If a medical clinic bought equipment with federal grant money, is it exempt from Arkansas business personal property tax? And does sending unpaid patient bills to collections cost it any tax exemption?

Plain-English summary

The opinion addresses a privately owned medical clinic that bought and operated equipment using federal grants, billed patients, and referred unpaid accounts to collections. The Attorney General says federal grant funding alone does not exempt the clinic’s business personal property from Arkansas tax. Federal tax immunity does not extend to a private entity merely because it receives federal funds.

The opinion identifies the Arkansas Constitution’s public charity exemption as the relevant possible exemption. For a clinic to qualify, it must be open to the public, provide services regardless of a patient’s ability to pay, and use any profits from paying patients solely to maintain or expand its charitable operations. The opinion says the county assessor decides whether a particular property qualifies, with the actual use of the property the primary factor.

Billing patients and referring delinquent accounts to collections do not, by themselves, end the exemption. The opinion conditions that answer on the patients having the ability to pay and on profits supporting or expanding the charitable mission. It says a collection referral may reflect an effort to recover costs from a patient who is able, but unwilling, to pay. It does not decide the unidentified clinic’s eligibility.

What this means for you

Medical clinics

The opinion says federal grant purchases alone do not create a business personal property tax exemption for a private clinic. A clinic may qualify under the public charity exemption if it meets the opinion’s open-to-the-public, ability-to-pay, and charitable-use-of-profits criteria.

County assessors

The local county assessor decides whether particular property qualifies for an exemption. The opinion says the property’s actual use is the primary factor and that tax exemptions are strictly construed against the taxpayer. It does not decide whether the unidentified clinic qualifies.

Clinics that bill patients or use collections

The opinion says those practices alone do not cost a clinic its public charity exemption when the patients referred to collections have the ability to pay and profits support or expand charitable operations. Its answer is conditional and does not evaluate any particular patient account.

Common questions

Does buying clinic equipment with federal grant money make it tax-exempt in Arkansas?

No. The opinion says a private clinic cannot claim an exemption solely because grant funds paid for the property. It may still qualify for the public charity exemption if it meets the constitutional criteria.

What must a medical clinic show for the public charity exemption?

The opinion lists three criteria: the clinic must be open to the public, provide services regardless of patients’ ability to pay, and use profits from paying patients solely to maintain or expand charitable operations.

Can a charitable clinic bill patients?

Yes. The opinion says serving paying patients does not by itself end the public charity exemption, provided that excess income supports and expands the charitable mission.

Can a charitable clinic send unpaid accounts to collections?

The opinion says a referral alone does not end the exemption when the patients have the ability to pay and profits support or expand the charitable mission. It does not state that a referral involving a patient without the ability to pay automatically decides the clinic’s entire exemption claim.

Who decides whether a particular clinic’s property is exempt?

The local county assessor makes that decision under the Assessment Coordination Division’s rules. The opinion says the decision is appealable and does not decide the unidentified clinic’s claim.

Background and statutory framework

The opinion says Arkansas taxes real and personal property unless a legal exemption applies. Federal immunity from state taxation does not extend to private entities merely because they receive federal funding. For this opinion, the Attorney General assumes the clinic is privately owned and operated.

The opinion identifies the Arkansas Constitution’s public charity exemption, covering buildings, grounds, and materials used exclusively for charitable purposes, as the only relevant exemption for this clinic. It cites Hardesty v. N. Arkansas Med. Servs., Inc. for the three clinic criteria. It also says the taxpayer bears the burden of showing entitlement to an exemption and that courts strictly construe exemptions against the taxpayer.

The Assessment Coordination Division oversees property assessment and supervises county assessors. The local assessor decides a particular exemption based primarily on actual use of the property. The Attorney General says this office does not approve or deny a particular tax exemption.

For patient billing and collections, the opinion cites Sebastian Cnty. Equalization Bd. v. W. Ark. Counseling & Guidance Ctr., Inc. for the rule that charitable hospitals and clinics may serve paying patients when excess income supports and expands charitable operations.

Citations

Constitution and statutes:

• Ark. Const. art. 16, § 5
• Ark. Const. art. 16, § 6
• A.C.A. § 26-3-201
• A.C.A. § 26-26-1606
• A.C.A. § 26-24-101 et seq.
• A.C.A. § 26-26-1901 et seq.
• A.C.A. § 26-26-1001
• A.C.A. § 26-3-301
• A.C.A. § 26-27-317 to -318

Cases:

• South Carolina v. Baker, 485 U.S. 505, 523 (1988)
• Ark. Teacher Retirement Sys. v. Short, 2011 Ark. 263, at 7–8, 381 S.W.3d 834, 838–39
• Tech. Servs. of Arkansas, Inc. v. Pledger, 320 Ark. 333, 336, 896 S.W.2d 433, 435 (1995)
• Hardesty v. N. Arkansas Med. Servs., Inc., 2019 Ark. App. 410, at 3, 585 S.W.3d 177, 179
• Sebastian Cnty. Equalization Bd. v. W. Ark. Counseling & Guidance Ctr., Inc., 296 Ark. 207, 210–211, 752 S.W.2d 755, 757–758 (1988)

Source

• Landing page: https://arkansasag.gov/divisions/opinions-foia/attorney-general-opinions-search/

