Bill Text: IL HB3634 | 2013-2014 | 98th General Assembly | Introduced

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Bill Title: 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.

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Failed) 2014-12-03 - Session Sine Die [HB3634 Detail]

Download: Illinois-2013-HB3634-Introduced.html

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

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

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

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

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

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

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

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

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payments to the relevant hospital entity and any hospital
affiliate designated by the relevant hospital entity
(provided that such hospital affiliate's operations
provide financial or operational support for or receive
financial or operational support from the relevant
hospital entity) under Medicaid or other means-tested
programs, including, but not limited to, General
Assistance, the Covering ALL KIDS Health Insurance Act, and
the State Children's Health Insurance Program or (B) the
amount of subsidy provided by the relevant hospital entity
and any hospital affiliate designated by the relevant
hospital entity (provided that such hospital affiliate's
operations provide financial or operational support for or
receive financial or operational support from the relevant
hospital entity) to State or local government in treating
Medicaid recipients and recipients of means-tested
programs, including but not limited to General Assistance,
the Covering ALL KIDS Health Insurance Act, and the State
Children's Health Insurance Program. The amount of subsidy
for purposes of this item (4) is calculated in the same
manner as unreimbursed costs are calculated for Medicaid
and other means-tested government programs in the Schedule
H of IRS Form 990 in effect on the effective date of this
amendatory Act of the 97th General Assembly; provided,
however, that in any event unreimbursed costs shall be net
of fee-for-services payments, payments pursuant to an

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

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

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

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

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

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

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hospital that serves patients from multiple municipalities and
counties is not entitled to an exemption under this Section 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 this exemption is not
applied to the property.
For the purposes of this subsection (h-1)
"disproportionate impact" means that:
(1) the municipality in which the subject 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.
(i) Nothing in this Section shall be construed to limit the
ability of otherwise eligible hospitals, hospital owners,
hospital affiliates, or hospital systems to obtain or maintain
property tax exemptions pursuant to a provision of the Property
Tax Code other than this Section.
(Source: P.A. 97-688, eff. 6-14-12.)
Section 99. Effective date. This Act takes effect upon
becoming law.