Is A Hospital Operating In Your Community? Illinois Appellate Court Declares 2012 Hospital Exemption Statute Unconstitutional


Is A Hospital Operating In Your Community? Illinois Appellate Court Declares 2012 Hospital Exemption Statute Unconstitutional

Jan 12, 2016

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A statutory provision establishing property tax exemption standards for hospitals is unconstitutional and “was unenforceable from its inception” according to the Illinois Court of Appeals for the 4th District.  See The Carle Foundation v. Cunningham Township, et al., 2016 IL App (4th) 140795. 

Section 15-86 of the Property Tax Code

The General Assembly enacted the statutory provision in question, Section 15-86 of the Property Tax Code, at a time when Boards of Review and the Illinois Department of Revenue were questioning multiple hospital property tax exemption applications throughout Illinois.  Section 15-86’s preamble references “considerable uncertainty surrounding the test for charitable property tax exemption” for hospitals in the wake of the Illinois Supreme Court’s decision in the Provena Hospital tax exemption litigation.  Section 15-86 called for a comparison of the amounts of charitable service provided by the hospital to the amount of property taxes the hospital would pay if taxable, and Section 15-86 stated that it was the General Assembly’s intent “to establish a new category of ownership for charitable property tax exemption to be applied to not-for-profit hospitals and hospital affiliates in lieu of the existing ownership category of ‘institutions of public charity’.”  

The Carle Foundation Decision

The Appellate Court addressed multiple issues in its 46-page Carle Opinion, but the Appellate Court ultimately determined that Section 15-86 conflicts with Article IX, Section 6, of the Illinois Constitution.  The Appellate Court explains:  “Rather than require the hospital entity to use the subject property exclusively for charitable purposes … section 15-86 merely requires the hospital entity to, in a manner of speaking, pay for its property tax exemption with certain services of equivalent value.”  Moreover:

Not only does section 15-86 settle for something less than exclusive use of the property for charitable purposes; it does not require any charitable use of the property at all.  Under section 15-86, a hospital entity can obtain a charitable exemption simply by paying subsidies to community clinics, for example … or by paying subsidies to the state or local government…But article IX, section 6, of the constitution requires exclusive use of the property itself for charitable purposes…A property owner cannot buy a charitable exemption… 

In light of these considerations, the Appellate Court declared Section 15-86 unconstitutional because it purports to grant a charitable exemption on the basis of unconstitutional criterion, without requiring hospital property to be used exclusively for charitable purposes. 

Looking Forward

It is reasonable to expect an appeal of the Appellate Court decision to the Illinois Supreme Court, so standards regarding hospital taxation in Illinois may not be clarified for many years to come.  We will continue to monitor these proceedings, so please contact us with any questions you may have regarding the taxable status of any hospitals in your jurisdiction. If hospitals are, in fact, included in your tax base, it is essential that you preserve your right to participate in exemption proceedings and that you fully evaluate the impact an exempt/taxable determination will have on your present and future revenues.