Alabama House Approves Plan to Boost Funding for Rural Hospitals

The Alabama House has approved legislation aimed at establishing the Rural Hospital Investment Program along with a novel tax incentive designed to encourage contributions to rural healthcare facilities.

Through House Bill 86, people and organizations would be able to deduct 100% of their qualifying contributions, capped at a specific limit, from their owed state taxes via tax credits.

• Individuals filing as Single, Head of Household, or Married Filing Separately might receive up to $15,000 in yearly tax credits.
• Couples who file their taxes jointly might be eligible for as much as $30,000 in tax credits.
• A Pass-Through Entity, Limited Liability Corporation, or Professional Corporation might be eligible for up to $450,000 in tax credits.
• A Subchapter C corporation might receive either $500,000 or an amount equal to its corporate tax liability, whichever is lower.

Credit balances cannot be transferred or refunded. However, they may be extended for use over the next three consecutive years.

"This approach incorporates four distinct types of taxation, setting it apart slightly from others. These include income tax as well as excise tax, insurance premium tax, and utility taxes. Both budgets are impacted. I'd like to express my gratitude to the budget chairpersons for allowing us to explore this potential solution that might help preserve our rural hospitals," stated Representative Terri Collins, Republican representative from Decatur.

Collins is backing HB86. She has been striving to get this legislation approved over three legislative terms.

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HB86 limits the total amount of tax credits provided across the state to $20 million for the tax year concluding in December 2026, $25 million for 2027, and $30 million for every subsequent year.

In order for a facility to qualify as a hospital, it must meet the following criteria:

• serve as a rural general acute care hospital, a rural emergency hospital, or a critical access hospital that holds a license from the Alabama Department of Public Health
• be situated in an area classified as rural according to the federal Centers for Medicare and Medicaid Services
• offer healthcare services to both Medicare and Medicaid recipients without bias
• offer healthcare services to impoverished patients, irrespective of their capacity to pay
• adhere to all legal requirements for reports and audits
• present to the board a documented five-year strategy outlining the economic feasibility and steadiness of the hospital

Every year, a panel consisting of nine members has to decide which hospitals qualify for the program. This panel needs to submit a list to the Alabama Department of Revenue. Subsequently, this department will release a roster of qualifying rural hospitals that are permitted to get approved contributions.

A specific limit applies to the total donations qualifying for tax credits that an individual can make to one hospital each year.

• $750,000 for the fiscal year 2026
• $1 million for the tax year 2027
• $1.25 million for the tax year 2028

Rural hospitals might utilize donations for covering operating costs as well as expenses related to maintenance, major renovations, and enhancements.

Collins mentioned that the tax credit would expire in three years.

Collins stated, "We'll have data to determine whether it’s effective and if it brings about change."

READ BILL HERE:

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Following its approval in the House, the legislation will move on to a Senate committee for further review.

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