Tax News Highlights

IL Court Ruling Affects Not-for-Profit Hospitals

Jan. 14, 2016

The Appellate Court of Illinois, in its Jan. 5, 2016, opinion in The Carle Foundation v. Cunningham Township, invalidates on constitutional grounds an Illinois law enacted in 2012. The law was intended 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 Appellate Court’s decision means there is new uncertainty for Illinois hospitals. The 2012 law (commonly referred to as Section 15-86) was the result of the Illinois Supreme Court’s decision in Provena Covenant Medical Center v. Dept. of Revenue, which ruled in favor of the Illinois Department of Revenue and denied property tax exemptions to certain hospitals.

Background

The Illinois Constitution provides: “The General Assembly by law may exempt from taxation only the property of the State, units of local government and school districts and property used exclusively for agricultural and horticultural societies, and for school, religious, cemetery and charitable purposes. The General Assembly by law may grant homestead exemptions or rent credits.”1

Section 15-86 provided a property tax exemption to not-for-profit hospitals and their affiliates if the value of the charity care and similar services provided by the hospitals exceeded the hospital’s estimated property tax liability. The Appellate Court ruled the statute to be unconstitutional because Section 15-86 provided an exemption that was broader than what is allowed under the state constitution and ultimately provided an exemption to hospitals that were not operating exclusively for charitable purposes.

Another important aspect of this case involves the uncertainty of the exemption claimed by not-for-profit hospitals under Section 15-86 in prior years. The Appellate Court ruled Section 15-86 unconstitutional because it does not require exempt property to be used exclusively for charitable purposes when granting charitable exemptions. As a result, according to the court’s ruling, Section 15-86 was invalid from its enactment.

Taxpayers now must wait and see whether the case will be appealed to the Illinois Supreme Court.



1 Illinois Constitution, 1970, Article IX, Section 6.

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