The Illinois Supreme Court’s decision in Oswald v. Hamer (2018 IL 122203, 115 N.E.3d 181, 425 Ill.Dec. 626 (Ill., September 20, 2018)) upheld a General Assembly action changing the statute which was interpreted to deny a charitable use exemption for a hospital in the Provena Covenant Medical Center v. Department of Revenue, 236 Ill. 2d 368, 388, 339 Ill.Dec. 10, 925 N.E.2d 1131 (2010). (Amendment is 35 ILCS 200/15-86.) The Oswald court’s decision noted that it was upholding the amending statute as constitutional on its face, so an applicant could theoretically prove exemption. (Oswald, op. cit., para. 28, 40, 42.) Applicants still have to prove facts sufficient to support exemption under the new statute, and a constitutional challenge under Illinois Constitution Article IX Section 6 remains possible as the exemption is applied in future cases. (Id., para. 42, 43.) This article describes 2019 Illinois Department of Revenue administrative hearing results allowing and denying property tax exemption applications and appellate decisions since Oswald discussing affecting the availability of statutory property tax exemptions.
Housing Authority exemption allowed despite long-term lease to a for-profit entity
Housing Authority of Champaign County, https://www2.illinois.gov/rev/research/legalinformation/hearings/pt/Documents/PT19-01.pdf, accessed 8/24/2019: The decision reversed a local Board of Review denial and adopted the Department recommendation to permit exemption under 35 ILCS 200/15-95 even though the housing authority leased the property for 99 years to a for-profit entity. The decision noted that there was a restriction of property use to low-income housing, continued title in the housing authority, conditions on housing rents and use to qualify for federal low-income housing tax credit, rights in authority to approve or disapprove and limit construction, and lack of for-profit limited partnership ability to fully alienate the property, and that full title and all occupancy rights revert to the Authority at the end of the lease. The administrative tribunal also noted a challenge to the Section 15-95 exemption as facially unconstitutional, but noted it lacked authority to rule on the constitutionality of state statutes The issue was preserved for court appeal.
Daycare exemption denied where majority of revenue was from fees, proof of notice of waivers and provision of waivers as charitable insufficient
Milestones Early Learning Center and Preschool, LLC, https://www2.illinois.gov/rev/research/legalinformation/hearings/pt/Documents/PT19-02.pdf, accessed August 24, 2019. The decision upheld a local Board of Review denial of exemption and a Department recommendation to affirm the denial. Center’s choice not to charge the difference between state repayment rates and full cost of daycare was not sufficiently documented as universally provided to all in need and would, in any case, be a non-charitable write-off of a bad debt. Public notice of fee waiver policies was also insufficient.
State Appellate Cases
Hospice application denied since most revenues were from Medicaid payments, not charity, and allegedly charitable activities were for the benefit of for-payment functions of the hospice
Midwest Palliative Hospice & Care Ctr. v. Beard, 2019 IL App (1st) 181321 (Ill. App., 2019)
This decision is the only state appellate decision on property tax exemption since Oswald which can be cited, as opposed to decisions on other exemptions, or ones where further citation is limited by Illinois Supreme Court Rule 23. The appellate court upheld a Circuit Court judgment affirming Illinois Department of Revenue administrative decision denying a property tax exemption. It provides a useful outline of what would have to be proved to support a charitable use exemption, though not a precedent for exemption.
The court’s decision was based on the “mixed law and fact” standard for administrative review, which requires a review of the facts determined at the administrative agency’s hearing, and of the agency’s application of relevant law to those facts. The court must, under this standard, finding that an administrative agency’s determination is “clearly erroneous” to overturn the agency’s decision. (Midwest Palliative, para. 19.) The court did not find the agency’s decision to be clearly erroneous.
The Court noted, in paragraph 23, that the applicant for property tax exemption bears the burden of proof of an exemption by clear and convincing evidence, with all facts construed and all debatable questions of law to be resolved in favor of taxation.
The property tax exemption denial decision was, the court held, based on lack of proof of primarily charitable use, required under Ill. Const. Art. IX Section 6 and 35 ILCS 200 5/65(a), as interpreted by Midwest Old People’s Home v. Korzen, 39 Ill. 2d 149 (1968). The Korzen factors for determination of the same cited by the court include:
(1) The organization bestows benefits on an indefinite number of people for their general welfare, or the benefits in some way reduce the burden on the government;
(2) The organization has no capital, capital stock or shareholders, and earns no profits or dividends;
(3) The organization derives its funds mainly from public and private charity and holds them in trust for the objects;
(4) The organization dispenses charity to all who need and apply for it;
(5) The organization does not appear to place any obstacles in the way of people seeking the charitable benefits; and
(6) The exclusive, primary use of the property is for charitable purposes.
The Midwest Palliative court noted, at paragraph 24, that “.. the ALJ observed that .4% of Midwest’s operating revenue came from charitable contributions. The overwhelming majority of its operating revenue came from “net patient services” of which 88% of the revenue came from Medicare or Medicaid reimbursement. The ALJ took note that 94% of the revenue Midwest generated was from billing patients: exchanging medical services for payment, as a business. The ALJ explained that, in 2013, Midwest was “not devoting a substantial portion of its operating income to an identifiable charitable need” and, thus, he was “unable to conclude that the revenue received by Midwest is devoted to the general purpose of charity.”
It also noted, in paragraph 25, that “As for serving the public in a charitable manner, the ALJ was not persuaded. It was the ALJ’s belief that “the evidence shows conclusively that the benefits derived from Midwest, providing palliative and hospice care services, are derived by patients with the means to pay for the services.” The ALJ observed that nearly all of Midwest’s operating revenue was earned from patient care and he extrapolated that its primary purpose was not to provide charity, but to serve paying customers.”
It also noted, in the same paragraph, that rather than reducting the burdens of government, Midwest Palliative received 88% of its revenue from billing the government for its services.
In paragraph 26, the court further noted that, though bereavement counseling and training medical students provided community benefits, not ones which qualified as charitable acts justifying a property tax exemption since they benefited Midwest Palliative’s business.
The Court in Paragraph 26 noted that no documentary proof of charitable care allegedly provided (dollar amounts or number of patients treated) was in the administrative record. The testimony in the record as to 37 patients treated and $157,000 in charitable care only represented 1% of the organization’s income, insufficient to show primarily charitable activity.