ILLINOIS SUPREME COURT UPHOLDS DENIAL OF PROPERTY TAX EXEMPTION FOR RELIGIOUSLY-AFFILIATED HOSPITAL

In Provena Covenant Medical Center v. Department of Revenue, No. 107328 (Mar. 18, 2010), the Illinois Supreme Court upheld the decision of the Illinois Department of Revenue to deny charitable and religious property tax exemptions to a religiously-affiliated hospital.  The hospital had applied for property tax exemption for the 2002 tax year claiming that the property was used for charitable and religious purposes.  Despite that the hospital was exempt from federal income and state sales taxes, the Department of Revenue ultimately found that the hospital had failed to meet its burden of establishing that the property qualified for property tax exemption, in part because the cost of charity care at the hospital amounted to less than 1% of the hospital's revenues and was even less than the $1.1 million in property tax benefits which the hospital was seeking.

In upholding the denial of exemption, the Supreme Court reaffirmed its previous decisions setting forth the distinctive characteristics of a charitable institution (the so-called Korzen factors) and found that the hospital failed to establish that it was a charitable institution within the parameters of these factors.  Specifically, the hospital failed to prove that its funds were derived mainly from private and public charity, that charity was dispensed to all who needed and applied for it and that no obstacles were in the way of those who needed and would have availed themselves of the hospital's charitable benefits.  Moreover, the court found that the hospital was not primarily used for charitable purposes, citing to the small amount of charity care in proportion to revenues and the lack of any evidence that the hospital lessened any burdens of local taxing bodies. 

Finally, the court rejected the hospital's claim to religious exemption.  The court found that the hospital failed to prove that its dominant corporate purpose was religious.  Although the provision of such medical services may have provided the opportunity for various individuals affiliated with the hospital to express and share their religious principles and beliefs, the court stated that medical care was not intrinsically, necessarily, or even normally religious in nature and concluded that the primary purpose of the property was to provide medical care to patients for a fee.