Not-for-profit hospitals and property tax exemptions

On Behalf of | Feb 12, 2020 | tax law | 0 comments

A couple years ago, the Illinois Supreme Court upheld a law from the early 2010s which clarified when not-for-profit hospitals can claim that their often vast medical facilities are exempt from real estate taxes.

This clarification came about because of an ongoing dispute between the state and local governments, including the subdivisions in and around Chicago, and the not-for-profit private hospitals which provide so much of the medical care in Northern Illinois.

The hospitals relied on the time-honored tradition, enshrined in the law of Illinois, that property dedicated to charitable purposes ought to be tax exempt. Since they provided free care to patients who could not pay, they argued that they could rightly avoid millions of dollars and even tens of millions of dollars in property taxes.

The governments, on the other hand, argued that the hospitals were not doing their part to provide charitable care, as their spending on free services to those who could not afford to pay for their healthcare was, in the governments’ opinion, unacceptably stingy.

The new law struck a balance between the competing interests. Now, in order to get a property tax exemption, the hospital has to devote at least the amount they would have paid in property taxes to qualified charitable care.

For hospital systems, the rule applies per hospital. So, by way of example, a hospital that would have a $100 million property tax bill but for its sales tax exemption must provide $100 million in charitable care at that hospital.

In other words, the amount of charity the other hospitals in the system provide are not relevant to whether the hospital can get a waiver of its tax bill.

As another note, charitable care is not the same as bad debt which a hospital tries to collect but then just writes off. To claim charitable care, the hospital must have no intention of recovering money for the services they give away.

While this post hopefully gives a good overview of the law, applying its provisions is actually complicated. Not surprisingly there often are disputes between governments and not-for-profit hospitals over what property is or is not exempt from real estate taxes. In some cases, hospitals may have to consider a property tax appeal.