Cook County Record

Sunday, January 19, 2020

Class action: IL hospitals should repay taxpayers for years of unconstitutional tax exemptions

By Jonathan Bilyk | May 12, 2016

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In the wake of an Illinois appellate court decision striking down as unconstitutional the state law allowing Illinois’ nonprofit hospitals to avoid property taxes, a Chicago real estate investment group has filed a class action lawsuit against all every hospital in Illinois, alleging property owners in Cook County and elsewhere have been forced to pay higher real estate taxes than they otherwise should have to make up for what the plaintiffs allege the hospitals should have been paying all along.

On May 5, a business group identified as Thornmeadow Partners LP filed suit in Cook County Circuit Court against NorthShore University Health System and what the complaint identified as a “defendant class” of all other hospitals operating in Cook County. NorthShore operates four Cook County hospitals, including hospitals in Evanston, Highland Park, Glenbrook and Skokie.

The complaint does not identify who is involved in Thornmeadow Partners. However, the complaint said Thornmeadow owns a residential property in the 4800 block of West Dakin on Chicago’s northwest side. According to Cook County property tax records, the taxes on the property were paid by a business entity identified as Sabra Management, of Northfield. State business records indicate Sabra is headed by Jack Gore, a lawyer based in Northfield.

According to the Thornmeadow complaint, NorthShore and other hospitals throughout Illinois have long enjoyed a favored tax exempt status they should not have.

The complaint cited a January opinion posted by a three-justice panel of the Illinois Fourth District Appellate Court, in which the court found a judge in downstate Champaign County had erred in finding state law allowed the operators of Urbana’s Carle Foundation Hospital to be exempted from paying local property taxes.

That decision came as the latest round in a long-running legal dispute between the Carle Foundation on one side and the Illinois Department of Revenue and a collection of local taxing bodies in Champaign County and the city of Urbana, on the other. The state and local governments argued the hospital should owe property taxes, despite their nonprofit status.

However, the hospital cited a 2012 state law which it said gave it and other nonprofit hospitals tax exempt status, should its services to “low-income or underserved individuals” offset its estimated annual property tax liability.

The appellate justices, however, said the standards spelled out in the law for granting tax exemptions to hospitals falls short under the Illinois state constitution, which requires nonprofit organizations to use their property primarily for “charitable purposes” to earn a property tax exemption. The justices said the law effectively grants hospitals the chance to purchase a tax exemption. Thus, the justices said the law is unconstitutional.

While the matter may yet be resolved by the Illinois Supreme Court, the Thornmeadow group cited the Fourth Appellate District’s opinion in arguing the hospitals should be made to pay taxpayers back for effectively forcing other taxpayers to pay higher property tax bills to make up for what hospitals weren’t paying.

The complaint asks for the court to order Illinois hospitals to pay an amount equal to the amount they should have owed in property taxes since 2014, with interest, to Thornmeadow and other property taxpayers in Cook County and throughout the state.

The Thornmeadow complaint said the plaintiffs chose NorthShore because it is based in Cook County, and because the plaintiffs believed NorthShore “will fairly and adequately protect the interests of the Defendant Hospital Class and has no interests that are antagonistic to, or that irreconcilably conflict, with those of other” hospitals Illinois.

The lawsuit also named the Cook County Treasurer and Clerk’s offices as defendants in the action, as those offices are responsible for collecting property taxes on NorthShore’s property and that owned by Thornmeadow.

The complaint alleged NorthShore and other hospitals essentially misused public funds by using the purportedly unconstitutional tax breaks to withhold what they should have otherwise owed to the local governments of the communities in which their hospitals operate.

The complaint does not make any estimates on how much any hospitals might be made to pay, should the lawsuit succeed.

Thornmeadow is represented in the action by attorney Larry D. Drury, of Chicago.

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Organizations in this Story

Northshore University HealthsystemIllinois Supreme CourtIllinois Fourth District Appellate CourtLarry D. Drury Ltd.