Office of the Legislative Auditor - Program Evaluation Division
Community Benefit Expenditures at Nonprofit Hospitals
Evaluation Report Summary
February 19, 2025
Most nonprofit hospitals appear to spend more to benefit their
communities than they receive in tax benefits. However, limited data
and competing definitions make it difficult to accurately quantify
either community benefits or tax benefits.
Report Summary
Tax Benefits
Nonprofit hospitals in Minnesota benefit from multiple tax
exemptions at the federal, state, and local levels. However,
estimating exactly how much hospitals benefit is challenging.
It is necessary to make numerous assumptions in order to calculate
nonprofit hospitals’ tax benefits, creating uncertainty in those
estimates. (pp. 18-19)
Although estimates are imprecise, nonprofit hospitals received a
substantial amount in tax benefits from 2019 through 2023. (p. 21)
Tax benefits varied substantially from year to year and from
hospital to hospital. (pp. 21-22)
Community Benefits
Differences of opinion exist about what types of hospital spending
actually benefit communities. We thus developed three definitions of
community benefit expenditures: a moderate definition matching
Minnesota’s reporting requirement, a more limited definition, and a
more expansive one.
The choice of definitions mattered. In the years we analyzed,
reported community benefit spending was between seven and ten
times as much under the expansive definition as under the limited
definition. (p. 29)
Hospitals reported that most community benefit spending has been
directed toward care for hospital patients. (pp. 30-31)
Reported community benefit spending varied more widely across
hospitals when using the moderate and expansive definitions than
when using the limited definition. (p. 32)
Some nonprofit hospitals reported community benefit spending
differently to the IRS and the state. (p. 28)
Comparing Community Benefits to Tax Benefits
Because of the lack of consensus around defining community benefits
and the challenges to accurately estimating tax benefits, comparing
the two is tenuous.
Using a moderate definition of community benefit expenditures,
total reported community benefits exceeded estimated total tax
benefits from 2019 through 2023. (p. 37)
Using limited or expansive definitions of community benefit
expenditures changed our estimates of the number of hospitals
receiving more in estimated tax benefits than they provided in
community benefit spending. (pp. 39-40)
The extent to which reported community benefit spending exceeded
estimated tax benefits varied among hospitals and over time. (p.
38)
Legislative Considerations
We do not make specific legislative recommendations, but we offer
the following observations:
The Minnesota Constitution prevents the Legislature from requiring
community benefit expenditures as a condition of exempting
hospitals from corporate income tax or sales and use taxes. (p.
42)
Possible legislative actions would have varying effects depending
on how tax benefits and community benefits are defined. (p. 43)
