This Section compares the rules governing a hospital district's status under state law, and under the Internal Revenue Code, Section 501(c)(3). The scope of restrictions and/or requirements under each scheme can vary, thus it is important that hospital districts who have qualified under Section 501(c)(3) understand the potential impact of these rules, and the ways that the rules may interact. This document will describe the process by which a hospital district qualifies for status as a tax exempt charity, outline the state and federal doctrines that operate to limit the permissible activities of a 501(c)(3) public hospital district, and discuss new developments in non-profit tax law which may affect 501(c)(3) hospital districts, as well as influence hospital districts which have considered qualifying under Section 501(c)(3).

The general effect of the Internal Revenue Code upon a hospital district is to place somewhat greater restrictions upon the activities of public hospital districts than would be the case under state law alone. This effect may not be very noticeable in practice, but should not be ignored by 501(c)(3) hospital districts.