Original opinion text

BOB R. BROOKS JR. JUSTICE BUILDING
101 WEST CAPITOL AVENUE
LITTLE ROCK, ARKANSAS 72201
Opinion No. 2025-077
December 18, 2025
The Honorable Rick McClure
State Representative
2424 Sulphur Springs Road
Malvern, Arkansas 72104
Dear Representative McClure:
I am writing in response to your request for an opinion regarding the business personal property tax exemption claimed by an unidentified medical clinic. You indicate that this clinic asserts tax- exempt status based on its use of federal grant funds to purchase and operate medical equipment. You also note that this clinic bills its patients and refers unpaid accounts to collection agencies. Against this background, you ask the following questions:

1. Can a medical clinic claim business personal property tax exemption status by stating the
   underlying property was purchased with federal grant money?
   Brief response: No, a medical clinic cannot claim a business personal property tax exemption solely because the property was purchased with federal grant funds. But it may qualify for the public charity exemption provided by the Arkansas Constitution.
2. Does a medical clinic lose or jeopardize its tax-exempt status if it bills for its services
   rendered and turns delinquent accounts over to collection agents? Brief response: No, a medical clinic does not lose or jeopardize its tax-exempt status simply by billing patients or referring delinquent accounts to collection agencies, provided that those patients have the ability to pay and any profits are used to support or expand the clinic’s charitable mission.

The Honorable Rick McClure
State Representative
Opinion No. 2025-077
Page 2
DISCUSSION
Question 1: Can a medical clinic claim business personal property tax exemption status by stating the underlying property was purchased with federal grant money? A medical clinic cannot claim an exemption from business personal property taxes solely because the property was purchased using federal grant funds. But it may qualify for the “public charity” exemption provided by the Arkansas Constitution. In Arkansas, all real and personal property is subject to ad valorem taxation unless specifically exempted by law.1 While the federal government is generally immune from state taxation under the Supremacy Clause of the federal constitution, this immunity does not extend to private entities that receive federal funding.2 For purposes of this opinion, I assume the medical clinic is privately owned and operated, and not a federal entity. The Assessment Coordination Division (ACD) of the Arkansas Department of Finance and Administration oversees the valuation, assessment, and equalization of nearly all property subject to ad valorem taxation in Arkansas.3 In addition, the ACD supervises county assessors, equalization boards, and tax collectors to ensure property assessments are carried out in substantial compliance with Arkansas law.4 County assessors determine whether a property qualifies for an exemption or if the property is owned by an instrumentality of the federal or state government and thus is immune from taxation.5 That decision is appealable.6 The primary and predominant factor assessors consider when determining if an exemption is proper is the actual use of the property.7 There is a strong presumption in favor of the government’s taxing authority, and the burden rests on the taxpayer to demonstrate entitlement to an exemption.8 Arkansas courts strictly construe tax 1 Ark. Const. art. 16, § 5; A.C.A. § 26-3-201. 2 See South Carolina v. Baker, 485 U.S. 505, 523 (1988) (stating that “the States can never tax the United States directly but can tax any private parties with whom it does business, even though the financial burden falls on the United States ….”). 3 Assessment of utility and carrier property is performed by the Tax Division of the Arkansas Public Service Commission. See A.C.A. § 26-26-1606. 4 A.C.A. §§ 26-24-101 et seq., 26-26-1901 et seq. 5 Id. §§ 26-26-1001, 26-3-301. 6 Id. § 26-27-317 to -318. 7 Ark. Teacher Retirement Sys. v. Short, 2011 Ark. 263, at 7–8, 381 S.W.3d 834, 838–39. 8 Tech. Servs. of Arkansas, Inc. v. Pledger, 320 Ark. 333, 336, 896 S.W.2d 433, 435 (1995).

The Honorable Rick McClure
State Representative
Opinion No. 2025-077
Page 3
exemptions against the taxpayer.9
Any ambiguity regarding whether an exemption applies will
result in the denial of that exemption.10
Moreover, the General Assembly may authorize only those
exemptions that are specifically provided for in the Arkansas Constitution.11 In this instance, the only relevant exemption is the public charity exemption, which applies to buildings, grounds, and materials used exclusively for charitable purposes.12 For a medical clinic to qualify, it must (1) be open to the public; (2) provide services regardless of a patient’s ability to pay; and (3) use any profits from paying patients solely to maintain or expand its charitable operations.13 If the clinic satisfies these criteria, it may qualify for the public charity exemption. The authority to approve or deny a particular tax exemption has not been vested in this office. That decision rests with the local county assessor, who must follow the rules established by the ACD for assessing property subject to ad valorem taxation.14 Thereafter, the matter may proceed through the judicial process. Question 2: Does a medical clinic lose or jeopardize its tax-exempt status if it bills for its services rendered and turns delinquent accounts over to collection agents? A medical clinic does not lose its public charity exemption simply because it bills patients or refers delinquent accounts to collection agencies. Charitable hospitals and medical clinics are permitted to serve paying patients, provided that any excess income is used to support and expand the charitable mission.15 Referring delinquent accounts to collections may reflect a reasonable effort to recover costs from patients who are able, but unwilling, to pay. Assistant Attorney General Justin Hughes prepared this opinion, which I hereby approve. Sincerely, TIM GRIFFIN Attorney General 9 Id. 10 Id. 11 Ark. Const. art. 16, § 6. 12 Ark. Const. art. 16, § 5(b). 13 Hardesty v. N. Arkansas Med. Servs., Inc., 2019 Ark. App. 410, at 3, 585 S.W.3d 177, 179. 14 Ark. Att’y Gen. Op. 2015-118. 15 Sebastian Cnty. Equalization Bd. v. W. Ark. Counseling & Guidance Ctr., Inc., 296 Ark. 207, 210–211, 752 S.W.2d 755, 757–758 (1988).