Are clinic parcels owned by a 501(c)(3) nonprofit hospital automatically exempt from Arkansas property tax?

Plain-English summary

State Representative Ron McNair asked whether five parcels containing a medical clinic, recently purchased by a 501(c)(3) nonprofit hospital, automatically qualified for the Arkansas charitable property tax exemption based on the hospital's nonprofit status. He also asked more broadly whether all property belonging to a medical center with a charitable mission would be exempt.

Attorney General Leslie Rutledge gave a "no" to both framings of the question. The Arkansas constitutional charitable exemption (Ark. Const. art. 16, § 5(b)) covers "buildings and grounds and materials used exclusively for public charity." The Arkansas Supreme Court has read that to require both that the entity be a charitable organization and that the specific property be used exclusively for charitable purposes. The exemption is keyed to actual use, not to the character of the owner. Whether any particular parcel qualifies is a fact-intensive question that the local county assessor must decide in the first instance, with administrative appeal to the county board of equalization and then to county court and beyond.

Currency note

This opinion was issued in 2016. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

How the charitable exemption works

The constitutional text. Ark. Const. art. 16, § 5(b) lists several categories of exempt property: "public property used exclusively for public purposes; churches used as such; cemeteries used exclusively as such; school buildings and apparatus; libraries and grounds used exclusively for school purposes; and buildings and grounds and materials used exclusively for public charity."

The two-element test. The Arkansas Supreme Court in Sebastian County Equalization Board v. Western Arkansas Counseling and Guidance Center held that "in order to qualify for the exemption under the constitution, an entity must show that it is a charitable organization and that the property claimed for exemption is used exclusively for charitable purposes."

Use, not ownership. Missouri Pacific Hospital Association v. Pulaski County (cited along with Burgess, Hot Springs School District v. Sisters of Mercy, and Brodie v. Fitzgerald) holds that "used exclusively for public charity" refers "not to the character of the corporation or association owning the property sought to be exempted but, regardless of the character of the owner, to the direct and exclusive use of the property for public charity." Buying a property with charitable funds does not automatically convert it to exempt status.

Paying patients do not destroy the exemption. A charitable hospital does not lose tax-exempt status just because some patients pay for service (Sebastian County Equalization Bd., 296 Ark. at 211).

Why the AG cannot decide the specific parcels

The Arkansas Code vests the initial exemption determination in the local county tax assessor (Ark. Code Ann. § 26-26-1001), not in the AG. After the assessor decides, the county board of equalization can reverse the determination on petition from an aggrieved property owner (Ark. Code Ann. § 26-27-317). The board's decision is then appealable to county court and up through the judicial system (Ark. Code Ann. § 26-27-318). The AG has no role in this administrative chain. Pulaski County v. Jacuzzi Bros. confirms the judicial appeal track.

The AG's answer is therefore framework-level. The hospital can argue to the assessor that the medical clinic parcels are used exclusively for public charity, and the assessor will decide based on the actual usage. Hilger v. Harding College provides the general framework for evaluating whether the use is sufficiently charitable.

What "exclusively for public charity" looks like in practice

The Arkansas Supreme Court's case law focuses on whether the use is directly charitable, not merely consistent with a charitable mission. Treatment of indigent patients, operation of a clinic that turns no one away for inability to pay, and similar direct charitable activity weighs in favor of exemption. Office space leased out for commercial use, or buildings that primarily generate revenue used to support the charity elsewhere, often does not qualify on the use-based test. The assessor and (on appeal) the courts have to look at the actual function of each parcel.

Common questions

If the hospital itself is exempt, why aren't its other properties automatically exempt?
Because the exemption attaches to the property's use, not to the owner's tax status. The hospital building itself might be exempt because it is used exclusively for charitable health care, while a separate office building owned by the same hospital and leased to commercial tenants might not be.

Does 501(c)(3) status from the IRS mean anything for the state property tax exemption?
It provides federal income tax exemption, not state property tax exemption. Arkansas's property-tax exemption is a separate state-law analysis under the Arkansas Constitution. IRS classification is relevant evidence of charitable status but does not control the property-tax outcome.

Who decides the exemption initially?
The county tax assessor. After that, an aggrieved owner can petition the county board of equalization, then appeal to county court, with further appeal available through the judicial system.

Can the AG ever resolve a specific property-tax exemption question?
Generally no, because each property is fact-specific and the statutory chain of authority runs through the assessor, equalization board, and courts. The AG can explain the legal framework but cannot make the factual determination.

