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The Latest on Property Tax Exemptions for Illinois Hospitals

Property Tax Publications

Recently, there have been several noteworthy developments in the controversy surrounding property tax exemptions for Illinois hospitals. For the past decade, we’ve been providing updates as this issue progressed through the courts, executive branch, state legislature, and local assessing officials. Now, the issue is back in front of the Illinois Supreme Court, although there is a distinct possibility that there will not be a definitive conclusion in the near future. 

Illinois Supreme Court

On January 12, the Illinois Supreme Court heard oral argument in Carle Foundation v. Cunningham Township.  As we discussed in detail last January, the Fourth District Illinois Appellate Court concluded that the special property tax exemption created for hospitals in 2012 was unconstitutional. The basis of the decision was that Article IX, Section 6 of the Illinois Constitution states that the General Assembly may provide an exemption for property used exclusively for charitable purposes, and the hospital property tax exemption in Section 15—86 of the Property Tax Code provides exemptions to hospitals that may not be used exclusively for charitable purposes. Not surprisingly, the hospital appealed this decision to the Illinois Supreme Court.

The oral argument, audio, and video of which is available on the Illinois Supreme Court website revealed a Court very concerned with procedural issues. Some of the questions raised by the Justices suggested that it would be better to wait for a different case to make its way to the Court before addressing the substantive issues. Interestingly, just such a case was recently decided by the First District Illinois Appellate Court.

Illinois Appellate Court

On December 22, the Illinois Appellate Court for the First District issued a decision finding that Section 15—86 of the Property Tax Code is constitutional. The decision acknowledges that the Fourth District Appellate Court previously found the provision unconstitutional, but reaches a different conclusion based on different arguments and reasoning.

The decision, Oswald v. Hamer, focuses on the phrase in Section 15—86 that states the Illinois Department of Revenue “shall” issue an exemption to those hospitals meeting or exceeding the prescribed levels of charitable care and services funded by Medicaid and Medicare. The court concludes that, in this particular instance, the use of the word “shall” is directory and not mandatory. As a result, the statute was found to be constitutional because it can only allow the Department to grant an exemption when a hospital meets both the statutory requirements and the constitutional requirement that the property is used exclusively for charitable purposes. In other words, the constitutional requirement of exclusive charitable use is a requirement over and above what is set forth in Section 15—86 of the Property Tax Code that is not undermined by the statute.

While this decision may provide a way to preserve the constitutionality of Section 15—86, it has the potential to create administrative difficulties. For instance, how will an applicant be able to establish that it both meets the criteria set forth in Section 15—86 and uses the property exclusively for charitable purposes? Rather than simplifying the evaluation of hospital property tax exemptions, the decision in Oswald may actually make it more difficult. According to media reports, there are currently 95 hospital exemptions on hold at the Department of Revenue. As a result, the potential revenue impact on school districts and units of local government remains both wildly large and extraordinarily uncertain.