Community Health Care, Inc. v. Illinois Department of Revenue ( 2006 )

No. 3--06--0001
______________________________________________________________________________
Filed December 18, 2006.
IN THE
APPELLATE COURT OF ILLINOIS
THIRD DISTRICT
A.D., 2006
COMMUNITY HEALTH CARE, INC., ) Appeal from the Circuit Court
) of the 14th Judicial Circuit,
Petitioner-Appellee, ) Rock Island County, Illinois,
)
v. ) 05--MR–81
)
ILLINOIS DEPARTMENT OF REVENUE, ) The Honorable
) Walter D. Braud,
Respondent-Appellant. ) Judge Presiding.
______________________________________________________________________________
JUSTICE McDADE delivered the opinion of the court:
______________________________________________________________________________
Petitioner, Community Health Care, Inc. (CHC), operates a community-based primary
care clinic in Rock Island, Illinois. In October 2003 CHC applied for a property tax exemption on
the basis of the property’s use for charitable purposes. Respondent, the Illinois Department of
Revenue (Department), denied CHC’s request for a property tax exemption. CHC appealed and
the matter proceeded to a hearing before an administrative law judge (ALJ). The ALJ upheld the
Department’s decision to deny CHC’s application for a tax exemption. The ALJ concluded that
CHC failed to demonstrate that it qualified as a charitable organization pursuant to section 15-65
of the Property Tax Code (35 ILCS 200/15-65 (West 2002)) or that it used the subject property
exclusively for charitable purposes. CHC filed a complaint in the circuit court of Rock Island
County for administrative review of the ALJ’s order. The court reversed the ALJ’s order. For
the reasons that follow, we reverse the trial court and affirm the ALJ’s ruling upholding the
Department’s decision.
BACKGROUND
CHC applied for, and was granted, permission to operate in Illinois as a not-for-profit
corporation. It does not have stock or shareholders. The clinic serves medically underserved
populations, residents of public housing, and the homeless. CHC’s clients pay for services
themselves, with private insurance, and through Medicare, Medicaid, and grants. CHC offers a
sliding scale for fees whereby patients receive a discount of 25%, 50%, 75%, or 100% depending
on their income. CHC offers the discount to any person with an income at or below 200% of the
poverty level and advertises its availability through a variety of media. A patient with an income
at or below the poverty level receives a 100% discount. In 2003, approximately 27% of CHC’s
patients received some level of discounted services. Of those, 58% received the 100 per cent
discount. Regardless of the sliding scale CHC requires all patients, excluding homeless persons,
to pay at least a $10 co-payment for medical services or $20 for dental services; but CHC will not
turn away a patient who cannot provide the co-pay.
CHC reports charity care on its financial statements as "the sum of all patient adjustments
which are non-contractual adjustments related to private insurance agreements." "Charity care"
includes discounted services as well as Medicare and Medicaid. CHC receives 64.8% of its
revenue from patient fees, 29.7% from federal and state grants, and 5.5% from donations. Of the
patient fees, 16.7% were discounted and 12.8% came from other payors or private grants. The
remainder of the patient fees were paid by Medicare, Medicaid, private insurance, or the patient.
CHC reinvests any revenue surplus in its clinics in the form of new equipment and supplies. CHC
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pays its physicians a base salary and annual bonuses based on productivity. CHC measures
productivity as the physician’s gross revenues before any adjustments for Medicare, Medicaid,
private insurance, or the sliding scale discount. CHC, which operates four other facilities in the
Quad Cities area, opened its Rock Island location in March 2003. The facility houses 16
examination rooms for use by three full-time and part-time medical providers. CHC also plans to
have three dental stations in the facility.
The Department appeals the circuit court’s order reversing the ALJ’s order affirming the
denial of CHC’s application for a tax exemption.
ANALYSIS
"To determine whether the clinics are eligible for a property
tax exemption under section 15-65, we use the test established in
Methodist Old Peoples Home v. Korzen, 39 Ill. 2d 149, 233 N.E.2d
537 (1968). In order to be eligible, the alleged charity must show
that: (1) it is set up for the benefit of an indeterminate number of
persons; (2) it has no capital, capital stock or shareholders and
earns no profits or dividends; (3) it derives its funds primarily from
public and private charity and holds those funds in trust for the
objectives and purposes expressed in its charter; (4) it dispenses
charity to all who need and apply for it, does not provide gain or
profit in a private sense to any person connected with it, and does
not appear to place obstacles of any character in the way of those
who need and would avail themselves of the charitable benefits it
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dispenses; (5) the property is actually and factually used exclusively
for the charitable purpose, regardless of any intent expressed in the
organization's charter or bylaws; and (6) charity use is the primary
purpose for which the property is used and not a secondary or
incidental purpose." (Emphasis added.) Riverside Medical Center
v. Department of Revenue, 342 Ill. App. 3d 603, 607, 795 N.E.2d
361, 365 (2003).
