September 20, 2018
State Supreme Court UPHOLDS Property Tax Exemption Law
The Illinois Supreme Court today unanimously upheld the constitutionality of the state’s hospital property tax exemption law. The ruling, Oswald v. Beard, 2018 IL 122203 (9-20-18), caps many years of effort by many people to enact and then defend a clear and fair test for property tax exemption for non-profit hospitals.
The 2012 Statute
Following nearly a decade of uncertainty about the standards that non-profit hospitals must meet in order to obtain property tax exemption, the Illinois General Assembly passed bipartisan legislation in 2012 establishing clear and fair standards applicable to non-profit hospitals and health systems. Governor Quinn signed the bill into law on June 14, 2012 as Public Act 97-688.
That legislation accomplished four important goals:
- It provides hospitals and taxing bodies with clarity that had been lacking for many years.
- It ensures that communities receive the “benefit of the bargain” for hospital tax exemption.
- It promotes the delivery of health care to low-income and underserved individuals.
- In a time of increased financial stress on hospitals, it helps ensure that hospitals have the resources to serve their communities.
In 2012, soon after the legislation was signed by the Governor, an individual property tax payer in Cook County filed a lawsuit challenging the constitutionality of the statute. The Oswald case did not involve a hospital or an actual application for exemption or any decision by the Department of Revenue. It was solely about the language of the statute itself.
The lawsuit claimed that the statute was unconstitutional because it does not expressly mention the constitutional requirements for exemption. Charitable property tax exemption in Illinois has both a constitutional component and a statutory component. The 2012 legislation dealt only with the statutory component. Both the trial court and appellate court dismissed the lawsuit – and upheld the legislation – explaining that statutes do not have to expressly repeat the underlying constitutional provision – it’s understood that the constitution must always be followed. IHA worked with the Illinois Department of Revenue and the Illinois Attorney General’s Office to defend the statute’s constitutionality.
The Supreme Court Decision
The Illinois Supreme Court has upheld the lower court rulings and rejected the plaintiff’s argument that the statute must expressly reference the constitutional test:
“In the case at bar, while [the statute] does not expressly provide that the hospital charitable property tax exemption is limited to applicants that satisfy the constitutional requirement of exclusive charitable use, section 6 of article IX of the Illinois Constitution does say so, and we presume that the legislature intended to comply with this constitutional limitation.”
“In the case at bar, the legislature was certainly aware of section 6 of article IX of the constitution and its requirement of exclusive charitable use, and it intended to enact a constitutional hospital charitable property tax exemption.”
The Illinois Health and Hospital Association was a party in the Oswald case and worked closely with the Illinois Department of Revenue and the Illinois Attorney General’s Office in defending the constitutionality of the statute. IHA was represented by Steven Pflaum, Tonya Newman, and Collette Brown of Neal, Gerber & Eisenberg LLP.
While many individuals have worked hard on this issue – both from IHA staff and from IHA members – I would like to offer a special word of thanks to Mark Deaton, IHA’s General Counsel, and Sandy Kraiss, Vice President, Health Policy and Finance, who worked tirelessly and brilliantly on this issue for the past 14 years.
Also see IHA’s statement on today’s Illinois Supreme Court ruling.
Update: In a highly anticipated case, The Carle Foundation v. The Illinois Department of Revenue, on Feb. 6, 2020, a judge ruled in favor of the Carle Foundation in finding that it was entitled to property tax exemptions for four parcels in Urbana for the tax years 2005-2011, but not for the tax year 2004. This favorable ruling, in a case begun by Carle in 2007, supports the continuing line of Illinois cases, such as the Supreme Court ruling in the Oswald case.