98TH GENERAL ASSEMBLY
State of Illinois
2013 and 2014
HB3634

 

Introduced , by Rep. Naomi D. Jakobsson

 

SYNOPSIS AS INTRODUCED:
 
35 ILCS 200/15-86

    Amends the Property Tax Code. Provides that the hospital exemption does not apply if (i) the subject property is located in a municipality that would be disproportionately impacted by the exemption and (ii) the hospital's net income for the hospital year is 8% or more of its revenue for the hospital year if the exemption is not applied to the property. Provides that the municipality would be disproportionately impacted by the exemption if (1) the municipality in which the property is located has a population of 10% or less of the total population of all municipalities served by the hospital and (2) the municipality provides services to 50% of more of the hospital's properties in the county in which the municipality is located. Effective immediately.


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FISCAL NOTE ACT MAY APPLY
HOUSING AFFORDABILITY IMPACT NOTE ACT MAY APPLY

 

 

A BILL FOR

 

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1    AN ACT concerning revenue.
 
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
 
4    Section 5. The Property Tax Code is amended by changing
5Section 15-86 as follows:
 
6    (35 ILCS 200/15-86)
7    Sec. 15-86. Exemptions related to access to hospital and
8health care services by low-income and underserved
9individuals.
10    (a) The General Assembly finds:
11        (1) Despite the Supreme Court's decision in Provena
12    Covenant Medical Center v. Dept. of Revenue, 236 Ill.2d
13    368, there is considerable uncertainty surrounding the
14    test for charitable property tax exemption, especially
15    regarding the application of a quantitative or monetary
16    threshold. In Provena, the Department stated that the
17    primary basis for its decision was the hospital's
18    inadequate amount of charitable activity, but the
19    Department has not articulated what constitutes an
20    adequate amount of charitable activity. After Provena, the
21    Department denied property tax exemption applications of 3
22    more hospitals, and, on the effective date of this
23    amendatory Act of the 97th General Assembly, at least 20

 

 

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1    other hospitals are awaiting rulings on applications for
2    property tax exemption.
3        (2) In Provena, two Illinois Supreme Court justices
4    opined that "setting a monetary or quantum standard is a
5    complex decision which should be left to our legislature,
6    should it so choose". The Appellate Court in Provena
7    stated: "The language we use in the State of Illinois to
8    determine whether real property is used for a charitable
9    purpose has its genesis in our 1870 Constitution. It is
10    obvious that such language may be difficult to apply to the
11    modern face of our nation's health care delivery systems".
12    The court noted the many significant changes in the health
13    care system since that time, but concluded that taking
14    these changes into account is a matter of public policy,
15    and "it is the legislature's job, not ours, to make public
16    policy".
17        (3) It is essential to ensure that tax exemption law
18    relating to hospitals accounts for the complexities of the
19    modern health care delivery system. Health care is moving
20    beyond the walls of the hospital. In addition to treating
21    individual patients, hospitals are assuming responsibility
22    for improving the health status of communities and
23    populations. Low-income and underserved communities
24    benefit disproportionately by these activities.
25        (4) The Supreme Court has explained that: "the
26    fundamental ground upon which all exemptions in favor of

 

 

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1    charitable institutions are based is the benefit conferred
2    upon the public by them, and a consequent relief, to some
3    extent, of the burden upon the state to care for and
4    advance the interests of its citizens". Hospitals relieve
5    the burden of government in many ways, but most
6    significantly through their participation in and
7    substantial financial subsidization of the Illinois
8    Medicaid program, which could not operate without the
9    participation and partnership of Illinois hospitals.
10        (5) Working with the Illinois hospital community and
11    other interested parties, the General Assembly has
12    developed a comprehensive combination of related
13    legislation that addresses hospital property tax
14    exemption, significantly increases access to free health
15    care for indigent persons, and strengthens the Medical
16    Assistance program. It is the intent of the General
17    Assembly to establish a new category of ownership for
18    charitable property tax exemption to be applied to
19    not-for-profit hospitals and hospital affiliates in lieu
20    of the existing ownership category of "institutions of
21    public charity". It is also the intent of the General
22    Assembly to establish quantifiable standards for the
23    issuance of charitable exemptions for such property. It is
24    not the intent of the General Assembly to declare any
25    property exempt ipso facto, but rather to establish
26    criteria to be applied to the facts on a case-by-case

