UPDATE: Boost to Georgia Rural Hospital Tax Credit Signed into Law by Governor

The Georgia Rural Hospital Tax Credit, created in 2016 to throw a lifeline to Georgia’s struggling rural hospitals, received an update after Governor Nathan Deal signed S.B. 180 into law on May 8, 2017. The new law is intended to make the credit more attractive to potential donors. As discussed in earlier postings here and here, 2016’s S.B. 258 was intended to assuage the plight of Georgia’s rural hospitals, which at the time was described as a “crisis in health care.”

I. Background

The Bill, passed last year, modified Georgia Code Title 31, Chapter 8, Article 1(titled “Hospital Care for the Indigent Generally”) by including a new Section 9.1, and Georgia Code Title 48, Chapter 7, Article 2 (titled “Imposition, Rate, and Computation; Exemptions”) by including a new Section 29.20. Under the legislation, a hospital qualifies for receipt of tax-credit eligible donations if it meets the definition of the term “rural hospital organization,” which is defined by the new Code section 31-8-9.1 to mean “an acute care hospital licensed by the [Georgia Department of Community Health (DCH)] pursuant to Article 1 of Chapter 7 of this title” that:

(3)(A) Provides inpatient hospital services at a facility located in a rural county or is a critical access hospital;
(3)(B) Participates in both Medicaid and medicare [sic] and accepts both Medicaid and medicare [sic] patients;
(3)(C) Provides health care services to indigent patients;
(3)(D) Has at least 10 percent of its annual net revenue categorized as indigent care, charity care, or bad debt;
(3)(E) Annually files IRS Form 990, Return of Organization Exempt From Income Tax, with the department, or for any hospital not required to file IRS Form 990, the department will provide a form that collects the same information to be submitted to the department on an annual basis;
(3)(F) Is operated by a county or municipal authority pursuant to Article 4 of Chapter 7 of this title or is designated as a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code; and;
(3)(G) Is current with all audits and reports required by law.

The same Code section defines a “critical access hospital” as a:

[H]ospital that meets the requirements of the federal Centers for Medicare and Medicaid Services to be designated as a critical access hospital and that is recognized by the department as a critical access hospital for purposes of Medicaid.

DCH provides a list annually that is transmitted to and posted by the Department of Revenue. The law essentially allows an individual or corporate taxpayer a credit for a donation to a rural hospital organization for the direct benefit of such organization.

II. What’s New?

On May 8, 2017, S.B. 180 was signed into law by Governor Deal. The law’s intended purpose is to make the credits more attractive, primarily by increasing the credit from 70% to 90%. The relevant language now reads:

(b) An individual taxpayer shall be allowed a credit against the tax imposed by this chapter for qualified rural hospital organization expenses as follows:
(1) In the case of a single individual or a head of household, 90 percent of the actual amount expended or $5,000.00 per tax year, whichever is less; or
(2) In the case of a married couple filing a joint return, 90 percent of the actual amount expended or $10,000.00 per tax year, whichever is less.
(c) A corporation or other entity shall be allowed a credit against the tax imposed by this chapter for qualified rural hospital organization expenses in an amount not to exceed 90 percent of the actual amount expended or 75 percent of the corporation’s income tax liability, whichever is less.

The law also increases the annual aggregate tax credits allowed under the law from $50 million to $60 million in 2017. To ensure that donations are really used to finance the expenses of the rural hospital organization, the law also targets payments made to third parties to “solicit, administer, or manage the donations received by the rural hospital organization”; in other words, consultants that offer to assist hospitals in accessing the funds made available through the program. Under the new law, “[i]n no event shall payments made to a third party . . . exceed 3 percent of the total amount of the donations.”

Last year’s law was described by some as an experiment to determine whether a 70% credit would be enough to generate donor interest. Given the passage of S.B. 180 and its signature into law, the answer appears to be no, and the hope is that a 90% credit will encourage greater donations. The tax credit could be one funding source that can contribute to saving vulnerable hospitals, but that depends on the resources, which may be in short supply, and the generosity of those affected communities. The hope is that the boost from a 70% credit to a 90% credit will provide a greater incentive for those communities to be more generous and open their pocketbooks to support local hospitals.