Illinois Department of Revenue Denies Charitable Property Tax Exemptions to Three Hospitals
August 24, 2011
As reported by Crain’s Chicago Business last week, the Illinois Department of Revenue denied charitable property tax exemptions to Prentice Women’s Hospital at Northwestern Memorial Hospital in Chicago, Edward Hospital in Naperville, and Decatur Memorial Hospital. Local public television station WTTW also aired a discussion of the issue on its Chicago Tonight program. The decisions were initial administrative determinations that can be appealed within the Department. This is the latest development in an ongoing realignment of Illinois property tax exemption law.
As discussed in a FR Alert, in 2010 the Illinois Supreme Court upheld the revocation of a charitable property tax exemption for Provena Covenant Medical Center in Urbana on the grounds that the hospital provided insufficient charity care as a percentage of its total revenues. The Court declined, however, to state what an adequate level of charity care would be. As government officials have attempted to define the adequate level of charity care provided by a hospital, numerous exemption applications from hospitals have remained on hold. These three recent decisions may indicate that more rulings are on the way.
The issue of charitable care raises the question of how does an entity measure the benefits provided to a community by a hospital. As reported by Crain’s, none of the hospitals denied an exemption last week listed uncompensated charity care on financial statements submitted with their exemption requests. Other records obtained by Crain’s, however, indicated that charity care as a percentage of total patient revenue was 1.85% at Northwestern, 1.04% at Edward, and 0.96% at Decatur Memorial. In the Provena decision, the Court rejected the argument by the hospital that Medicare and Medicaid funded healthcare constitutes charity. But those representing hospitals also argue that hospitals provide broader community benefits that may not be listed on financial statements.
Legislation introduced during the past session of the Illinois General Assembly (SB 1881) would require hospitals to provide at least 3.5% of their total revenue in charity care. The bill, however, was held in the Public Health Committee. Additionally, a spokeswoman for the Department of Revenue is reported to have stated that the Department of Revenue will not set a percentage or dollar amount of charity care that hospitals must provide in order to keep or obtain a charitable property tax exemption.
Franczek Radelet will continue to monitor and provide updates on developments in this evolving area of property tax law.