Supreme Court urges legislature to reexamine tax on nursing home beds; says just because a tax is permissible doesn't mean its wise

Although it ruled in the state's favor in a case challenging a tax imposed on nursing homes, the Illinois Supreme Court on Friday asked the legislature it take another look at the so-called "bed tax" and decide whether it's really necessary to charge certain operators, like those that don't participate in the Medicaid system or government-funded programs.

The justices made their request for legislative review, which they dubbed as an "invite... to reexamine," in an eight-page opinion handed down in Grand Chapter of the Eastern Star of State of Illinois v. Judy Baar Topinka, et al. It was one of nine opinions issued Friday. A summary of each is below.

The case over the state's bed tax came to the high court on direct appeal from Macon County, after the circuit court invalidated the bed tax provided under section 5E-10 of the state's Public Aid Code, which taxes each licensed bed of all Illinois nursing homes, after determining it violated the Illinois Constitution's uniformity clause.

The ruling was in favor of Grand Chapter, a fraternal organization and not-for-profit corporation that operates a nursing home in Macon called Eastern Star Home. It challenged the tax after the Department of Public Aid sent it a letter in 2012, telling it to pay the bed tax.

This statute, in relevant part, requires every nursing home provider to pay "on or before September 10, December 10, March 10, and June 10, a fee in the amount of $1.50 for each licensed nursing bed day for the calendar quarter in which the payment is due.”

A few months later, the department sent another letter notifying Grand Chapter that it hadn't paid the bed tax for more than a decade and owed $244,233 in back fees and $237,890 in penalties.

Grand Chapter paid under protest and then filed suit, asking a judge to declare the bed tax invalid under the uniformity clause. It argued the tax was unconstitutional as applied to it because the tax's main purpose is to fund Medicaid-related costs and it doesn't participate in the Medicaid system or any government-funded program. It also claimed that making it pay a tax that it will not receive a benefit from was unreasonable and absurd.

The state, in response, argued that reimbursing Medicaid-related expenditures is not the only focus of the bed tax, as it goes into a fund used for a variety of purposes, many of which benefit the operation of nursing homes in general. As such, the state said it is reasonable to make all nursing homes, including Eastern Star, pay the bed tax.

In the ruling it handed down Friday, the Supreme Court agreed with the state when it came to the legality of the arguments, but appeared to have some sympathy for Grand Chapter's situation.

"Though structurally sound, the argument advanced by both the circuit court and Grand
Chapter suffers from two important and fatal errors," Justice Robert Thomas wrote for the court.

First, he said, the bed fee's purpose is not just to fund Medicaid-related costs. The fund the bed tax goes into, the ruling notes, pays for the administrative expenses of the department and its agents, enforcement of nursing home standards, expansion of services and funding the state's General Obligation Bond Retirement and Interest Fund.

The second error the court found in the argument made by both the Macon County judge and Grand Chapter is "the assumption that a taxpayer cannot be made to pay a tax for which he receives no direct, reciprocal, and proportionate benefit."

"The problem with both the circuit court’s and Grand Chapter’s argument is that this court has never required perfect reciprocity between the payment of a tax and the receipt of a benefit from that tax," Thomas wrote.

Citing a 1937 U.S. Supreme Court decision, he added, "On the contrary, '[n]othing is more familiar in taxation than the imposition of a tax upon a class or upon individuals who enjoy no direct benefit from its expenditure, and who are not responsible for the condition to be remedied."

Because inquiry in uniformity cases does not focus on if perfect reciprocity exists, but "only whether the taxing classification bears 'some reasonable relationship' to the object or purpose of the tax," the justices determined the bed tax is "perfectly constitutional."

But, they added, "All of that said, we observe in closing that the mere fact that a tax is permissible does not necessarily mean it is wise."

"At numerous points, Grand Chapter emphasizes that the work it performs helps to relieve the burden on the Illinois Medicaid system by providing private nursing home care to indigent citizens at substantially below market rates and often at a substantial financial loss," Thomas wrote for the court.

"In light of this, we invite the legislature to reexamine the bed fee statute and, in doing
so, to assess fully whether the inclusion of enterprises such as Grand Chapter and Eastern Star within the applicable taxing classification is truly necessary and essential as a matter of public policy."

