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Illinois Supreme Court Vacates Appellate Court Decision to Remove Property Tax Exemption for Hospitals

by Steven Kandelman

In an opinion issued on March 23, 2017, the Illinois Supreme Court vacated a 4th District Appellate Court decision to remove the property tax exemption for not-for-profit hospitals in The Carle Foundation, et al. v. Cunningham Township, 2017 IL 120427 (2017).  The case will be remanded back to Circuit Court to determine whether not-for-profit hospitals are eligible to use the charitable-use property tax exemption.  Under the Illinois Property Tax Code (35 ILCS 200/15-86), hospitals are eligible for a property tax exemption if the value of its charitable services is equal to or greater than its estimated tax liability.  The Illinois Health and Hospital Association (IHHA) wanted the Illinois Supreme Court to rule on the constitutionality of the property tax exemption for not-for-profit hospitals, but they were still excited and happy with the Supreme Court’s decision.  “Especially in this era of increasing financial stress on hospitals and increasing uncertainty about things like the Affordable Care Act, the tax exemption is one way to ensure that all of the hospitals’ financial resources are devoted to caring for their communities,” said Mark Deaton, General Counsel of the IHHA.  “Paying property taxes diverts scarce resources to purposes other than health care for the community”. “Illinois Supreme Court delivers partial win for hospitals on property taxes”, by Lisa Scheneker, Chicago Tribune, March 23, 2017.

On the other side of the issue, lawyers of the taxing bodies who are reliant on taxpayers funding their budgets argued that cash-rich not-for-profit hospitals should have to contribute their fair share to their communities.  If not-for-profit hospitals had to pay property taxes in Illinois, those sums would equal to huge sums of money, lessening the tax burden on individual homeowners.  For example, Carle Foundation Hospital was named the 10th-most profitable hospital in the country when it came to patient care services in 2013 as published in the journal, Health Affairs last year.  Leaders for the Carle Foundation have said that they disagree with the study’s methodology.  Urbana Mayor Laurel Prussing stated that Urbana lost 11 percent of its assessed property value for tax purposes when Carle Foundation and another Urbana hospital, Presence Covenent Medical Center were relieved of paying more than $6 million a year in property taxes.  It is difficult to say how much property tax revenue would be lost if the law is ruled unconstitutional.  A 2009 report by the Center for Tax and Budget Accountability estimated the value of 47 Chicago-area not-for-profit hospitals’ property tax exemptions at $279 million. “Should Illinois hospitals have to pay property taxes?  Court will weigh question,” by Lisa Scheneker, Chicago Tribune, January 8, 2017.

About 156 of Illinois’ more than 200 hospitals are not-for-profit hospitals and these hospitals include many of the biggest names of hospitals in the Chicagoland area such as Advocate Health Care, Northwestern Memorial Hospital and Rush University Medical Center.  As the current law stands, an Illinois not-for-profit hospital can be considered tax-exempt if the value of its charitable services is equal to or greater than its estimated tax liability.  This is an issue not just involving Illinois.  Many states across the country have been watching how the Carle case unfolds and is decided.  For example, about half of New Jersey’s 64 not-for-profit, acute-care hospitals are in court over whether hospitals are eligible for tax exemptions after a New Jersey tax court judge’s 2015 ruling that a Morristown, N.J. hospital should not be exempt from property taxes because it operates like a for-profit business.

On December 22, 2016, in a separate Illinois case (Constance Oswald v. Brian Hamer and the Illinois Department of Revenue, 2016 Ill.App. 152691(1st Dist.)), the First District Illinois Appellate Court case upheld a lower court’s ruling that the law which allows for a hospital to have tax-exempt status based on the value of its charitable services being equal or greater than its estimated tax liability was constitutional.  Mark Deaton of the IHHA has stated that he anticipates this case will make its way to the Illinois Supreme Court.

The Carle Foundation Hospital case is an important case to monitor because it will have far reaching implications and financial ramifications on municipalities, hospitals and the overall health care costs for the citizens of Illinois.


For more information about this article, contact the Law Offices of Rieff, Schramm, Kanter & Guttman, LLC.