Even as they noted their decision conflicts with the findings of their colleagues in Springfield, a panel of state appeals court justices in Chicago has ruled the Illinois law exempting nonprofit hospitals from property taxes is, indeed, constitutional. 

The Illinois First District Appellate opinion involves one of several cases centered on the constitutionality of the law, including a case now headed to the Illinois Supreme Court.

The Dec. 22 First District opinion addresses a 2012 Cook County Circuit Court complaint plaintiff Constance Oswald filed against the Illinois Department of Revenue. The Illinois Hospital Association has also weighed in as an intervening defendant in that lawsuit. Justice Margaret McBride wrote the opinion; Justices Nathaniel R. Howse Jr. and Mary K. Rochford concurred.

Oswald’s complaint argues section 15-86 of the Property Tax Code violates the Illinois state constitution by granting a property tax exemption to hospitals “without regard to whether the property is used exclusively for charitable purposes, as required under Article IX, Section 6, of the Illinois Constitution.”

After both parties moved for summary judgment, Cook County Circuit Judge Robert Lopez Cepero ruled in favor of Hamer and the IHA. The appellate justices upheld that opinion, which stands in contrast to a January decision of the Illinois Fourth District Appellate Court in Springfield, in which a three-justice panel struck down a state law shielding hospitals from having to pay local property taxes. On May 25, the state Supreme Court announced it would allow Urbana’s Carle Foundation Hospital to appeal that ruling.

Before 2004, hospital real estate wasn't taxed in Illinois, under the presumption hospitals were primarily charitable purposes. But in 2004, Champaign County officials moved to assess taxes against the Urbana hospital at full market value. The Carle Foundation appealed that decision to local and state tax review bodies and, ultimately, to Champaign County Circuit Court. While the matter remained pending, the county continued to assess the property until 2011, a year before former Gov. Pat Quinn signed into law a bill passed by the General Assembly.

A provision of that law, referred to in court documents as section 15-86, explicitly granted hospitals tax exempt status should they provide enough benefits to the community, generally in the form of low-cost health care services for low-income community residents, to offset the tax revenue the hospitals would otherwise owe.

In the First District opinion, McBride wrote the only issue is “whether section 15-86 is facially constitutional.” And while Article IX established that all real estate is subject to taxation, Section 6 allows the General Assembly to pass laws making some property exempt. She further noted section 15-86 “explicitly codified” lawmakers’ intent and that Oswald’s argument boils down to whether section 15-86 should apply only to property exclusively used for charitable purposes, not just those that can prove the balance of charity offsets the taxes that would be owed.

The justices rejected Oswald’s interpretation of the law as mandatory rather than directory, writing there is no statutory consequence triggered by a failure to issue a charitable exemption. The rule is taxation, exemptions are an exception and Section 15-86 simply tells the revenue department how to evaluate a hospital’s property tax status.

Ultimately, while the justices allowed for an instance in which a hospital might not satisfy the requirements of Section 15-86, they said the General Assembly and earlier Supreme Court rulings spell out that all exemption requests are to be handled on a case-by-case basis. As such, the argument Section 15-86 is facially unconstitutional fails, meaning Judge Cepero was right to grant summary judgment in favor of the state and hospital association.

Finally, McBride acknowledged Oswald relied on the Fourth District decision in the Carle case headed to the Supreme Court, but wrote “we have reached a different conclusion and respectfully disagree with the court’s decision.”

Oswald was represented in the action by attorneys with the firm of Edward T. Joyce & Associates, of Chicago.

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Organizations in this Story

Edward T. Joyce & Associates P.C.
135 S LaSalle St
Chicago, IL - 60604

Illinois Department of Revenue
101 W Jefferson St
Springfield, IL - 62702

Illinois Hospital Association
1151 Warrenville Road
Naperville, Illinois - 60566

Illinois Supreme Court
200 E Capitol Ave
Springfield, IL - 62701

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