Hospital Charitable Tax Exemption Upheld by Illinois Appellate Court

Last month, in the case Carle Foundation v. Dept. of Revenue, the Fourth District Court of Appeals issued its latest decision regarding hospital property tax exemptions. The Court upheld a trial court judgment awarding the Carle Foundation Hospital system charitable tax exemptions for tax years 2005 through 2011. This decision is the latest development in a 15-year saga regarding whether hospitals can receive property exemptions as charities. Due to the size and scope of hospitals, these decisions have a significant impact on the tax revenue of school districts and local government units. 

Background of the case 

The procedural history of Carle is long and winding. In response to an Illinois Supreme Court decision finding that the Carle Foundation Hospital in Champaign County did not meet the traditional test for a charitable property tax exemption, the Illinois General Assembly created a special property tax exemption for hospitals in 2012. Under Section 15-86 of the Property Tax Code, a hospital applicant qualifies for an exemption if the value of qualified services or activities within a given year equals or exceeds the hospital’s estimated property tax liability. Qualified services and activities include charity care, health services to low-income and underinsured individuals, subsidies for treating dual-eligible Medicare/Medicaid patients, and any other activity that “relieves the burden of government or addresses the health of low-income or underserved individuals.” 

The Carle Foundation pursued a lawsuit in circuit court to establish that its properties were retroactively tax-exempt pursuant to Section 15-86, arguing that it provided enough low-cost and free care and charitable services in the years prior to the adoption of Section 15-86 to qualify for the exemption. The trial court found in favor of the Carle Foundation and awarded partial tax exemptions for seven out of eight disputed years between 2004 and 2011. 

The Fourth District’s recent decision 

The Fourth District affirmed the trial court’s 2020 ruling that the Carle Foundation was entitled to partial charitable tax exemptions on its four properties for seven out of eight disputed tax years, and further held that Carle was entitled to an additional year of exemptions that the trial court did not allow. Crucially, the Court found that the provisions of Section 15-86 apply retroactively to tax years before its adoption. To reach this conclusion, the Court relied on both the intent of the General Assembly as expressed in Section 15-86 and a section of the Property Tax Code that allows tax objection complaints to be filed in circuit court seeking an exemption on “comparable grounds” when a property has been granted an exemption in a subsequent tax year. 

The Court then applied a dual analysis, finding that the Carle Foundation complied with both the statutory requirements of Section 15-86 and the traditional test for charitable property tax exemption under article IX, section 6 of the Illinois Constitution. Citing case law, the Fourth District defined the “exclusively used” component of the test for charities as “the primary purpose for which property is used and not any secondary or incidental purpose.” Further, the court stated, “Illinois law is clear that “there is no requirement that the entire property be used primarily for charitable purposes.” 

The Fourth District declined to reweigh the evidence but found that “the record amply supports a finding that [the Carle Foundation] undertook significant charitable activities on all parcels in this litigation,” and agreed with the trial court that even the properties that were not in themselves exclusively used for charitable purposes were “reasonably necessary to accomplish the charitable purposes of the Hospital.”  

Local assessing officials are likely to appeal this decision to the Illinois Supreme Court. As always, we will keep you up to date with any further developments in this case.