By: Brittany Flaherty Theis
One of our recent legislative updates discussed Senate Bill 2194, which specified a monetary threshold businesses must satisfy before qualifying for charitable exemptions. Senate Bill 2194 was motivated by an Illinois Supreme Court case, Provena Covenant Medical Center v. the Department of Revenue. Because Provena is highly cited for its analysis, it is valuable in property tax exemption cases.Provena explains that corporations have a high burden to meet to establish entitlement to property tax exemptions, that the analysis must address multiple factors about the corporation’s practices (and not just accept its motivations or claims), and that entitlement to federal exemption does not necessarily equal entitlement to exemption from state taxation. Ultimately, it is not enough that corporations simply do some good for the community. Courts must consider the types of benefits given, the way in which the corporation provides benefits, and the impact and amount of benefits provided.
Provena centered on whether Provena Hospitals corporation was entitled to a charitable exemption under 35 ILCS 200/15-65. The difficulty in determining whether Provena Hospitals qualified for a charitable exemption is clear from the case’s history. The Board of Review recommended denial of the property tax exemption and the Department of Revenue agreed. Provena Hospitals then filed a petition for a hearing on the exemption. After a lengthy hearing on the evidence, the Administrative Law Judge (“ALJ”) recommended that a significant portion of the parcels owned by Provena Hospitals be granted charitable exemption. The Director of Revenue rejected the ALJ’s recommendation. On appeal, the circuit court disagreed with the Director and held that Provena Hospitals was entitled to both a charitable use exemption and a religious exemption for the parcels at issue. Subsequently, the appellate court reversed the circuit court. Ultimately, the Illinois Supreme Court reviewed only the administrative agency’s decision to determine if it was clearly erroneous, but the varying opinions demonstrate the need for legislative guidance (now provided by SB 2194).
While reviewing the record, the Illinois Supreme Court laid out a few principles of law, including the following:
1. “The burden of establishing entitlement to a tax exemption rests upon the person seeking it. . . . The burden is a very heavy one;”
2. “[T]ax exemption under federal law is not dispositive of whether real property is exempt from property tax under Illinois law;”
3. The authority to exempt property used exclusively for religious and charitable purposes explicitly derives from Article IX of the Illinois Constitution;
4. In Illinois, there is no blanket exemption for hospitals, but a hospital not owned by the State or any other municipal corporation can qualify as a charitable institution provided certain conditions are met; and
5. “The reason for exemptions in favor of charitable institutions is the benefit conferred upon the public by them, and a consequent relief, to some extent, of the burden upon the State to care for and advance the interests of its citizens. . . . Conditioning charitable status on whether an activity helps relieve the burden on government is appropriate. After all, each tax dollar lost to a charitable exemption is one less dollar affected governmental bodies will have to meet their obligations directly.”
The court in Provena analyzed the factors discussed in our previous post regarding Franciscan Communities, Part Two. Although Provena Hospitals met two of the factors previously discussed, the others favored denying exemption. Provena Hospitals has no capital, capital stock, or shareholders and does not provide gain or profit in a private sense to any person connected with it. However, its funds are generated primarily from medical services provided for a fee and no evidence was provided to show that Provena Hospitals dispensed charity to all who needed it and applied for it, and did not place obstacles in the way of those who needed and would have availed themselves of the charitable benefits it dispenses.
Ultimately, the court noted that the number of uninsured patients receiving free or discounted care and the dollar value of the care they received were de minimus. Additionally, services extended for value received do not relieve the state of its burden, and therefore, do not qualify for exemption. Charity is not limited to benefits provided for the relief of poverty, but may also include gifts to the general public. However, “a gift is ‘a voluntary, gratuitous transfer of property by one to another,’ and ‘it is essential to a gift that it should be without consideration.” For that reason, services provided to Medicare or Medicaid patients are not considered charity. In Provena,”[w]ith very limited exception, the property was devoted to the care and treatment of patients in exchange for compensation through private insurance, Medicare and Medicaid, or direct payment from the patient or the patient’s family.”
Provena Hospitals argued its program for reduced payments qualified as charitable. However, the court noted that only 302 of the hospital’s 110,000 admissions received reductions, and even where they were granted, the charity was often illusory because uninsured patients were charged more than double the actual costs of care. Therefore, even when giving a discount to some patients, the hospital still expected to generate a surplus from the other patients.
It is this last aspect that lead to the most confusion and that, in part, prompted Senate Bill 2194. Provena Hospitals provided evidence regarding numerous practices it argued were charitable, such as its program for discounting costs, a crisis nursery, a medical residency program, and free health screenings. The Illinois Supreme Court analyzed the facts of each aspect and determined Provena Hospitals provided insufficient charitable services to qualify for charitable property tax exemptions. Provena left hospitals throughout Illinois wondering what would be sufficient. Senate Bill 2194 begins to answer that question, but Provena and Franciscan Communities provide significant guidance in determining what qualifies as charitable.
Whether certain properties qualify for property tax exemption is a fact-intensive inquiry, requiring the application of numerous aspects of the law. For more information about property tax exemptions and how they might impact your taxing body, please contact Whitt Law Attorney Amanda Adkison.
Provena Covenant Medical Center v. Dept. of Revenue, 236 Ill. 2d 368 (2010) (pluralityopinion).
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