"An appellate court's role is to review the administrative decision, not the circuit court
decision." Calabrese v. Chicago Park Dist., 294 Ill. App. 3d 1055, 1065, 691 N.E.2d 850, 857
(1998). "[T]he findings and conclusions of an administrative agency on questions of fact are
considered prima facie true and correct." Calabrese, 294 Ill. App. 3d at 1065, 691 N.E.2d at
857. The decision of the administrative agency should not be overturned unless it is clearly
erroneous. Lutheran Church of the Good Sheperd of Bourbonnais v. Department of Revenue,
316 Ill. App. 3d 828, 831, 737 N.E.2d 1075, 1078 (2000). "In other words, the determination
should not be overturned unless the record leaves the reviewing court with the < "definite and firm
conviction that a mistake has been committed." ’ [citation]" Riverside Medical Center v.
Department of Revenue, 342 Ill. App. 3d 603, 607, 795 N.E.2d 361, 364-65 (2003). Statutes
exempting property from taxation are to be strictly construed in favor of taxation. Harrisburg-
Raleigh Airport Authority v. Department of Revenue, 126 Ill. 2d 326, 331, 533 N.E.2d 1072(1989). The burden of proving the right to exemption rests upon the party seeking it. Chicago
Patrolmen's Ass'n v. Department of Revenue, 171 Ill. 2d 263, 271, 664 N.E.2d 52, 56 (1996).
The Department argues CHC did not satisfy any of the six criteria used in determining
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whether a tax payer is entitled to a charitable-use exemption. CHC responds it meets the
definition of "charity" because it provides free or reduced-fee health care to any patient who
presents him or herself to its facility and does not set a limit on the number of people who can
receive free or reduced-fee health care services. CHC argues it uses its property primarily for this
purpose because it only uses the property for the provision of medical and dental care.
We reverse the decision of the circuit court and affirm the ALJ’s ruling affirming the
Department’s decision to deny CHC’s application for a tax exemption. CHC’s primary use of its
facility is not for its "charitable purpose."
"The law in Illinois exempts from taxation that property of
charitable institutions that is ‘actually and exclusively used for * * *
charitable or beneficent purposes.’ (Ill. Rev. Stat.1985, ch. 120,
par. 500.7.) Exclusive use refers to the primary purpose for which
the property is being used, not a secondary or incidental purpose.
Northwestern Memorial Foundation v. Johnson, [141 Ill. App. 3d
309, 490 N.E.2d 161 (1986)]." Norwegian American Hospital,
Inc. v. Department of Revenue, 210 Ill. App. 3d 318, 322-23, 569
N.E.2d 83, 86 (1991).
CHC’s "charitable purpose" is to provide discounted or free medical service to a medically
underserved community. By its own admission it uses the property for that purpose only 27% of
the time. The remaining 73% of the time, CHC uses the property as a not-for-profit medical
clinic. Further, CHC’s evidence as to the level of charitable operations at this facility is
speculative. CHC relied on "organization-wide financial data to extrapolate the patient and payor
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mix" at the Rock Island facility. In fact, CHC states that it "had little concrete data to support its
conclusion other than reliance on its previous years of historical data and knowledge" at other
facilities.
"‘[The] burden of proving the right to exemption is upon the party seeking it, and in
determining whether property is included within the scope of an exemption, all facts are to be
construed and all debatable questions resolved in favor of taxation.’" Pontiac Lodge No. 294,
A.F. & A.M. v. Department of Revenue, 243 Ill. App. 3d 186, 192-93, 611 N.E.2d 62, 67 (1993),
quoting Methodist Old Peoples Home, 39 Ill .2d at 155, 233 N.E.2d at 540. Because CHC
admits that its application is based on data from other facilities and an assumption that the facility
in question will serve the same number and type of patients, we find that CHC has not carried its
burden of proving a right to an exemption at the Rock Island facility. As the question of how
much CHC uses the Rock Island facility for its "charitable purpose" is, at best, "debatable," we
must resolve the issue in favor of taxation. See Pontiac Lodge No. 294, A.F. & A.M., 243 Ill.
App. 3d at 192-93, 611 N.E.2d at 67.
CONCLUSION
We hold that a 27% use is insufficient to find the property is used primarily for a charitable
purpose and, regardless, that CHC has failed to provide clear and convincing evidence of its
charitable operations--providing reduced cost health care--at the Rock Island facility. The circuit
court of Rock Island County’s order is reversed, and the ALJ’s ruling is affirmed.
Reversed.
HOLDRIDGE and O’BRIEN, JJ., concur.
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