Skip to main content

Hospital Tax Exemption Upheld in Illinois, Reassuring Nonprofits Nationwide

Analysis  |  By John Commins  
   September 21, 2018

An Illinois law on tax exemptions for nonprofit hospitals was upheld by the state's high court, and hospital advocates there say the statute could be a model for other states.

The Illinois Supreme Court ruling upholding the constitutionality of a hospital tax exemption law is a win for nonprofit providers in other states too, Illinois stakeholders say.

"What our general assembly did in 2012, the statute that was upheld Thursday, potentially could be a model for other states that are grappling with the issue," Illinois Health and Hospital Association General Counsel Mark Deaton told HealthLeaders.

"Hospitals across the country are breathing a sigh of relief because, if this statute had been ruled unconstitutional, it had the potential for reopening a lot of chaos in Illinois. Our friends in other states are happy that the status quo is being maintained," Deaton says.

In Oswald v. Beard, the Illinois Supreme Court on Thursday unanimously upheld a lower court ruling that the law passed constitutional muster.

The Oswald case did not involve a hospital or an application for exemption or any decision by the state, and was based only on the language in the law. The plaintiff, Chicago resident Constance Oswald, said the law was unconstitutional because it did not expressly mention the constitutional requirements for exemption.

The seven justices on the Illinois Supreme Court rejected the argument.

"While [the statute] does not expressly provide that the hospital charitable property tax exemption is limited to applicants that satisfy the constitutional requirement of exclusive charitable use, section 6 of article IX of the Illinois Constitution does say so, and we presume that the legislature intended to comply with this constitutional limitation," Justice P. Scott Neville wrote.

"The legislature was certainly aware of section 6 of article IX of the constitution and its requirement of exclusive charitable use, and it intended to enact a constitutional hospital charitable property tax exemption," Neville wrote.

At its core, Deaton says the main contention in the case "was very simple."

"It was about the wording of the statute, and does this statute or any statute have to reference the Constitutional provision this grows out of," Deaton says. "In this statute, should they have said in addition to complying with the constitution, hospitals also have to do the following thing?' The Supreme Court said 'No.'"

Deaton says hospitals and local governments win with the ruling.

"The court decision benefits hospitals by maintaining property tax exemption in place," he says. "It benefits communities because now everyone knows what the rules are, what the test is, and it ensures that communities are getting value for the tax exemption they grant."

"This really maintains the stability and benefit of tax exemption that hospitals have enjoyed for over 100 years in Illinois. It stays the course," he says. "We had about seven or eight years of tumult in the early to mid-2000s around the question of property tax exemption, and the law that was upheld today was enacted in 2012 and worked to resolve that tumult."

While the constitutionality of the law is settled, Deaton says other challenges could emerge when hospitals apply for tax-exempt status.

"Someone could come in and say 'We donโ€™t think St. Elsewhere satisfies the statute' or 'We don't like that the statute counts a certain type of service,' so you might see more granular focused challenges," Deaton says. "But the question of whether the whole statute is constitutional, yes, that is settled."

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.


Illinois Supreme Court rejects argument that tax exemption statute, as written, is unconstitutional.

Law provides guidelines for establishing nonprofit hospital tax exemptions.

Hospital stakeholders celebrate the ruling, and say the statute could be a model for other states.

Tagged Under:

Get the latest on healthcare leadership in your inbox.