Supreme Court to hear hospital tax exemption case

Wisconsin’s highest court will hear a case involving a tax dispute between the City of Wauwatosa and Children’s Wisconsin, over whether a hospital building is exempt from taxes while under construction.

Children’s Wisconsin, a nonprofit health system that operates hospitals and clinics primarily in the Milwaukee region and the Fox Valley, is asking the Wisconsin Supreme Court to overturn a lower court decision that sided with Wauwatosa.

In that decision, a panel from the Wisconsin Court of Appeals found a partially constructed hospital building could not be exempt from taxes as a nonprofit hospital.

The case involves the Craig Yabuki Tower, a six-story addition to Children’s main hospital in Wauwatosa, 8915 W. Connell Court. Children’s began construction on the tower in 2019, part of a major, multi-year expansion of the flagship hospital.

Children’s asked the city for a tax exemption on the grounds the tower would be part of the nonprofit hospital and used for clinical purposes.

The city disagreed, and in late 2020, Wauwatosa billed the health system for property taxes related to the partially constructed tower, amounting to $122,870, according to court records. The city argued the tower was not yet being used for a purpose that would make it exempt.

Children’s responded by filing a lawsuit in Milwaukee County Circuit Court, alleging the tower was exempt because Children’s was “readying” the tower for use as a nonprofit hospital. It pointed to a concept called the “readying rule.”

A circuit court judge disagreed, and later, the three-judge panel from the Wisconsin Court of Appeals upheld the lower court in a 2-1 decision, saying the “readying rule” only applied to finished buildings in the final stages of being “readied.”

Judges Pedro A. Colón and M. Joseph Donald were in the majority. Former Chief Judge Maxine A. White wrote a dissenting opinion, arguing the majority’s interpretation was too narrow. White thought the court should consider the property’s future use when determining tax status.

The case comes amid Congressional scrutiny of nonprofit hospitals’ tax status, and whether they offer enough benefits to the community to justify their exemption, even as these hospitals become larger and larger and hospital prices go up and up.

The case is now before the state Supreme Court and could have implications for other nonprofit hospitals.

The Wisconsin Hospital Association, a trade group that represents health systems, asked the high court to take up the case and argued the appellate decision went against lawmakers’ goal of reducing costs for nonprofit hospitals.

“The Court of Appeals’ decision in this case impacts not just Children’s Hospital of Wisconsin but will substantially impact how not-for-profit hospitals across Wisconsin evolve and update the services they provide to their communities,” the association wrote in a friend-of-the-court brief.

On its website, the city of Wauwatosa said the case is about “the equitable distribution of the local tax burden.”

“Ensuring that every property that should be taxed is accurately assessed allows the city to maintain the high level of fire, police, and public works services residents expect without placing an undue burden on homeowners,” the city’s website says.

The Supreme Court case will provide clarity to other cities, the Wauwatosa website said, ensuring the rules for tax exemption are applied evenly and fairly.

The case is not the only pending lawsuit against the city over tax exemptions. Children’s filed another lawsuit against the city that remains pending in Milwaukee County Circuit Court related to millions of dollars in taxes the hospital system is disputing.

Children’s moved to the Milwaukee Regional Medical Center in 1988, located just within Wauwatosa’s city limits. The medical center is also home to the Medical College of Wisconsin and Froedtert Hospital. The complex has undergone a flurry of growth in recent years, with construction cranes a near permanent fixture.

In the first nine months of 2025, Children’s Wisconsin reported about $1.49 billion in operating revenue, according to its latest unaudited quarterly statement. After operating expenses, it was left with $36.2 million in operating income. When taking into account nonoperating income from investments, Children’s reported $196.18 million in net income.