By: Brittany Flaherty Theis
In 2012, the Illinois General Assembly enacted Section 15-86 of the Illinois Property Tax Code (the “Code”). Section 15-86 bestows a charitable exemption from property taxes upon hospital entities if the value of qualifying services that the hospital entity provided in the year for which it seeks an exemption equals or exceeds the hospital entity’s estimated property tax liability for that year. The Fourth District of the Illinois Appellate Court recently issued an opinion in which it analyzed whether Section 15-86 of the Code was within the authority granted to the Illinois General Assembly by Article IX, Section 6 of the Illinois Constitution. Carle Foundation v. Cunningham Township, 2016 IL App (4th) 140795. As discussed below, the appellate court ruled that Section 15-86 was unconstitutional and unenforceable from its inception because it went beyond the General Assembly’s authority.
Article IX, Section 6 states, “[t]he General Assembly by law may exempt from taxation only the property of the State, units of local government and school districts and property used exclusively for agricultural and horticultural societies, and for school, religious, cemetery and charitable purposes.” Article IX, Section 6 gives the Illinois General Assembly the authority to exempt such property from taxation rather than directly exempting the property listed. Therefore, if the General Assembly chooses to exempt property, it must do so by statutory law. If it so chooses, it can make the exemption more restrictive than the terms and conditions set forth in Article IX, Section 6, but cannot enact an exemption that exceeds the terms and conditions of Article IX, Section 6. It is on this basis that the appellate court found Section 15-86 unconstitutional.
Specifically, the appellate court explained that the legislature essentially added a new exemption beyond those authorized by Article IX, Section 6 when it created “a charitable exemption for hospital entities that, regardless of whether they use the property exclusively for charitable purposes, provide just enough ‘services that address the health care needs of low-income or underserved individuals’ to economically counterbalance the property tax exemption.” The appellate court was also concerned that Section 15-86, in essence, would allow a property owner to buy a charitable exemption. It stated that “[n]ot only does [S]ection 15-86 settle for something less than exclusive use of the property for charitable purposes [the constitutional standard]; it does not require any charitable use of the property at all. Under section 15-86, a hospital entity can obtain a charitable exemption simply by paying subsidies to the state or local government,” which is one of the qualifying services listed in Section 15-86. This is not the constitutional standard. It is the use to which the property is devoted rather than the use to which income derived from the property is employed that is decisive.
Ultimately, the appellate court explained that when it comes to the charitable exemption, all Article IX, Section 6 of the Illinois Constitution cares about is whether the property is used exclusively for charitable purposes. Article IX, Section 6 is completely indifferent to whether this exclusively charitable use makes the exemption financially worthwhile for the government. Further, the legislature lacks the constitutional authority to provide that a property may be exempt if the value of the charitable services equals or exceeds the estimated property tax liability regardless of whether the property is used exclusively for charitable purposes because that broadens the exemption in Article IX, Section 6. However, because the legislature can make the exemption more restrictive, it could have added such a requirement in addition to the constitutional requirement that the property is used exclusively for charitable purposes in order to qualify for the exemption.
Attorneys at Whitt Law’s Aurora and Springfield offices closely monitor changes in Illinois case law and legislation and advocate for the interests of the firm’s clients to the Illinois General Assembly. We are currently monitoring the Carle case, which is on appeal to the Illinois Supreme Court. Please contact Whitt Law Partner Josh Whitt should you have any questions regarding Whitt Law’s experience with property tax matters.
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