 

 

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1    basis.
2    (b) For the purpose of this Section and Section 15-10, the
3following terms shall have the meanings set forth below:
4        (1) "Hospital" means any institution, place, building,
5    buildings on a campus, or other health care facility
6    located in Illinois that is licensed under the Hospital
7    Licensing Act and has a hospital owner.
8        (2) "Hospital owner" means a not-for-profit
9    corporation that is the titleholder of a hospital, or the
10    owner of the beneficial interest in an Illinois land trust
11    that is the titleholder of a hospital.
12        (3) "Hospital affiliate" means any corporation,
13    partnership, limited partnership, joint venture, limited
14    liability company, association or other organization,
15    other than a hospital owner, that directly or indirectly
16    controls, is controlled by, or is under common control with
17    one or more hospital owners and that supports, is supported
18    by, or acts in furtherance of the exempt health care
19    purposes of at least one of those hospital owners'
20    hospitals.
21        (4) "Hospital system" means a hospital and one or more
22    other hospitals or hospital affiliates related by common
23    control or ownership.
24        (5) "Control" relating to hospital owners, hospital
25    affiliates, or hospital systems means possession, direct
26    or indirect, of the power to direct or cause the direction

 

 

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1    of the management and policies of the entity, whether
2    through ownership of assets, membership interest, other
3    voting or governance rights, by contract or otherwise.
4        (6) "Hospital applicant" means a hospital owner or
5    hospital affiliate that files an application for a property
6    tax exemption pursuant to Section 15-5 and this Section.
7        (7) "Relevant hospital entity" means (A) the hospital
8    owner, in the case of a hospital applicant that is a
9    hospital owner, and (B) at the election of a hospital
10    applicant that is a hospital affiliate, either (i) the
11    hospital affiliate or (ii) the hospital system to which the
12    hospital applicant belongs, including any hospitals or
13    hospital affiliates that are related by common control or
14    ownership.
15        (8) "Subject property" means property for which a
16    hospital applicant files an application for an exemption
17    pursuant to Section 15-5 and this Section.
18        (9) "Hospital year" means the fiscal year of the
19    relevant hospital entity, or the fiscal year of one of the
20    hospital owners in the hospital system if the relevant
21    hospital entity is a hospital system with members with
22    different fiscal years, that ends in the year for which the
23    exemption is sought.
24    (c) A hospital applicant satisfies the conditions for an
25exemption under this Section with respect to the subject
26property, and shall be issued a charitable exemption for that

 

 

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1property, if the value of services or activities listed in
2subsection (e) for the hospital year equals or exceeds the
3relevant hospital entity's estimated property tax liability,
4as determined under subsection (g), for the year for which
5exemption is sought. For purposes of making the calculations
6required by this subsection (c), if the relevant hospital
7entity is a hospital owner that owns more than one hospital,
8the value of the services or activities listed in subsection
9(e) shall be calculated on the basis of only those services and
10activities relating to the hospital that includes the subject
11property, and the relevant hospital entity's estimated
12property tax liability shall be calculated only with respect to
13the properties comprising that hospital. In the case of a
14multi-state hospital system or hospital affiliate, the value of
15the services or activities listed in subsection (e) shall be
16calculated on the basis of only those services and activities
17that occur in Illinois and the relevant hospital entity's
18estimated property tax liability shall be calculated only with
19respect to its property located in Illinois.
20    Notwithstanding any other provisions of this Act, any
21parcel or portion thereof, that is owned by a for-profit entity
22whether part of the hospital system or not, or that is leased,
23licensed or operated by a for-profit entity regardless of
24whether healthcare services are provided on that parcel shall
25not qualify for exemption. If a parcel has both exempt and
26non-exempt uses, an exemption may be granted for the qualifying

 

 

