Critics accuse Atrium Health of “double dipping” on sales tax refunds

Shows the facade and approach of Atrium Health's Carolinas Medical Center in Charlotte

By Michelle Crouch

Atrium Health received a $45 million sales tax refund from North Carolina in 2023 and 2024, hitting a statutory limit allowed by the state for nonprofits, tax records reviewed by The Charlotte Ledger/NC Health News show. And that may not even be the full amount.

Thanks to a legal loophole, the hospital system’s total refund is likely even higher.

Atrium’s Wake Forest Baptist enterprise, operating in the Winston-Salem area, files separately for sales tax refunds, an Atrium spokesperson said.

Critics said the two filings effectively allow Atrium as a whole to skirt the $45 million state cap on nonprofit sales tax refunds.

Former State Sen. Bob Rucho, a Mecklenburg County Republican who helped push through the nonprofit sales tax cap in 2013, said he thinks it’s wrong for Atrium to bypass the cap by filing two separate refund requests.

Rucho told the Ledger/NC Health News, “It should all be under a $45 million umbrella.”

Democratic Mecklenburg County Commissioner Laura Meier called it “double dipping.”

Atrium Health Wake Forest Baptist is a separate legal entity from the Charlotte-Mecklenburg Hospital Authority, the $12.6 billion government entity that does business as Atrium Health in the Charlotte region and Georgia. But the two “combined” to create what Atrium called “a single enterprise” in 2020.

Then, in late 2022, Atrium completed another combination with hospitals in Illinois and Wisconsin to create the $32 billion entity known as Advocate Health, the nation’s third-largest nonprofit health system.

Atrium did not answer specific questions from the Ledger/NC Health News about how much of a refund Atrium Health Wake Forest Baptist received or address claims that Atrium Health is exceeding the cap.

In an emailed response, a spokesperson said, “We file separately due to our legal structure.”

The hospital system also noted that it invested nearly $3 billion last year in free, discounted and undercompensated care for low-income patients and those on Medicare and Medicaid, as well as other health, wellness and community building initiatives.

Hospitals receive $295 million in nonprofit sales tax refunds

One of the perks nonprofits and public hospitals in North Carolina enjoy is an exemption from sales taxes. They pay sales tax up front but can later request a refund from the N.C. Department of Revenue.

Hospitals are, by far, the biggest beneficiaries.

Of the $396 million the state’s nonprofits received in refunds in 2023, hospitals and other medical facilities claimed about 75 percent of the money, or $295 million, according to a state report. Universities collected another 11 percent.

In 2013, some N.C. senators, including Rucho, noticed the state’s larger hospitals and universities were paying their executives seven-figure salaries and stockpiling millions in reserves while claiming substantial sales tax refunds.

“Think about all that money,” Rucho said. “If a nonprofit has that much money set aside, I don’t think it’s a nonprofit anymore.”

Arguing that such flush institutions could afford to contribute more in taxes, the senators pushed for a limit on the amount those groups could get back — proposing a cap that would eventually drop to $130,000 a year.

After intense lobbying from hospitals and nonprofits, the legislators couldn’t get a significant cap through the House. As a compromise, they settled on a $45 million limit — consisting of $31.7 million in state sales tax refunds and $13.3 million in local sales tax refunds.

At the time, $45 million far exceeded the amount even the largest nonprofits collected, Rucho said, and the cap seemed more symbolic than practical.

But the tax forms obtained by the Ledger/NC Health News show that Atrium Health hit the $45 million cap in the 2022-23 and 2023-24 fiscal years.

Mecklenburg faces budget strain as sales tax revenue flattens

In Mecklenburg County alone, Atrium requested a refund of $10.3 million in county and transit sales tax in 2022-23 and $7.5 million in 2023-24, the tax records show. The system also claimed refunds in seven other counties.

At a recent retreat, Mecklenburg County’s chief financial officer noted a steep decline in the growth of its sales tax revenue, which he said put constraints on the county budget. That prompted county leaders to say a property tax increase may be required this year.

Meier, the Mecklenburg County commissioner, asked about the nonprofit tax issue at the meeting, at which the chief financial officer said budgeting is tricky because of the uncertainty over the amount nonprofits would request in tax refunds. Meier specifically asked if Atrium was exempt, and chief financial officer David Boyd said yes.

