How much “charity” is enough to qualify for Illinois property tax exemption? A statute enacted to quantitatively answer that question for hospitals has been struck down as unconstitutional. The law’s fatal flaw: its misplaced emphasis on the financial value of its charitable activities, rather than the qualitative requirement of exclusively charitable property usage. The case is Carle Foundation v. Cunningham Township, issued on January 5, 2016, by the Illinois Fourth District Court of Appeals. It is particularly instructive for Illinois charitable property owners that charge fees.
Constitutional Requirement for Fee-Charging Charities
Many nonprofit organizations have long enjoyed broad entitlement to property tax exemptions under Illinois (and other state) law, such as for religious activities, educational programs, traditional social services, and other charitable programs. Article IX, Section 6, of the Illinois Constitution permits the legislature to exempt certain property from taxation, including property “used exclusively . . . for school, religious, cemetery, and charitable purposes.” This constitutional provision authorizes the state legislature to provide for property tax exemption, but not to add to or broaden this significant benefit.
The test for whether an organization satisfies the charitable exemption standard was established in the Methodist Old Peoples Home case. In that 1968 landmark decision, the Illinois Supreme Court identified several critical factors including whether (a) the organization’s activities reduce governmental burdens and (b) its benefits are widely distributed “without undue obstacle.”
These elements are key for any Illinois organization that charges fees for its charitable services, such as child care centers, social service agencies, and medical providers. Consistent with the constitutional language, the Court required the subject property to be “exclusively” – that is, “primarily” – used for charitable purposes. Any fees charged thus should not necessarily keep away those in need, at least broadly speaking.