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Illinois Supreme Court Finds Hospital Tax Exemption Constitutional

Property Tax Publications

Today, the Illinois Supreme Court issued a decision in Oswald v. Hamer marking the latest chapter in a controversy dating to 2003. The decision finds that Section 15-86 of the Illinois Property Tax Code, which provides a special charitable property tax exemption for hospitals, is facially constitutional. Given the size and scope of modern hospitals, whether they are exempt or taxable has significant implications for Illinois school districts. 


Today’s opinion has its antecedents in a ruling of the Champaign County Board of Review from 2003 when the Board of Review revoked the property tax exemption from Provena Covenant Medical Center in Urbana. The basis for the revocation was a finding that Provena’s practice at the time of filing lawsuits and other aggressive debt collection practices called into question the hospital’s charitable purpose, a requirement for exempt status under the Illinois Property Tax Code. The Illinois Department of Revenue (DOR) affirmed the revocation in 2004 causing Provena to be responsible for over $1.0 million in property tax payments.

The DOR’s decision led to further litigation and ultimately a decision from the Illinois Supreme Court in 2010 affirming the revocation of Provena’s property tax exemption and validating the decades-old test for a finding of a charitable exemption. In that plurality decision, the Court applied the traditional test for charitable property tax exemptions to a hospital and determined the hospital was not entitled to an exemption because it did not provide clear and convincing evidence that a sufficient amount of charitable services were provided. As a result, the exemptions of the vast majority of Illinois hospitals were called into question, and a backlog of exemption applications was created as the DOR attempted to apply the articulated legal standard. When three hospital exemption applications were denied, then-Governor Quinn imposed a moratorium on decisions by the DOR and called upon State and local assessing officials, the hospital community, and the General Assembly to devise a test to determine exempt status for these hospitals. Within a few months of the moratorium being lifted, the Illinois General Assembly passed and the Governor signed P.A. 97-688, which added a new section to the Property Tax Code specifically providing an exemption to all hospitals that meet certain criteria for free and discounted medical care, assistance to the indigent, and receipt of Medicare or Medicaid reimbursement. The Illinois Supreme Court first considered the constitutionality of this statute in January 2017 but avoided ruling on the issue for procedural reasons. However, a second challenge had already proceeded through the Appellate Court and presented the current controversy.

Current Decision

The current controversy, Oswald v. Hamer, involves a complaint by a Cook County taxpayer seeking a judicial declaration that Section 15-86 of the Property Tax Code is unconstitutional. The premise of Oswald’s challenge is that Article IX, Section 6 of the Illinois Constitution permits the General Assembly to exempt from taxation only those kinds of property specifically enumerated, including those used exclusively for charitable purposes. However, Oswald argued, Section 15-86 of the Property Tax Code requires the DOR to grant a property tax exemption to hospital properties meeting certain criteria regardless of whether the property is used exclusively for charitable purposes.

The Court rejected Oswald’s facial challenge to the constitutionality of Section 15-86. A facial challenge to the constitutionality of a statute is the most difficult challenge to make because it requires a court to find no set of circumstances under which the statute would be constitutional. Several amici briefs invited the Court to discard this test of facial constitutionality, but the Court declined the invitation. Instead, the Court read into Section 15-86 the Constitution’s exclusive use requirement for charitable exemptions. Therefore, in the Court’s words, “a hospital applicant seeking a section 15-86 charitable property tax exemption must document the services or activities meeting statutory criteria. Additionally, the hospital must show that the subject property meets the constitutional test of exclusive charitable use.”

The Court concluded by emphasizing that the case before it presented only a facial challenge to the statute. It noted that specific future applications of the statute may produce unconstitutional results. However, the Court decided to leave that question for another day.

Given that the Court left open the door to a future ruling that the statute could be unconstitutional as applied, the controversy surrounding hospital exemptions may not be over. And given the importance of the issue to hospitals, taxing agencies and taxpayers, special attention will continue to be paid to the issue. But for now, the exemption remains in place.