There's no dispute over whether two Boise-based health care organizations serve a worthwhile purpose for local patients, including people who could not afford to go elsewhere for medical care.
But there is a dispute over whether those organizations owe the state more than $400,000 in taxes, because they - unlike the nonprofits that created them - are not tax-exempt entities.
The tax question will be answered at the conclusion of a state lawsuit filed last month by St. Luke's-Idaho Elks Rehabilitation Services, or SLIERS, and the Center for Wound Healing and Hyperbaric Medicine against the Idaho Tax Commission.
WHO ARE THEY?
SLIERS is a joint venture between St. Luke's Regional Medical Center and the Idaho Elks Rehabilitation Hospital that started in 1996. It provides outpatient care including physical, occupational, speech and sports therapy at 23 clinics in southern Idaho.
The hyperbaric medicine center is a similar Luke's-Elks partnership, formed in 2005. It treats patients from around the Northwest with high-tech equipment - its hyperbaric chambers pump oxygen to a wounded patient to speed up the healing process. Its two clinics are in Boise and Meridian.
Hospitals frequently join forces with other businesses. It's common for a nonprofit hospital and a for-profit company to team up on services, such as a medical imaging center or an outpatient surgery center.
When St. Luke's and Elks decided to partner on rehab and wound care, the partnerships they formed couldn't legally be nonprofit entities on their own, according to St. Luke's.
Between 2004 and 2011, the hospitals bought medical equipment, advertising, office supplies and other goods for the two partnerships. They rented copy machines. But no state sales taxes were paid for those purchases.
Separately, St. Luke's and Elks Rehab are among the Idaho nonprofits that don't have to pay a 6 percent sales tax to the state. But for-profit businesses have to pay, and the state says the SLIERS and wound-care ventures fall into the for-profit group as separate legal entities from St. Luke's and Elks Rehab - they have their own names and file their own tax returns.
The joint ventures argue that they're departments of Elks and are "indistinguishable as a separate entity from Idaho Elks." Patients can't tell the difference, Medicare considers them part of the hospital, and the ventures work on behalf of the hospital, they argue in court documents. They also say that profits, when they exist, go right back to St. Luke's and Elks.
The vast majority of SLIERS and wound-care center employees are actually Elks Rehab employees, and some St. Luke's orthopedic therapists also work for the joint ventures, according to St. Luke's.
The tax commission doesn't see things the same way. It ruled in December that the entities owed $323,959 in back taxes and $77,126 in interest.
The crux of the ruling was that nonprofits can't create separate for-profit entities "and just simply have that entity ride on the coattails of (their tax) exemption," said Saul Cohen, tax policy specialist for the commission.
Cohen said the commission in this case audited the buyers, who ultimately owe the state any taxes the sellers fail to collect during a transaction.
WHAT WILL HAPPEN NEXT?
It will take at least six months for the bench trial to end, according to a deputy attorney general working on the lawsuit. Add many more months if the judge's decision is appealed.
The outcome could have a broader reach. The law says nonprofits get tax breaks, but it doesn't spell out what this means for joint ventures, the lawsuit argues.
Cohen said this is the second dispute of its kind in recent memory. He said he can't disclose which organization was audited in the previous dispute, but it opted to pay the taxes instead of going to court.
"This is not new to us," he said. "How common it is, I don't know."
There currently are 7,481 tax-exempt nonprofit organizations in Idaho, according to the Internal Revenue Service. It's unclear how many, if any, have the same kind of partnerships that St. Luke's and Elks Rehab created.
It is increasingly common for nonprofits in Idaho to have revenue- or income-earning operations - the Idaho Youth Ranch's thrift stores, for example - but they're not for-profit businesses, according to Lynn Hoffman, executive director of the Idaho Nonprofit Center.
It's "not hugely common" for an Idaho nonprofit to create a for-profit organization, and when it does, that for-profit entity should pay sales and use taxes, she said.
In some cases, "it's not a simple thing" to draw a line between what is taxable and what isn't, she said.
Audrey Dutton: 377-6448, Twitter: @IDS_Audrey