Illinois Supreme Court upholds hospital tax-exemption law

Illinois Supreme Court upholds hospital tax-exemption law

SPRINGFIELD — An Illinois Supreme Court ruling upholding the state's 6-year-old hospital tax-exemption law is being viewed as a win for both nonprofit hospitals and taxing districts, but it remains to be seen how it will play out in the Carle Foundation's pending lawsuit over property taxes in Champaign County.

The state Supreme Court on Thursday morning unanimously affirmed a First District Appellate Court ruling that upheld the constitutionality of the state law that created new standards for nonprofit hospitals to obtain exemptions from paying property taxes in their communities.

The constitutionality of that statute was challenged the same year it took effect, in 2012, by Cook County resident Constance Oswald in a lawsuit filed against the Department of Revenue and its director.

The 2012 addition to the state tax code allows hospitals seeking property-tax exemptions to get them if they can show they provide at least as much charitable assistance in a given year as the property-tax bills they would have had to pay.

Oswald argued the law was unconstitutional because it provides for an exemption to be granted without regard to whether the hospital property satisfies a requirement in the Constutition that it be used exclusively for charitable use.

The Illinois Health and Hospital Association, which was a party to the Oswald case and worked to defend the constitutionality of the state law, was pleased with the ruling.

The new law has promoted the delivery of health care for low-income people, delivered a long-needed clarity for hospitals and taxing districts and ensured that communities receive the "benefit of the bargain" for hospital tax exemptions, the organization contended.

"Taxing nonprofit hospitals would hurt the communities they serve by diverting dollars that are better used to care for patients and to upgrade equipment, modernize facilities and hire needed staff," said A.J. Wilhelmi, the organization's president and CEO.

The Supreme Court rejected a primary argument in Oswald's case that the exemption law is unconstitutional because it doesn't specifically mention state constitutional requirements along with those specified in the new statute.

"We presume that the Legislature enacts statutes in light of the Constitution and intends to enact constitutional legislation, and does not intend to exceed its constitutional limitations," said the opinion written by Justice P. Scott Neville Jr.

A hospital applicant seeking a charitable property-tax exemption under the state law "must document the services or activities meeting the statutory requirement," he wrote. "Additionally, the hospital must show that the subject property meets the constitutional test of exclusive charitable use."

The court also noted that "exclusive charitable use" means it is the primary purpose for which the property and not the secondary or incidental purpose.

Champaign County Assistant State's Attorney Joel Fletcher, who filed a friend-of-the-court brief in the case on behalf of the county and its treasurer, also considered the court's decision to be a good one — but for another reason.

In affirming the constitutionality of the state law, the court also made it clear that hospitals still have to meet the constitutional standards, he said.

"I think this is a very positive decision for local taxing districts, because it makes it clear that hospitals have to meet both the statutory criteria for exemption and the constitutional requirement for exclusive charitable use," he said.

The Supreme Court also specifically stated that applications of the state law may produce some constitutional problems that could be addressed as they arise, he said.

The Supreme Court previously reviewed the Carle Foundation's lawsuit with local taxing districts after the Fourth District Appellate Court opinion on that case declared the tax-exemption law unconstitutional. In an opinion last year, the high court sent the Carle case back to the trial court and didn't address the constitutionality issue of the state law.

The Carle Foundation is also pleased with Thursday's decision.

"Carle has long advocated for clarity surrounding the expectations for property-tax exemptions for not-for-profit health care providers. This opinion provides that guidance," said spokeswoman Laura Mabry. "Carle will continue to serve the health care needs of the community and provide charity care that meets the community's growing need for financial assistance with health care costs."

Carle provided $32.4 million in charity care at cost last year, "an amount significantly above what its property taxes would be," she said.