanded Medicaid, but this looks like a placeholder for the Medicaid expansion in North Carolina, with the hospitals essentially setting up to pay a large proportion of North Carolina’s cost of the expansion (~$900 Million in 2014-19 time frame; the magnitudes of the sales tax increase discussed above and State Medicaid outlay for expansion are quite close), when the politics allow it to occur. Most likely next year, to take effect in 2015. However, as the revised Senate tax reform released yesterday points out, the General Assembly is undertaking all sorts of huge changes with very little notice as their session winds down.

Update: live blog from Tax Foundation of Senate debate; about 1:20pm there was an amendment to delay 1 year and add a tier for the sales tax exemption of nonprofits.

About Don Taylor
Professor of Public Policy at Duke University (with appointments in Business, Nursing, Community and Family Medicine, and the Duke Clinical Research Institute). I am one of the founding faculty of the Margolis Center for Health Policy, and currently serve as Chair of Duke's University Priorities Committee (UPC). My research focuses on improving care for persons who are dying, and I am co-PI of a CMMI award in Community Based Palliative Care. I teach both undergrads and grad students at Duke. On twitter @donaldhtaylorjr

One Response to Key Difference in Senate v House Tax Reform hints at Medicaid expansion

  1. Pingback: N.C. Hospitals to help finance Medicaid expansion? | freeforall

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