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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