School districts interested in maintaining their tax base and preserving their tax exemptions may want to take note of a recent Illinois Supreme Court opinion. On March 18, 2010, the Court issued a decision in Provena Covenant Medical Center v. Dept. of Revenue, a case that Franczek Radelet has been monitoring and providing updates on since 2004. The case, which received national attention through a front-page story in The Wall Street Journal, began when the Champaign County Board of Review revoked Provena Hospital’s charitable property tax exemption because of the hospital’s highly aggressive methods of collecting bills from poor and uninsured patients.

After nearly seven years of litigation, the issue was finally resolved when the Court rejected Provena Hospitals’ claim that its full-service hospital located in the City of Urbana was entitled to a charitable property tax exemption. The decision, in which there is no definite majority position, is instructive in how the court examines claims of entitlement to property tax exemptions. The opinion of the Court, supported by only three Justices, applies the traditional test for charitable property tax exemptions to the facts of the case. In applying the traditional test, the Court looked at the revenues and expenditures of the hospital, the compensation of senior executives, the percentage of free health care provided and the methods by which patients could obtain free care. The facts were then compared to the five characteristics of a charity that the Court first identified in Methodist Old Peoples Home v. Korzen, 39 Ill. 2d 149, 156-57 (1968):

  1. It has no capital, capital stock or shareholders;
  2. It earns no profits or dividends, but rather derives its funds mainly from private and public charity and holds them in trust for the purposes expressed in the charter;
  3. It dispenses charity to all who need it and apply for it;
  4. It does not provide gain or profit in a private sense to any person connected with it;
  5. It does not place any obstacles in the way of those who need and would avail themselves of the charitable benefits it dispenses.

The Court found the evidence supported Provena’s claim that it met factors 1 and 4, but it also found that Provena failed to establish by clear and convincing evidence that factors 2, 3 and 5 were met. Provena failed with regard to factor 2 because its income was derived almost entirely from the fees it charged for its services. Factor 3 was not met because the evidence in the record demonstrated that only a minimal amount of charity care was dispensed. Finally, the evidence in the record indicated that obstacles were placed in the way of those who needed charitable health care, which contradicts the requirements of factor 5.

Interestingly, two Justices concurred in the judgment but wrote a separate opinion. They wrote separately because they could not concur with the majority’s finding that the charitable uses of the property were insufficient to justify a property tax exemption. Instead they concluded that the record was inadequate. They stressed that the Court should not set a minimum amount of charitable care as a threshold for an exemption because the facts of each case are too distinct.

Although the decision lacks a majority position, it is instructive for school districts and other taxing agencies interested in their own exemptions and the exemptions sought by others. School districts need to be aware of the requirements for obtaining and maintaining property tax exemptions on their own properties. Unless a school district complies with all of the requirements for an exemption, the district could find itself having to pay taxes on its property. Also, as stewards of public funds, school districts are entitled to notice of and intervention in all exemption applications filed on properties in their tax base. Attention should be paid to these notices because, as the Provena decision illustrates, not all property claiming an exemption is legally entitled to one.