Source

• Landing page: https://arkansasag.gov/divisions/opinions-foia/attorney-general-opinions-search/

Subject

Five parcels with a medical clinic were purchased by a hospital with a 501(c)(3) exemption. Will these parcels fall under a charity exemption based on ownership for purposes of assessing property tax

Source

• Landing page: https://arkansasag.gov/divisions/opinions-foia/attorney-general-opinions-search/

Official summary

Five parcels with a medical clinic were purchased by a hospital with a 501(c)(3) exemption. Will these parcels fall under a charity exemption based on ownership for purposes of assessing property tax? Q2) Where a medical center has a charitable mission, will all property belonging to the medical center and property purchased in the future be exempt from property tax? RESPONSE: The so-called "charitable" exemption from property taxes under Ark. Const. art. 16, section 5(b), is based on neither ownership nor charitable mission, standing alone. It is necessary instead to examine all the surrounding facts and circumstances in order to identify the nature, extent and usage of the property at issue. I cannot opine further regarding the parcels in question. The authority to approve or disapprove a particular tax exemption has not been vested in this office. The question whether certain property is tax-exempt is a fact-intensive question that must be answered in the first instance by the local tax assessor, and pursued thereafter through the judicial process.

Original opinion text

Opinion No. 2015-118
January 21, 2016
The Honorable Ron McNair
State Representative
407 Cemetery Road
Alpena, AR 72611-2953
Dear Representative McNair:
STATE OF ARKANSAS
ATTORNEY GENERAL
LESLIE RUTLEDGE
This is in response to your request for my opinion concerning the tax-exempt
status of certain property purchased by a 50l(c)(3) not-for-profit hospital. You
seek clarification "for five parcels with a medical clinic purchased by this
hospital." You ask specifically:

1. Will these parcels fall under a charity exemption based on
   ownership for purposes of assessing property tax?
2. Where a medical center has a charitable mission, will all property
   belonging to the medical center and property purchased in the
   future be exempt from property tax?
   RESPONSE
   The Arkansas Constitution exempts from ad valorem taxation "buildings and
   grounds and materials used exclusively for public charity."1 The Arkansas
   Supreme Court has stated that "[i]n order to qualify for the exemption under the
   constitution, an entity must show that it is a charitable organization and that the
   1 Ark. Const. art. 16, § S(b). A1ticle 16, § S(b) states in full:
   The following property shall be exempt from taxation: public prope1ty used
   exclusively for public purposes; churches used as such; cemeteries used
   exclusively as such; school buildings and apparatus; libraries and grounds used
   exclusively for school purposes; and buildings and grounds and materials used
   exclusively for public charity.
   323 CENTER STREET, SUITE 200 · LITTLE ROCK, ARKANSAS 72201
   TELEPHONE (501) 682-2007 · FAX (501) 682-8084
   ARKANSASAG.GOV The Honorable Ron McNair
   State Representative
   Opinion No. 2015-118
   Page 2
   property claimed for exemption is used exclusively for charitable purposes."2 The
   exemption is thus based upon the actual use of the property, not the character of
   the owner.3 In response to your questions, therefore, the so-called "charitable"
   exemption from property taxes is based on neither ownership nor charitable
   mission, standing alone. It is necessary instead to examine all the surrounding
   facts and circumstances in order to identify the nature, extent and usage of the
   . 4 property at issue.
   I cannot opine further regarding the parcels in question. The authority to approve
   or disapprove a particular tax exemption has not been vested in this office. The
   question whether certain property is tax-exempt is a fact-intensive question that
   must be answered in the first instance by the local tax assessor,5 and pursued
   thereafter through the judicial process.6
   Sincerely,
   ~~
   Attorney General
   2 Sebastian County Equalization Bd. v. Western Arkansas Counseling & Guidance Ctr., Inc., 296
   Ark. 207, 209, 752 S.W.2d 755, 756 (1988).
   3 See Missouri Pacific Hospital Ass'n v. Pulaski County, 211 Ark. 9, 12, 100 S.W.2d 329, 332
   (1947) (concluding that the constitutional language "used exclusively for public charity" refers
   "not to the character of the corporation or association owning the property sought to be exempted
   but, regardless of the character of the owner, to the direct and exclusive use of the property for
   public charity.") (Emphasis added). See also Burgess v. Four States Memorial Hospital, 250
   Ark. 485, 465 S.W.2d 693 (1971); Hot Springs School District v. Sisters of Mercy, 84 Ark. 497,
   106 S.W. 954 (1907); Brodie v. Fitzgerald, 57 Ark. 445, 22 S.W. 29 (1893).
   It should be noted that a charitable hospital's property will not lose its tax exempt status based on
   the fact that some hospital patients pay for service. See Sebastian County Equalization Bd., 296
   Ark. at 211, 752 S.W.2d at 758.
   4 See generally Hilger v. Harding College, 231 Ark. 686, 331 S. W.2d 851 ( 1960).
   5 See Ark. Code Ann.§ 26-26-1001 (Repl. 2012).
   6
   See Pulaski County v. Jacuzzi Bros. Div. of Jacuzzi, Inc., 317 Ark. l 0, 875 S.W.2d 496 (1994).
   After the assessor has made the initial determination regarding exemption, the county board of
   equalization is empowered to reverse that determination upon petition of the aggrieved property
   owner. Ark. Code Ann. § 26-27-317 (Repl. 2012). The board's decision is subject to appeal.
   Either the taxpayer or the assessor can appeal the board's decision to the county court, and on up
   through the judicial system. Ark. Code Ann. § 26-27-318 (Supp. 2015).