Illinois Supreme Court Denies Property Tax Exemption to Not-for-Profit Hospital
On March 18, 2010, the Illinois Supreme Court denied property tax exemption to a not-for-profit hospital in the nationally watched Provena case. The plurality's reasoning has implications for many nonprofits beyond hospitals.
In a plurality opinion, three of the seven Supreme Court justices concluded that Provena Covenant hospital, located in Urbana, Illinois, was not a charitable institution for tax purposes. (Two justices did not participate in the case.) Their opinion reasoned that the primary use of the hospital property was providing medical services for a fee, while charity means providing a gift to the community. The opinion further pointed out that (i) charity care being provided was subsidized by payments for patients; (ii) patients granted partial charity care still paid enough that the hospital might cover its costs; and (iii) the hospital's community benefit activities -- such as a residency program and an education program for emergency responders -- benefited the hospital as well as the community and thus were not truly gifts by the hospital. Thus, the hospital property was not in charitable use.
Most not for profit hospitals today are, of course, primarily supported by payments for services rather than by charitable contributions. Under the opinion's reasoning, hospital property tax exemption may well be hard to maintain. However, a partial concurrence and partial dissent by two justices suggests that this case is not the end of the story. They concur that Provena did not carry its burden of proof to show that it was entitled to exemption. They dissent, however, on the rationale. The dissent indicates that the plurality opinion impinges on the legislative function of setting specific standards for tax exemption. It further points out that the plurality opinion's charitable use discussion is not joined by a majority of the court and, therefore, is not binding precedent.
The dissent indicates that this may not be the end of this issue in Illinois. For example, the legislature could take action to set minimum standards to qualify for exemption. A different case with a different record might generate a different conclusion. The decision is important nationally, however, in two respects. First, the opinion's language is likely to drive more property tax exemption challenges. Second, it emphasizes, along with the health reform proposals concerning requirements for income tax exemption for hospitals, the higher level of accountability to which not for profit hospitals are being held nationally.
