On June 14, 2012, Illinois Governor Patrick Quinn signed into law tax exemption and tax credit legislation that codifies Senate Bill 2194 (the “Act”). This legislation includes provisions governing property and sales tax exemptions for not-for-profit hospitals and providing income tax credits for investor-owned hospitals. The bill acknowledges it was essential to ensure that tax exemption law relating to hospitals accounts for the complexities of the modern health care delivery system. While addressing hospital property tax exemption, the new law is intended to help promote increased access to free health care for indigent persons and strengthen the medical assistance program. It was the state legislature’s intent to establish quantifiable standards for the issuance of a charitable exemption for hospital use property, and to establish criteria to be applied to hospitals on a case-by-case basis as they apply for exemption and seek to maintain exemption.In order to obtain and maintain exemption under the Act, a hospital must be able to show that the value of services or activities specified in the Act (discussed below) for the hospital year equals or exceeds the relevant hospital entity’s estimated property tax liability for the year (without regard to any exemptions). There are different tests for hospitals and hospital affiliates. For individual hospitals, the analysis focuses on the value of specified activities compared to the estimated property tax liability relating only to that specific hospital. Hospital affiliates applying for exemption have the option of performing an analysis similar to the hospital. That is, analyzing the value of activities versus the estimated property tax liability related to a specific hospital affiliate. Or the affiliate may utilize an analysis using the aggregate value of activities performed in Illinois by the hospital system and estimated Illinois property tax liability for the system. The Act recognizes that there are instances where property may have dual use. For instance, if a parcel has both exempt and non-exempt uses, exemption may be granted for the qualifying portion of that parcel. The Act references parking lots and common areas serving both exempt and non-exempt uses, such that those parcels or portions thereof may qualify for an exemption in proportion to the amount of the qualifying use. Hospitals seeking to obtain exemption must apply for it, and the hospital may elect for each fiscal year to use either the value of the services or activities listed in the Act for that year or the average value of those services or activities for the three fiscal years ending with that year.The Act lists a number of services and activities that may be used in the calculation required by the Act. These services and activities address the health care needs of low income or underserved individuals, or relieve the burden of government with regard to health care services. The services and activities listed below shall be considered for purposes of making the calculation:
It is also important to note the same tests for property tax exemption will be utilized for sales tax exemption. That is, the value of qualified services and activities listed equals or exceeds the estimated property tax liability.
For further information, please contact Stephen T. Moore, Dean E. Parker, Roy M. Bossen or your regular Hinshaw attorney.
This alert has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship.