An Illinois appellate court has ruled that part of a law that allows nonprofit hospitals to avoid paying millions of dollars in property taxes is unconstitutional, according to the Chicago Tribune.
The decision not only reopened a statewide dispute, but it is also a blow to nonprofit hospitals across the nation, which have faced scrutiny over their tax exemptions in recent years.
Although the court ruling has created uncertainty, the 2012 Illinois law at the center of the case was meant to provide clarity regarding nonprofit hospital exemptions.
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, according to the report.
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 on Tuesday when the Illinois 4th District Appellate Court ruled the 2012 law is unconstitutional. 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 appellate court held that the Illinois Constitution only allows lawmakers to exempt property "used exclusively" for "charitable purposes," according to the report.
The case will likely be appealed to the Illinois Supreme Court, but action may be needed before the state high court weighs in on the issue.
Laurence Msall of the Civic Federation, a nonpartisan government research group, told the Chicago Tribune, "The legislature could wait (until the Supreme Court rules), but issues will continue to mount. The Illinois Department of Revenue needs some direction from both the legislature and the (Gov. Rauner) administration on how to handle pending applications."
There are several hospitals with pending applications for tax exemptions before the revenue department, including Swedish Covenant Hospital and Mercy Hospital and Medical Center, both based in Chicago.
Illinois is not the only state where nonprofit hospitals' tax exemptions have come under fire. Last year, Morristown (N.J.) Medical Center agreed to pay $26 million to settle a dispute over its tax exemption.
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