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Illinois Supreme Court Hears Oral Argument on Hospital Property Tax Exemptions

Property Tax Publications

Today, the Illinois Supreme Court heard oral argument in Oswald v. Beard, a case challenging the constitutionality of the statute exempting most hospitals from paying anyproperty taxes. This is the latest episode in the long-running legal and political battle over hospital property tax exemptions. The size and scope of modern hospitals make them powerful components of the economy, and the outcome of this case will have profound effects on the medical community, school districts, local governments, and taxpayers. 

The oral arguments (available to view here) pitted Constance Oswald, a resident whose property tax bills increased as a result of the exemption, against the Illinois Department of Revenue and the Illinois Health and Hospital Association. Friend of the court briefs in support of Ms. Oswald was filed by IASB/IASA/IASBO, the Cunningham Township Assessor, and Champaign County. At issue is the constitutionality of Section 15-86 of the Property Tax Code. Under Section 15—86, hospitals are entitled to a property tax exemption if the qualifying services they provide exceed the estimated value of the property taxes they would otherwise pay. Qualifying services include such things as charitable care and services paid for through Medicaid or Medicare. 

Two issues were presented to the Court for review. First, is Section 15—86 facially unconstitutional? The argument here is whether the General Assembly overstepped its authority under the Illinois Constitution because the General Assembly is granted the power to exempt property from taxation only if the property is used exclusively for charitable purposes. The second question is whether there is any set of circumstances under which the statute could be found constitutional. Striking down any statute is a dramatic event, and Illinois courts will not do so unless there is no set of circumstances under which the statute could be found constitutional. The argument here centers on whether the statute requires the Illinois Department of Revenue to grant an exemption, or if it only allows the Department to grant an exemption when a hospital satisfies both the statutory and constitutional requirements.

Regardless of how the Court decides these issues, the economic impact will be significant. Upholding the exemption could finally end a controversy that has been unfolding for over a decade and ensure that hospitals continue to enjoy the exemption. Striking down the statute could mean an economic benefit to both taxing agencies and taxpayers, but it would likely result in a continuation of the political debate over tax breaks for hospitals. When the decision is issued, we will update you on the outcome.

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