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Tuesday, March 8, 2016

Court Declares Property Tax Exemption for Hospitals Unconstitutional

A recent court decision struck down a provision in the Illinois Property Tax Code that grants hospitals an exemption from property taxes if the value of certain services or subsidies provided by the hospital to low income and underserved individuals for the hospital year equals or exceeds the hospital’s estimated property tax liability for that year.

Carle Health System owns four parcels in Urbana, Illinois.  Prior to 2004, those parcels were exempt from real estate taxes under a Property Tax Code provision which exempts parcels being used exclusively for charitable purposes.  From 2004 through 2011, the exemption was removed and the parcels were assessed as taxable.  Carle sued to have the exemptions restored.  In 2015, a trial court ruled in favor of Carle, finding the property exempt under Section 15-86 of the Property Tax Code, a recent amendment to that Code.  

In Carle Foundation v. Cunningham Township, 2016 IL App 140795 (4thDist., 2016), the appellate court reversed, ruling that Section 15-86 is facially unconstitutional because it purports to grant a charitable exemption on the basis of providing services or subsidies equal in value to the estimated property tax liability without requiring that the subject property be used exclusively for charitable purposes.

The Court began its analysis with a discussion of Article IX Section 6 of the Illinois Constitution.  That Section authorizes the General Assembly to exempt from taxation only the property of the State, units of local government and school district and property used exclusively for agricultural and horticultural societies, and school, religious, cemetery, and charitable purposes.  The Court stated that the “used exclusively” language has been interpreted in prior decisions to mean “used primarily.”  The Court held that the absence of the term “used exclusively” from Section 15-86 rendered that section unconstitutional.

In reaching its conclusion the Court reasoned that “A property cannot buy a charitable exemption” and continued “The use to which the property is devoted is decisive rather than the use to which income from the property is employed.”  Further, “Property which is used to produce income to be used exclusively for charitable purposes may not be exempted from taxation, the test, being instead, the present use of the property rather than the ultimate use of the proceeds from the property sought to be exempted. "

Consequently, hospitals will no longer be able to rely on Section 15-86 as a route to property exemption and will be required to demonstrate that their property is used primarily for charitable purposes in order to qualify for property tax exemption.

Post Authored by Jim Rock, Ancel Glink


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