A Champaign hospital at the center of a long-running state court legal battle over whether hospitals should qualify for charitable tax exemptions has prevailed in its own direct struggle with Champaign County’s attempts to undo its property tax exemptions.
The Carle Foundation initially filed its lawsuit regarding four properties it argued should’ve been exempt from property taxes in Cook County in December 2007. In September 2008 the case was transferred to Champaign County, where after several years of litigation, Judge Randall Rosenbaum awarded full and partial exemptions on four parcels from 2005 through 2011, but denied the request with respect to the 2004 tax year, as well as a claim of breach of contract and pursuit of prejudgment interest.
Several defendants appealed the exemptions to the Illinois Fourth District Appellate Court. The defendants on appeal included the Illinois Department of Revenue and Director David Harris, the Champaign County Board of Review and three of its members, Champaign County Supervisor of Assessment Paul Bates, Treasurer Cassandra Johnson, Cunningham Township and Assessor Wayne Williams, the city of Urbana and, as an intervenor, Champaign County.
Justice Eugene Doherty wrote the panel’s opinion, issued Aug. 4; Justices Thomas Harris and Amy Lannerd concurred.
“We note that numerous officeholders have changed over since the filing of plaintiff’s fourth amended complaint in 2014,” Doherty wrote, noting the Carle Foundation cross-appealed the denial of the 2004 exemptions. The panel also said the matter had already twice reached the appellate stage, including a trip to the Illinois Supreme Court.
The parcels include the Carle Foundation's main hospital, the north tower, a child care facility and the power plant serving the complex. They had been exempt until 2004 because of a charitable use classification.
Judge Rosenbaum’s February 2020 ruling included an order for the Champaign County Treasurer to pay a refund of more than $6.24 million, with an assessment prorated against all relevant taxing districts except those that had settled, Urbana School District 116 and the Urbana Park District.
Complicating the matter is a 2012 state law which, according to Doherty, “contained a clause purporting to define the temporal reach of the various provisions” of charitable property tax exemptions in the state code, including the proper channels for applying for an exemption or seeking to have one reinstated. The panel sided with the Foundation’s position that the “Legislature clearly intended that the new and simplified standard” would apply to any exemption claim, Doherty wrote, including those pending when the law took effect.
The panel rejected the defendants’ argument that some of the Foundations’ claims were resolved before the 2012 law took effect and cannot be reinstated. It also declined to revisit a 2018 Illinois Supreme Court opinion, Oswald v. Hamer, which overturned a 2016 Fourth District determination that found a provision referred to as section 15-86 of the law to be unconstitutional.
The Fourth District had said the law essentially allows a hospital to “buy a charitable exemption” by providing enough benefits to the community — generally in the form of low-cost health care services for low-income community residents — to offset the tax revenue it would otherwise owe.
However, Doherty wrote, the 2018 opinion established “the provisions of section 15-86 implicitly incorporate the same requirements specified by the constitution.”
On appeal, the defendants argued the Foundation didn’t satisfy the law’s substantive requirements. They said Judge Rosenbaum erred by finding “an exemption in one year could be established based on an exemption in another year,” according to Doherty, and further that the Foundation “failed to show that it engaged in sufficient qualifying activity during the years 2004 through 2011.”
The panel said the defendants essentially wanted it to reconsider the evidence under which the Foundation prevailed at trial, but it determined Judge Rosenbaum properly weighed those details at trial. It likewise rejected an argument the Foundation’s charity was incidental, that it used the contested parcels for profit, that it limited access to charity care and other positions.
“The court found that plaintiff had no shareholders, that no person had invested capital in plaintiff’s operations, and that no capital stock has ever been issued to anyone,” Doherty wrote. “Plaintiff never issued any dividends. Although plaintiff earned profits — ranging from $14.2 million in fiscal year 2005 to $128.9 million in fiscal year 2010 — it was ‘undisputed that the profits were reinvested into technology, infrastructure and the like.’ While plaintiff did not rely on donations from the public or private charitable sources for its funding, the evidence at trial suggests that no hospital in Illinois received most of its revenue from such donations.”
The panel sided with the defendants in regards to prejudgment interest, saying that path is open only to plaintiffs awarded refunds in protest tax objection cases, not disputes over exemptions. But it reversed Judge Rosenbaum’s summary judgement in the defendants’ favor on the 2004 exemptions — for three parcels on the issue of timing of administrative action and for the child care building because it shouldn’t have mattered how many clients were hospital employees.
The Illinois Attorney General’s Office represented the Department of Revenue.
Representing Cunningham Township, Williams and the city of Urbana is attorney Frederic Grosser, of Champaign.
State’s Attorney Joel Fletcher, of Urbana, represented the other defendants.
The Carle Foundation is represented by attorneys Steven F. Pflaum and Collette A. Woghiren, of Neal, Gerber & Eisenberg LLP, and Amy G. Doehring and Catherine A. Miller, of Akerman LLP, both of Chicago.
The Illinois Health and Hospital Association filed a support brief through its staff attorney Karen Harris, as well as attorneys April E. Schweitzer, Thomas M. Fahey, Floyd D. Perkins, and Seth A. Horvath, from Nixon Peabody, of Chicago.