Friday, September 21, 2018

State’s high court upholds but clarifies hospital tax exemption law

The Illinois Supreme Court upheld a law in a September 20 ruling to allow not-for-profit hospitals property-tax exemptions but stated that hospitals must show that any such exempt property meets the constitutional definition for exclusive charitable use. School attorneys said the ruling is effectively a victory for school districts and other taxing bodies, provided that state tax officials follow the law.

IASB, along with Illinois ASBO and IASA, filed an Amicus brief in the case. The lead attorney in that filing, John Izzo, explained: “While the symbolic victory of the invalidation of … [the law] would have been gratifying, the practical effects of this decision are just as beneficial to school district finances.”

The value of such tax exemptions is hard to pin down, but a 2009 study by the Center for Tax and Budget Accountability suggested the value of the exemption in 47 Chicago-area not-for-profit hospitals totaled $279 million a year. This law has proven costly to school districts because schools receive the lion’s share of property tax revenue in Illinois.

Attorney Izzo, of the firm Hauser, Izzo, Petrarca, Gleason & Stillman, LLC, said the ruling should be helpful for schools. “Non-profit” hospitals are in no better position legally than they were before Section 15-86 was enacted in 2012; they still have to show facts which demonstrate that they are truly and primarily charitable, including factors such as the public or charitable source of their funding, the dispensing of services regardless of ability to pay, and the absence of private profit or gain to those connected with the institution.”

Supported by lower court rulings, the law newly upheld by the state’s high court says that not-for-profit hospitals in Illinois don’t have to pay property taxes as long as the value of their charitable services is at least equal to what they would otherwise pay in taxes.

The court stressed it was ruling only on whether the tax exemption law, called Revenue Act Section 15-86, was unconstitutional on its face, and it found that it was not.  But in order to uphold the validity of that law, attorneys say, the court was forced to expressly state that Section 15-86 does not dispose of the traditional constitutional definition of charitable use for hospitals.

“What remains to be seen is the reaction of the Illinois Department of Revenue, the various county boards of review, and the local assessors to this decision,” Izzo added.  “If those agencies implement the constitution as they should, we are confident that most of the 157 non-profit hospitals in Illinois will be returned to the tax rolls and their EAV will be considered ‘new property’ under PTELL,” Izzo said.

School attorneys will be communicating with the Illinois Department of Revenue in the coming days to see how they plan to address these issues, Izzo said. He is scheduled to present a panel discussion on this topic at the Joint Annual Conference in November, along with attorney Eugene Edwards, of the same law firm, who was also heavily involved with John Izzo in the drafting of the Amicus brief in this case.