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1portion of that parcel. In the case of parking lots and common
2areas serving both exempt and non-exempt uses those parcels or
3portions thereof may qualify for an exemption in proportion to
4the amount of qualifying use.
5    (d) The hospital applicant shall include information in its
6exemption application establishing that it satisfies the
7requirements of subsection (c). For purposes of making the
8calculations required by subsection (c), the hospital
9applicant may for each year elect to use either (1) the value
10of the services or activities listed in subsection (e) for the
11hospital year or (2) the average value of those services or
12activities for the 3 fiscal years ending with the hospital
13year. If the relevant hospital entity has been in operation for
14less than 3 completed fiscal years, then the latter
15calculation, if elected, shall be performed on a pro rata
16basis.
17    (e) Services that address the health care needs of
18low-income or underserved individuals or relieve the burden of
19government with regard to health care services. The following
20services and activities shall be considered for purposes of
21making the calculations required by subsection (c):
22        (1) Charity care. Free or discounted services provided
23    pursuant to the relevant hospital entity's financial
24    assistance policy, measured at cost, including discounts
25    provided under the Hospital Uninsured Patient Discount
26    Act.

 

 

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1        (2) Health services to low-income and underserved
2    individuals. Other unreimbursed costs of the relevant
3    hospital entity for providing without charge, paying for,
4    or subsidizing goods, activities, or services for the
5    purpose of addressing the health of low-income or
6    underserved individuals. Those activities or services may
7    include, but are not limited to: financial or in-kind
8    support to affiliated or unaffiliated hospitals, hospital
9    affiliates, community clinics, or programs that treat
10    low-income or underserved individuals; paying for or
11    subsidizing health care professionals who care for
12    low-income or underserved individuals; providing or
13    subsidizing outreach or educational services to low-income
14    or underserved individuals for disease management and
15    prevention; free or subsidized goods, supplies, or
16    services needed by low-income or underserved individuals
17    because of their medical condition; and prenatal or
18    childbirth outreach to low-income or underserved persons.
19        (3) Subsidy of State or local governments. Direct or
20    indirect financial or in-kind subsidies of State or local
21    governments by the relevant hospital entity that pay for or
22    subsidize activities or programs related to health care for
23    low-income or underserved individuals.
24        (4) Support for State health care programs for
25    low-income individuals. At the election of the hospital
26    applicant for each applicable year, either (A) 10% of

 

 

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1    payments to the relevant hospital entity and any hospital
2    affiliate designated by the relevant hospital entity
3    (provided that such hospital affiliate's operations
4    provide financial or operational support for or receive
5    financial or operational support from the relevant
6    hospital entity) under Medicaid or other means-tested
7    programs, including, but not limited to, General
8    Assistance, the Covering ALL KIDS Health Insurance Act, and
9    the State Children's Health Insurance Program or (B) the
10    amount of subsidy provided by the relevant hospital entity
11    and any hospital affiliate designated by the relevant
12    hospital entity (provided that such hospital affiliate's
13    operations provide financial or operational support for or
14    receive financial or operational support from the relevant
15    hospital entity) to State or local government in treating
16    Medicaid recipients and recipients of means-tested
17    programs, including but not limited to General Assistance,
18    the Covering ALL KIDS Health Insurance Act, and the State
19    Children's Health Insurance Program. The amount of subsidy
20    for purposes of this item (4) is calculated in the same
21    manner as unreimbursed costs are calculated for Medicaid
22    and other means-tested government programs in the Schedule
23    H of IRS Form 990 in effect on the effective date of this
24    amendatory Act of the 97th General Assembly; provided,
25    however, that in any event unreimbursed costs shall be net
26    of fee-for-services payments, payments pursuant to an

 

 

