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Home / Blog / Illinois Supreme Court Preserves Real Estate Tax…

Illinois Supreme Court Preserves Real Estate Tax Exemptions for Not-for-Profit Hospitals

In a recent Illinois Supreme Court decision named Oswald v. Hamer, which was filed on September 20, 2018, the Court has ruled that not-for-profit hospitals may, under specific circumstances, be exempt from having to pay real estate taxes.    In the unanimous decision, the Illinois Supreme Court held that a statute that was signed into law in 2012, namely Section 15-86 of the Property Tax Code, is in accordance with the Illinois Constitution.

This ruling by the Supreme Court follows some years of uncertainty regarding real estate tax exemptions for not-for-profit hospitals in Illinois.  On March 18, 2010, the Supreme Court had filed its decision in the Provena Covenant Medical Center v. Dept. of Revenue case, in which the Court ruled that Provena was not entitled to a charitable real estate tax exemption.  In the Provena decision, the Court noted that “a mere 302 of (Provena’s) 110,000 admissions received reductions in their bills based on charitable considerations.”  Because it did not find that Provena was providing sufficient charitable medical services, the Court upheld the trial and appellate court decisions denying a charitable exemption.  However, the Provena opinion did not establish what level of care rendered with charitable considerations would be required in order for a not-for-profit hospital to qualify for a charitable tax exemption.

To fill this void, the Illinois General Assembly enacted Section 15-86 of the Property Tax Code in 2012.  In its findings, the General Assembly stated that this new statutory provision develops “a comprehensive combination of related legislation that addresses hospital property tax exemption, significantly increases access to free health care for indigent persons, and strengthens the Medical Assistance program.”  The General Assembly also stated that its intent was “to establish quantifiable standards for the issuance of charitable exemptions … on a case by case basis.”  The formula that is then set forth in Section 15-86 of the Property Tax Code requires not-for-profit hospitals, in order to qualify for a real estate tax exemption, to provide indigent patients charitable services that are at least equal in value to the amount of estimated property tax liability that is exempted under the real estate tax exemption.

Subsequently, Constance Oswald of Cook County brought an action against Brian Hamer, the Director of Revenue for the Illinois Department of Revenue, seeking a judgment declaring that Section 15-86 of the Property Tax Code is unconstitutional.  The circuit court granted summary judgment for Brian Hamer of the Illinois Department of Revenue, thereby upholding the constitutionality of the statute, and dismissed the case.  The appellate court affirmed.

The principal issue before the Illinois Supreme Court in Oswald v. Hamer was whether the standards for exemption set forth in Section 15-86 of the Property Tax Code meet the requirement that in order to qualify for a real estate tax exemption, a hospital must be owned and used “exclusively” for charitable purposes as required by Article IX, Section 6 of the Illinois Constitution.  In its published opinion, the Supreme Court cited all of the relevant charitable exemption case law including the case of Chicago Patrolmen’s Assoc. v. Dept. of Revenue which had been successfully argued before the Supreme Court in 1996 by our own Michael T. Reynolds.

After a lengthy discussion regarding the application of the rules of statutory construction, the Court presumed “that the legislature enacts statutes in light of the constitution, and intends to enact constitutional legislation, and does not intend to exceed its constitutional limitation.”  In its conclusion, the Court found that Section 15-86 of the Property Tax Code is constitutional.

Meanwhile, in 2015, in a case involving the Carle Foundation Hospital in Urbana, Illinois, the Fourth District Appellate Court held that Section 15-86 of the Property Tax Code is unconstitutional.  That case was then appealed to the Illinois Supreme Court which remanded the case for further findings at the trial level.  That trial has now been set for January, 2019.  Presumably, the Carle Foundation Hospital case will now be decided by the trial court in accordance with the Supreme Court’s ruling in Oswald.  As a result, the trial court will have to weigh whether the Carle Foundation Hospital provides indigent patients charitable services that are at least equal in value to the amount of estimated property tax liability that would be exempted under a real estate tax exemption.