By: Brittany Flaherty Theis

In a recent decision, the Illinois Appellate Court spelled out the analysis for determining whether certain property qualifies for religious use or charitable property tax exemptions. The court made clear that ownership by a religious organization is not sufficient to qualify for exemption. Religious management alone is also insufficient.

In Franciscan Communities, Inc. v. Hamer, the Illinois Appellate Court affirmed the Illinois Department of Revenue’s (“IDOR”) decision to deny Franciscan Communities’ (“FC”) applications for property tax exemptions based on claimed religious and charitable uses (except for the chapel). The local Board of Review and administrative law judge had recommended denial and the IDOR agreed. On appeal to the circuit court, and then to the appellate court, a local school district (“School District”) intervened. Leave to intervene was granted upon a showing that the School District’s revenues would be adversely affected if FC received a property tax exemption.

In reviewing the IDOR’s decision, the appellate court noted that “[u]nder Illinois law, taxation is the rule, and tax exemption is the exception.” Additionally, “Article IX of the Illinois Constitution provides that the General Assembly may exempt all property used exclusively for religious and charitable purposes. . . . Property satisfies the exclusive-use requirement of the property tax exemption statutes if it is used primarily for the exempted purpose. . . . Where property is used for two purposes, one of which is exempt and one of which is not, a tax should be imposed against the part of the property that does not qualify for exemption.” In its review, “first, the court must accept the organization’s characterization of the purposes of its activities, and second, the court must determine whether the property is in fact used exclusively for religious purposes.”

In Franciscan, it was undisputed that the retirement community was a means for the religious organization to carry out its mission. The issue was not “the religious motivation behind the day-to-day use of the subject property, but the day-to-day use itself.” Importantly, the court noted that religious purpose is not determined solely by the motives or beliefs of the property owner. Rather, the court explained that there is a distinction between religious purpose and religious use. For example, the IDOR and School District cited a factually similar case, which denied a religious-use exemption “where the method of operation was businesslike, and therefore not exclusively for religious purposes.”

Here, the retirement community was operated with a “view to profit” (regardless of whether a profit was realized). The religious organization was selling care to the elderly at competitive market rates; it was a commercial enterprise, operating as such. Therefore, Franciscan Communities’ retirement community did not qualify for a religious-use property tax exemption.

The IDOR is to conduct a factual inquiry before granting religious-use property tax exemptions. Franciscan Communities, Inc. v. Hamer, illustrates the analysis that should be conducted for each religious-use exemption application. Had the property at issue been granted a property tax exemption for religious or charitable use, the assessed value of the exempt property would be removed from the local property tax base.

For more information about property tax exemptions and how they might impact your taxing body, please contact Whitt Law Attorney Joshua Whitt.

Franciscan Communities, Inc. v. Hamer, 2012 IL App (2d) 110431 (Aug. 28, 2012).

Internal References:
Fairview Haven v. Department of Revenue, 153 Ill. App. 3d 763 (1987).
Provena Covenant Medical Center v. Department of Revenue, 236 Ill. 2d 368
(2010) (plurality op.) (Provena II).

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