Appellate Court Rules Against Carle, Overturns Illinois’ Charity Care Tax Law

An appellate court has ruled that Illinois’ law governing when hospitals deserve a property tax exemption for their charity care is unconstitutional. The ruling, in a lawsuit brought against local governments by Carle Foundation Hospital in Urbana, has statewide implications.

The ruling by the 4th District Appellate Court states that the law in question in unconstitutional, and thus cannot be applied to the suit filed by Carle to determine the tax status of their hospital in Urbana and two related properties.

The law, passed in 2012, overrode an earlier state Supreme Court ruling, and re-set the terms by which non-profit hospitals could qualify for tax-exempt status.

But the appellate court ruling states that the law falls short of the Illinois constitution’s standard granting tax exempt status to properties that provide charitable care.

Article IX, Section Six of the state constitution states “The General Assembly by law may exempt from taxation” private properties used for specific purposes, including “charitable purposes.”

But the justices say the 2012 law allowed tax exempt status for properties used only partially for charitable purposes. Or even some not used for charitable purposes at all, in such cases where a hospital may pay subsidies to a community clinic to provide charity care, in lieu of providing it directly.

Urbana Mayor Laurel Prussing says she’s pleased by the ruling, but that it’s too soon to say what the city of Urbana’s next move will be.

The mayor says if the ruling stands, it could have a big impact that goes beyond Urbana, to other hospitals that --- as she claims with Carle --- make money while maintaining a tax-exempt status.

"This is not just an Urbana issue or an Illinois issue," said Prussing. "This is an issue in the whole country, that there are very large institutions that call themselves not-for-profit and don't pay taxes, when in fact they are making very large profits.

Prussing says Urbana’s property tax assessments fell 11% when the 2012 charitable care law was passed. Urbana hospitals had been paying property taxes to Urbana and other local governments for only a short time, following the 2010 state Supreme Court ruling.

A spokesperson for Carle said late Wednesday that they were “disappointed in the appellate court’s opinion”.

Jennifer Hendricks Kaufman said Carle would review the opinion and determine its next steps, “which could include an appeal to the Illinois Supreme Court”. She added that Carle would “remain focused on providing care to our patients throughout the region, regardless of their ability to pay.”

(This story was updated 1/6/16 at 6 PM).