Illinois Supreme Court to review constitutionality of hospital tax exemptions

The Illinois Supreme Court will review a case that focuses on the constitutionality of exempting nonprofit hospitals in Illinois from paying property taxes.

There's been an ongoing dispute in Illinois over hospital tax exemptions for years. In 2010, the Illinois Supreme Court weighed in on the issue and handed down a decision that suggested nonprofit hospitals in the state that behave like businesses should not qualify for tax exemptions. Subsequently, the Illinois Department of Revenue denied tax exemptions to three hospitals.

Illinois hospitals were issued a win in 2012 when state lawmakers passed legislation that simply required a nonprofit hospital's charitable services to exceed its property tax liability to qualify for tax exemptions.

However, the tax exemptions were once again brought into question in January when the Illinois 4th District Appellate Court ruled the 2012 law is unconstitutional. The appellate court held that the Illinois Constitution only allows lawmakers to exempt property "used exclusively" for "charitable purposes." The ruling was issued in a case brought by Carle Foundation Hospital in Urbana, Ill., against the city of Urbana and other local taxing districts. Carle Foundation was seeking relief from taxes for 2004-2011.

The state's high court announced Wednesday that it will allow Carle Foundation Hospital to appeal the decision. The Illinois Supreme Court is expected to hear arguments in the case in coming months.

Illinois is not the only state where nonprofit hospitals' tax exemptions have come under fire. In June 2015, a tax court judge ruled Morristown (N.J.) Medical Center should not be exempt from property taxes as it failed to satisfy the legal test that it operated as a nonprofit, charitable organization for several tax years. Following the judge's ruling, numerous municipalities in New Jersey filed tax appeals against nonprofit hospitals. As of April 1, 30 municipalities had filed tax appeals.

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