The Illinois General Assembly passed two important pieces of tax legislation, both widely affecting Illinois taxpayers.

Hospital Property and Sales Tax Exemptions

As reported in previous issues of this State and Local Tax Report, in the aftermath of the Illinois Supreme Court’s plurality decision two years ago in Provena Covenant Medical Center v. Illinois Department of Revenue, 236 Ill. 2d 368 (Ill. Sup. Ct. 2010), a controversy raged in Illinois regarding property tax exemptions granted to hospitals. The Illinois Department of Revenue in 2011 rejected a number of hospital property tax exemption applications based on the position that hospitals were not providing sufficient charitable care. At issue was what constituted sufficient charitable care to qualify for the exemption, and how such charitable care would be defined. Governor Quinn ordered a moratorium on the Department’s rejections until legislation could be enacted to address these issues.

On June 14, 2012, Governor Quinn signed into law, as PA 098-0688, legislation that resolves this controversy. In order to obtain and maintain a property tax exemption, as well as a sales/use tax exemption on their purchases, Illinois hospitals must be able to demonstrate that the annual value of charitable services they provide equals or exceeds the amount of their annual property tax bills, without the exemption. For this purpose, charitable services are defined to include: i) care measured at cost of providing free services or services at a discount under the hospital’s financial assistance policy; ii) goods or services provided free or at a subsidy in addressing the health of low income or underserved individuals; iii) charitable services measured by either (a) 10 percent of payments the hospital receives under Medicaid or other state means-tested programs or (b) the actual amount of the subsidy the hospital provides for care to recipients in such programs; and iv) the amount of the hospital’s subsidy in treating dual eligibility Medicare/Medicaid patients.

This law is generally viewed as favorable to hospitals. Nonetheless, with the enactment of this legislation Illinois becomes one of only a handful of states that require measurable charity care in return for tax exemptions.

Illinois Tax Tribunal

On June 1, 2012 the Illinois House passed the Illinois Independent Tax Tribunal Act of 2012 (HB 5192), which was sent to Governor Quinn on June 29, 2012. This statute is designed to insure that every taxpayer can challenge a state tax assessment, before paying the disputed tax, in a forum that is independent of the Illinois Department of Revenue. The statute is based on the 2006 American Bar Association Model Administrative Tax Tribunal Act. Under Illinois’ current system, taxpayers can appeal state tax assessments to the Administrative Hearings Office, which is part of the Illinois Department of Revenue. The Tax Tribunal Act creates a Tax Tribunal, which is independent of the Illinois Department of Revenue.

The Tribunal has jurisdiction to hear all protests of asserted state tax or penalty liability, or the denial of a refund, provided the amount at issue exceeds $15,000, not including interest and penalties. The Illinois Department of Revenue retains jurisdiction over tax assessments falling below this threshold. The Tax Tribunal will actively consider cases commencing July 1, 2013. Assessments issued by the Department of Revenue prior to that date may brought under the Tax Tribunal’s jurisdiction at the taxpayers election by filing a request within 30 days of protesting a tax assessment with the Department of Revenue. On the other hand, taxpayer’s may still choose to bypass the Tax Tribunal entirely by paying the tax at issue under protest and filing a Protest Monies Action for review of the Department’s tax assessment in Circuit Court.

The Tax Tribunal consists of a Chief Administrative Law Judge with a five-year term that will be appointed by the Governor with the advice and consent of the Illinois Senate. In addition, the Governor may, with the advice and consent of the Senate, appoint three additional administrative law judges with staggered four year terms. The Tax Tribunal will maintain offices in Sangamon and Cook Counties.

The Tax Tribunal proceedings will be open to the public, but taxpayers may for good cause petition that they be closed. The Tax Tribunal is required to issue its decision within 90 days of completing its hearing in a case. All decisions of the Tax Tribunal are appealable to the Illinois Appellate Court.

This legislation is widely perceived as beneficial to taxpayers in providing a forum independent of the Illinois Department of Revenue within which to protest their tax assessments. Illinois joins a number of states that have recently enacted legislation providing for independent tax tribunals.