The high court said it appears that Grand Chapter, through its operation of Eastern Star, is providing a service that benefits both indigent residents and Illinois taxpayers.

"Whether this is indeed the case, and if so whether Grand Chapter and others like it deserve to be 'relieved of certain burdens of taxation' as a result, are questions we encourage the legislature to consider closely," the justices said.

Also on Friday, the Illinois Supreme Court issued opinions in the following cases:

Ferris, Thompson & Zweig Ltd. v. Anthony Esposito, in which the justices upheld the ruling of the Second District Appellate Court's denial of a lawyer's motion to dismiss of a lawsuit brought by a firm seeking payment of fees under a referral agreement for workers' compensation cases.

The lawyer claims the firm should have filed its action before Workers’ Compensation Commission, not in the courts, because the Workers’ Compensation Act says any and all disputes over attorneys’ fees should be heard by the commission.

Like the lower courts, the Supreme Court said the act provides the commission with authority to hear disputes over the apportionment of attorneys fees, but does do the same when it comes to disputes between lawyers over referral agreements.

People ex. rel. Lisa Madigan, et al. v. Illinois Commerce Commission, et al., in which the high court affirmed the Second District Appellate Court's ruling that confirmed the Commerce Commission decision to approve a volume-balancing-adjustment (VBA) rider on a permanent basis.

The Commission in 2008 approved a similar rider, which imposed "revenue decoupling" intended to stabilize both utility revenues and the bills of gas utility customers, as a four-year pilot program. In 2012, the Commission approved it on a permanent basis, spurring challenges from the Attorney General's office and the Citizens Utility Board.

The Supreme Court agreed with the appeals panel that the Commerce Commission did not abuse its discretion when it approved the permanent rider.

Anthony Williams v. BNSF Railway Co. The Supreme Court reversed the First District Appellate Court's dismissal of the railway's appeal for lack of jurisdiction and remanded for further proceedings.

The plaintiff here filed suit under the Federal Employers' Liability Act and  was awarded about $1.3 million after the jury found him partially to blame. The circuit court denied the railway's post-trial motions and the First District dismissed the appeal for lack of jurisdiction, saying it was untimely filed.

The Supreme Court, however, said the appeals panel erred in computing the date based on the judge's written order denying the motions instead of his oral ruling, which was not final and couldn't be found anywhere in the record. The case is remanded.

Anthony Lutkauskas, et al. v. Timothy Ricker, et al., in which the Supreme Court upheld the First District Appellate Court's dismissal of claims in a Cook County consolidated taxpayer derivative action.

The plaintiffs, multiple residents of Lemon-Bromberek Combined School District 113A, brought the action over allegations the district and school board had improperly transferred money from its Working Cash Fund in violation of the School Code.

But the Supreme Court, like the appellate court, found the claims were inadequate to justify a remedy and failed to show the money allegedly transferred from the fund was not spent on legitimate school district expenses.

In re Marriage of Raymond A. Eckersall III and Catherine Eckersall. The Supreme Court dismissed the appeal in this case as moot, saying "having determined that the question presented on appeal is moot and there being no reason to apply the public interest exception, we conclude that the petition for leave to appeal was improvidently granted."

Although the parties agreed the case was moot by the time it reached the high court, the wife, along with the American Academy of Matrimonial Lawyers as an amicus, asked the justices to address the merits of her appeal -- whether an interim order in a child custody matter was appealable as an injunction -- as it deals with issues involving minors.

The justices declined to do so because they said the type of order at the crux of the appeal only applies to a limited number of people, does not affect the public as a whole as does not show a need for the high court to weigh in as there are no conflicting precedents or indication the problem will occur again.

People v. Barbara Chenoweth, in which the justices reversed the Fourth District Appellate Court's decision to vacate a woman's conviction for financial exploitation of an elderly person because it said the statute of limitations expired prior to prosecution.

The high court, however, held otherwise, saying the extended limitations period began when the prosecutor received the police report in 2009, not when the victim was notified of the crime by police in 2008, and as such, the charges were properly brought.

People v. Marcel Simpson. The Supreme Court here affirmed the First District Appellate Court's reversal of a man's murder conviction and remand for a new trial based on a finding defense counsel was ineffective by not objecting to the introduction of a prior inconsistent statement.