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1    assessment, quarterly payments, and all other payments
2    included on the schedule H of the IRS form 990.
3        (5) Dual-eligible subsidy. The amount of subsidy
4    provided to government by treating dual-eligible
5    Medicare/Medicaid patients. The amount of subsidy for
6    purposes of this item (5) is calculated by multiplying the
7    relevant hospital entity's unreimbursed costs for
8    Medicare, calculated in the same manner as determined in
9    the Schedule H of IRS Form 990 in effect on the effective
10    date of this amendatory Act of the 97th General Assembly,
11    by the relevant hospital entity's ratio of dual-eligible
12    patients to total Medicare patients.
13        (6) Relief of the burden of government related to
14    health care of low-income individuals. Except to the extent
15    otherwise taken into account in this subsection, the
16    portion of unreimbursed costs of the relevant hospital
17    entity attributable to providing, paying for, or
18    subsidizing goods, activities, or services that relieve
19    the burden of government related to health care for
20    low-income individuals. Such activities or services shall
21    include, but are not limited to, providing emergency,
22    trauma, burn, neonatal, psychiatric, rehabilitation, or
23    other special services; providing medical education; and
24    conducting medical research or training of health care
25    professionals. The portion of those unreimbursed costs
26    attributable to benefiting low-income individuals shall be

 

 

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1    determined using the ratio calculated by adding the
2    relevant hospital entity's costs attributable to charity
3    care, Medicaid, other means-tested government programs,
4    disabled Medicare patients under age 65, and dual-eligible
5    Medicare/Medicaid patients and dividing that total by the
6    relevant hospital entity's total costs. Such costs for the
7    numerator and denominator shall be determined by
8    multiplying gross charges by the cost to charge ratio taken
9    from the hospitals' most recently filed Medicare cost
10    report (CMS 2252-10 Worksheet C, Part I). In the case of
11    emergency services, the ratio shall be calculated using
12    costs (gross charges multiplied by the cost to charge ratio
13    taken from the hospitals' most recently filed Medicare cost
14    report (CMS 2252-10 Worksheet C, Part I)) of patients
15    treated in the relevant hospital entity's emergency
16    department.
17        (7) Any other activity by the relevant hospital entity
18    that the Department determines relieves the burden of
19    government or addresses the health of low-income or
20    underserved individuals.
21    (f) For purposes of making the calculations required by
22subsections (c) and (e):
23        (1) particular services or activities eligible for
24    consideration under any of the paragraphs (1) through (7)
25    of subsection (e) may not be counted under more than one of
26    those paragraphs; and

 

 

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1        (2) the amount of unreimbursed costs and the amount of
2    subsidy shall not be reduced by restricted or unrestricted
3    payments received by the relevant hospital entity as
4    contributions deductible under Section 170(a) of the
5    Internal Revenue Code.
6    (g) Estimation of Exempt Property Tax Liability. The
7estimated property tax liability used for the determination in
8subsection (c) shall be calculated as follows:
9        (1) "Estimated property tax liability" means the
10    estimated dollar amount of property tax that would be owed,
11    with respect to the exempt portion of each of the relevant
12    hospital entity's properties that are already fully or
13    partially exempt, or for which an exemption in whole or in
14    part is currently being sought, and then aggregated as
15    applicable, as if the exempt portion of those properties
16    were subject to tax, calculated with respect to each such
17    property by multiplying:
18            (A) the lesser of (i) the actual assessed value, if
19        any, of the portion of the property for which an
20        exemption is sought or (ii) an estimated assessed value
21        of the exempt portion of such property as determined in
22        item (2) of this subsection (g), by:
23            (B) the applicable State equalization rate
24        (yielding the equalized assessed value), by
25            (C) the applicable tax rate.
26        (2) The estimated assessed value of the exempt portion

 

 

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1    of the property equals the sum of (i) the estimated fair
2    market value of buildings on the property, as determined in
3    accordance with subparagraphs (A) and (B) of this item (2),
4    multiplied by the applicable assessment factor, and (ii)
5    the estimated assessed value of the land portion of the
6    property, as determined in accordance with subparagraph
7    (C).
8            (A) The "estimated fair market value of buildings
9        on the property" means the replacement value of any
10        exempt portion of buildings on the property, minus
11        depreciation, determined utilizing the cost
12        replacement method whereby the exempt square footage
13        of all such buildings is multiplied by the replacement
14        cost per square foot for Class A Average building found
15        in the most recent edition of the Marshall & Swift
16        Valuation Services Manual, adjusted by any appropriate
17        current cost and local multipliers.
18            (B) Depreciation, for purposes of calculating the
19        estimated fair market value of buildings on the
20        property, is applied by utilizing a weighted mean life
21        for the buildings based on original construction and
22        assuming a 40-year life for hospital buildings and the
23        applicable life for other types of buildings as
24        specified in the American Hospital Association
25        publication "Estimated Useful Lives of Depreciable
26        Hospital Assets". In the case of hospital buildings,

