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Bill Summary · SB 895

Summary of SB 895 (Session 2025) – Nonprofit Hospitals Tax Exemption (North Carolina)

Main purpose

SB 895 proposes to modify how nonprofit hospitals receive property tax and sales tax exemptions in North Carolina. The bill aims to redefine the calculation and scope of the exemptions tied to charitable hospital activities and the cost of charity care, as well as adjust related sales tax refunds for nonprofit entities, with phased effective dates starting July 1, 2027.

Key provisions

Section 1 — Real and personal property tax exemption for charitable hospital property

  • Qualifying property: Real and personal property held by or owned by a nonprofit, nonstock, charitable hospital that is dedicated to charitable hospital purposes and used exclusively for those purposes.
  • Charity care-based exemption: The exemption equals the hospital’s total actual cost of qualified charity care provided on the tax parcel during its most recently completed fiscal year. This is calculated by applying the hospital’s cost-to-charge ratio (from CMS Form 2552) to the gross charges for services on the qualifying parcel.
  • Partial-use rule: If part of a property is used for a purpose that would itself qualify for exemption if the entire property were used for that purpose, the exempt portion is determined in the same manner.
  • Definition of charitable hospital purpose: Activities with humane and philanthropic objectives that benefit a substantial portion of the community without profit expectations. Charging insured patients does not defeat the exemption.
  • Qualified charity care details: Services provided without expectation of payment to uninsured or underinsured patients whose income is at or below 300% of the federal poverty level, with eligibility demonstrated via a uniform application process and income documentation or third-party presumptive screening.
  • Exclusions: Bad debt, contractual allowances, and any payments from third-party payers (including government programs) are not counted as qualified charity care.
  • Tax payment timing: If there is a difference between taxes due under this section and what would have been due otherwise, the difference is due under existing tax procedures.
  • Filing: Hospitals must file during the regular listing period, but filings are accepted up to June 1 preceding the tax year.

Section 2 — Cross-reference to other exemptions

  • Rewrites a cross-reference to align the exemption with sections that grant property tax relief to other exempt entities.

Section 3 — Sales tax refunds for nonprofit entities and hospitals

  • Nonprofit entities’ semiannual refunds: Allows nonprofit entities a semiannual refund of sales and use taxes on direct purchases for their work. Certain utilities and services are excluded (electricity, telecom, gas, etc.).
  • Eligible entities for refunds: Hospitals not operated for profit, including publicly operated hospitals; nonprofit hospitals organized as nonstock charitable institutions may qualify, but the annual aggregate refunds are capped.
  • Cap: The total annual refunds for nonprofits cannot exceed $31,700,000 for the state fiscal year, with the hospital refunds capped at the lesser of the refund amount or the total actual cost of qualified charity care (as calculated under Section 1(d)).
  • Over-the-counter drugs: Hospitals not listed as profit organizations may receive refunds for over-the-counter drugs used in their operations.
  • Effective scope for refunds: The section applies to purchases made on or after July 1, 2027.

Section 4 — Effective dates

  • Sections 1 and 2: Effective for taxes imposed for taxable years beginning on or after July 1, 2027.
  • Section 3: Effective July 1, 2027, applying to purchases on or after that date.
  • Remainder: The act becomes law upon enactment.

Who is affected

  • Nonprofit, nonstock charitable hospitals in North Carolina (property tax exemptions tied to charity care costs).
  • Hospitals seeking property tax relief tied to qualified charity care metrics.
  • Nonprofit entities (including certain hospitals) eligible for state sales and use tax refunds (subject to caps and exclusions).
  • Assessors and hospital administration responsible for submitting relief applications and calculating charity care costs.

Procedural/timeline notes

  • The property tax provisions apply to tax years beginning after June 30, 2027.
  • The sales tax refund provisions become effective for purchases on or after July 1, 2027.
  • Filing windows for property tax relief extend up to June 1 prior to the tax year.

This bill would thus shift a portion of nonprofit hospital tax relief toward a charity-care-cost-based approach, with a parallel framework for sales tax refunds subject to annual caps.

Compiled from official sources — confirm details with the bill’s official record.

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