In an interview, Meier said the sales taxes that Atrium avoids could have helped fill the budget gap.

“We could pay for more mental health services, more park land or it could go to affordable housing investments,” she said. “There is so much we could do with that money.”

Elaine Powell, another Mecklenburg commissioner, agreed, adding that the $7.5 million Atrium gets back in sales taxes, combined with the property tax it avoids, could make a big difference in paying for the county’s needs.

“It’s something the General Assembly needs to look at,” Powell said. “It’s such an obscenely profitable nonprofit.”

Atrium is the state’s largest hospital system. In 2024, its operations in the Charlotte region and Georgia reported $12.6 billion in net revenue and $1.31 billion in net income, which some would call profit.

Unclear whether other nonprofits have hit the refund cap

The Ledger/NC Health News was able to get Atrium’s tax forms because the hospital authority is a government entity subject to public records laws.

It’s not clear if 2023 marked the first time Atrium hit the cap, or if other nonprofits have hit the limit.

David Heinen, vice president for public policy and advocacy at the North Carolina Center for Nonprofits, said nonprofits are not required to release tax records that show their individual sales tax refunds.

Joseph Harris, a fiscal policy analyst with the John Locke Foundation, said it’s notable that Atrium has bumped up against the cap because in 2013, lawmakers set the cap at a level “literally so large they thought it would never be reached.”

He said Atrium does seem to have an unfair advantage in claiming sales tax refunds twice.

“Whatever the proper term is for this partnership between Atrium and Wake Forest, it gives them all the benefits of growth and becoming a larger hospital system while simultaneously providing each entity these sales tax refunds,” he said.

Should hospitals qualify as nonprofits?

Today’s health care systems report even higher salaries, revenues and reserves than they did in 2013, so the millions they receive in sales tax refunds add fuel to the ongoing debate about whether they should qualify as nonprofits.

“They might have the label nonprofit, but they are acting like corporations, paying millions of dollars in salaries, and they have a huge surplus that any other corporation would call profit,” Meier said. “They are in effect making money off the backs of sick people.”

In return for not paying taxes, the Internal Revenue Service says charitable hospitals must operate in the public interest and provide a “community benefit.” The agency doesn’t go into details about what that means.

Atrium said it provided $3 billion in community benefits in North Carolina, South Carolina and Georgia in 2023, including free and discounted care, Medicare and Medicaid shortfalls, medical research costs and community initiatives. The hospital also has one of the most generous charity care policies in the state, offering free care to patients whose households earn up to three times the federal poverty level ($46,950 for an individual or $96,450 for a family of four).

Critics say hospitals calculate community benefit in a way that’s inflated and includes items that have little effect on community health needs. National research and a report commissioned by former North Carolina treasurer Dale Folwell, a longtime hospital critic, found that most N.C. nonprofit hospitals don’t provide enough charity care to justify the value of their tax exemptions.

Heinen emphasized that tax breaks, including sales tax exemptions, are essential for nonprofits to be able to provide services to the community.

He said larger 501(c)(3) charities such as hospitals and smaller ones like houses of worship and food pantries are subject to the same Internal Revenue Service regulations and should be treated the same for tax purposes.

“Even though the numbers are quite different, they are following the same rules,” Heinen said.

Atrium’s unique status as a government entity

As a government entity, Atrium enjoys additional benefits, including property tax breaks on land that’s not being used for medical purposes, the power of eminent domain and antitrust immunity. Critics say the system plays it both ways because it doesn’t follow public records and open meetings requirements in the same way other public entities do.

State law restricts hospital authorities from extending more than 10 miles past their county line, which likely explains why Atrium “combined” with Wake Forest Baptist rather than fully merging.

The arrangement allows Atrium to continue to benefit from its status as a hospital authority, while enjoying the efficiencies that typically come from hospital consolidation.

And it ultimately gave Atrium an additional advantage, Meier said: being able to exceed the sales tax refund cap by filing two tax returns.

Meier said it’s another reason state legislators should reconsider the decades-old law that gives hospital authorities like Atrium special privileges compared to their nonprofit peers.

“They have all the advantages of being a nonprofit and all the advantages of being a government entity,” she said, “yet they act like a corporation with a private board.”

This article is part of a partnership between The Charlotte Ledger and North Carolina Health News to produce original health care reporting focused on the Charlotte area.

You can support this effort with a tax-free donation.