Illinois Nonprofit Hospitals Don’t Have to Pay Property Taxes

The Illinois Supreme Court recently affirmed a law that exempts certain medical centers from paying property taxes. The vote was unanimous: not-for-profit hospitals can use charity investments to offset their property tax bills.

In Illinois, 157 out of more than 200 hospitals fall under the nonprofit category.

This includes some of Chicago’s most prominent healthcare centers such as Advocate Aurora Health, Northwestern Memorial Hospital, University of Chicago Medical Center, and NorthShore University HealthSystem.

The court’s decision puts an end to a six-year-old debate. In 2012, the 1st District of the Illinois Appellate Court ruled an addition to the state’s tax code allowing these hospitals to skip paying property taxes under certain conditions.

The details of a six-year-long legal struggle

An older law stated Illinois hospitals may receive exemptions if they’re owned by charitable institutions. However, the new legislation brought some further clarifications.

To benefit from exemptions, hospitals are required to bring proof they can provide at least as much charitable assistance in a given year as the property-tax bills they would have to pay. Charitable services include health services to low-income and underinsured individuals, subsidies for treating dual-eligibility Medicare/Medicaid patients or community education programs.

The 2012 decision didn’t sit well with Constance Oswald, a Cook County resident and retired teacher, who said her property taxes increased as a result of the law.

Oswald filed a lawsuit against the Illinois Hospital Association and Department of Revenue. Such property-tax exemptions, she argued, were permitted only on properties “used exclusively” for charitable purposes.

Oswald’s challenge of the 2012 law was denied. Later, in December 2016, the 1st District of the Illinois Appellate Court ruled the law constitutional.

Now, after two years since applications for hospital property tax exemptions have been in limbo, The Supreme Court has finally upheld the law.

The recent decision provides an “almost mathematical formula, so there’s no question what hospitals have to do under that statute,” explained Mark Deaton, general counsel of the Illinois Hospital Association (IHA).

This tax exemption not only increases access to free health care for low-income patients, but it also strengthens the Medical Assistance program, the courts explained in a 14-page ruling. “It is essential to ensure that tax exemption law relating to hospitals accounts for the complexities of the modern health care delivery system.”

Where charity ends and business starts

For financially stressed hospitals and low-income patients, tax exemptions represent savings of millions of dollars each year. There’s little research on this matter, but a 2009 report by the Center for Tax and Budget Accountability estimated the property tax exemptions of 47 Chicago-area nonprofit hospitals were worth a total of $279 million annually.

The news was received with relief by hospitals associations across the state.

“We are pleased,” said  A.J. Wilhelmi, IHA’s president and CEO. Taxing non-profit hospitals, Wilhelmi added, would ‘divert dollars’ that could otherwise be invested in cutting-edge medical equipment, modern facilities, and hiring much needed staff.

Oswald’s lawyer on the other hand, Edward Joyce, called the court’s decision “disappointing.” Giving hospitals a pass on paying real estate taxes, he said, would place an extra financial burden on those counties’ residents.

Joyce and his client are not the only ones opposing the concept of such tax exemptions; other states have gone through similar legal battles. In 2016, New Jersey local officials sued 35 hospitals over property taxes.

Some Illinois municipalities argue that hospitals operate more like businesses and should pitch in on taxes. “Why should the most profitable companies in the state be shifting their burden onto every other business and homeowner?” Urbana Mayor Laurel Prussing asked.

According to Prussing, her city lost 11 percent of its assessed property value for tax purposes when Carle Foundation Hospital was allowed to skip paying millions in property taxes. Those dollars could have been directed towards hiring new police officers to fight violent crime, Prussing said.

Spokeswoman Laura Mabry said that Carle provided $32.4 million in charity care at cost last year, “an amount significantly above what its property taxes would be.”

While state courts are still considering the Carle case, the recent ruling ensures that Illinois’ law will remain intact.