 

 

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1        the remaining life is divided by 40 and this ratio is
2        multiplied by the replacement cost of the buildings to
3        obtain an estimated fair market value of buildings. If
4        a hospital building is older than 35 years, a remaining
5        life of 5 years for residual value is assumed; and if a
6        building is less than 8 years old, a remaining life of
7        32 years is assumed.
8            (C) The estimated assessed value of the land
9        portion of the property shall be determined by
10        multiplying (i) the per square foot average of the
11        assessed values of three parcels of land (not including
12        farm land, and excluding the assessed value of the
13        improvements thereon) reasonably comparable to the
14        property, by (ii) the number of square feet comprising
15        the exempt portion of the property's land square
16        footage.
17        (3) The assessment factor, State equalization rate,
18    and tax rate (including any special factors such as
19    Enterprise Zones) used in calculating the estimated
20    property tax liability shall be for the most recent year
21    that is publicly available from the applicable chief county
22    assessment officer or officers at least 90 days before the
23    end of the hospital year.
24        (4) The method utilized to calculate estimated
25    property tax liability for purposes of this Section 15-86
26    shall not be utilized for the actual valuation, assessment,

 

 

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1    or taxation of property pursuant to the Property Tax Code.
2    (h) Application. Each hospital applicant applying for a
3property tax exemption pursuant to Section 15-5 and this
4Section shall use an application form provided by the
5Department. The application form shall specify the records
6required in support of the application and those records shall
7be submitted to the Department with the application form. Each
8application or affidavit shall contain a verification by the
9Chief Executive Officer of the hospital applicant under oath or
10affirmation stating that each statement in the application or
11affidavit and each document submitted with the application or
12affidavit are true and correct. The records submitted with the
13application pursuant to this Section shall include an exhibit
14prepared by the relevant hospital entity showing (A) the value
15of the relevant hospital entity's services and activities, if
16any, under paragraphs (1) through (7) of subsection (e) of this
17Section stated separately for each paragraph, and (B) the value
18relating to the relevant hospital entity's estimated property
19tax liability under subsections (g)(1)(A), (B), and (C),
20subsections (g)(2)(A), (B), and (C), and subsection (g)(3) of
21this Section stated separately for each item. Such exhibit will
22be made available to the public by the chief county assessment
23officer. Nothing in this Section shall be construed as limiting
24the Attorney General's authority under the Illinois False
25Claims Act.
26    (h-1) Notwithstanding any other provision of law, a

 

 

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1hospital that serves patients from multiple municipalities and
2counties is not entitled to an exemption under this Section if
3(i) the subject property is located in a municipality that
4would be disproportionately impacted by the exemption and (ii)
5the hospital's net income for the hospital year is 8% or more
6of its revenue for the hospital year if this exemption is not
7applied to the property.
8    For the purposes of this subsection (h-1)
9"disproportionate impact" means that:
10        (1) the municipality in which the subject property is
11    located has a population of 10% or less of the total
12    population of all municipalities served by the hospital;
13    and
14        (2) the municipality provides services to 50% of more
15    of the hospital's properties in the county in which the
16    municipality is located.
17    (i) Nothing in this Section shall be construed to limit the
18ability of otherwise eligible hospitals, hospital owners,
19hospital affiliates, or hospital systems to obtain or maintain
20property tax exemptions pursuant to a provision of the Property
21Tax Code other than this Section.
22(Source: P.A. 97-688, eff. 6-14-12.)
 
23    Section 99. Effective date. This Act takes effect upon
24becoming law.