October 17, 2011
Illinois - The Fight Over Tax Exemption for Hospitals Continues
The Chicago Tribune reports on the continually evolving issue of a charity care prerequisite for hospitals' state property tax exemption. As previously blogged by John Colombo (see posts here and here), the Illinois Supreme Court determined in March 2010 that Provena Covenant Medical Center in Urbana did not meet the state law's definition of "charitable" necessary for real property tax exemption; specifically, that a hospital must provide some substantial amount of charity care in order to be granted an exemption. Relying on that Provena decision, in August 2011, the Illinois Department of Revenue revoked the property tax exemptions for three Illinois hospitals on the basis of too minimal amounts of charity care (see John's post on this development here). After these revocations, the Illinois Governor declared a moratorium until March 1, 2012 with respect to hospitals' tax exemption determinations. In the interim, the State and other stakeholders are supposed to reach a resolution.
Although the Provena decision adopted a charity care standard for hospital tax exemption, there are no bright-line rules on what constitutes charity care and how much should be conferred by a hospital to maintain its tax-exempt status. Hospitals are arguing that a definite charity care standard (say, 5% of the hospital's revenues) would be more burdensome on some hospitals than others. Hospitals are seeking legislation that would set clear and definable standards for tax exemption.
In light of these recent developments, local assessors are addressing the taxability of hospitals with varying approaches. Some are are assessing taxes on hospitals thereby leaving it to the State's Department of Revenue to determine if each hospital qualifies for tax exemption under standards hopefully reached prior to the lift of the moratorium next March. Other assessors are forgoing assessments of hospitals, but requesting that such hospitals file new applications for exemptions. Regardless of the approach adopted, the issue of whether to tax or not tax a hospital is certain to create an "administrative nightmare" for Illinois and its local governments. And, perhaps more importantly, will the feds use the eventual Illinois resolution as a basis for reexamining the federal income tax treatment of nonprofit hospitals?
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