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March 18, 2010; Crain’s Chicago Business | An eight-year conflict over the charitable property tax exemption that has been closely-watched throughout the nation is finally resolved. Crain’s Chicago Business reported today: “Illinois’ highest court on Thursday ruled that state officials were justified in their decision to yank the tax exemption of Downstate Provena Covenant Medical Center for not providing enough charity care, a ruling that could have implications for thousands of hospitals nationally.”??

The Illinois Supreme Court found that Provena Covenant Medical Center should not receive a property-tax exemption because “it fails to generate most of its money from private and public charity, did not clearly demonstrate that it ‘dispensed charity to all who needed it and applied for it’ and ‘failed to meet its burden’ of showing that the hospital complex is used exclusively for charitable purposes.”

??Local tax officials withdrew the religiously-affiliated hospital’s property tax-exemption in 2002 after reports that it hounded debtors who were unable to pay, but presumably would be eligible for charity care. A closer look revealed that the hospital provided less than $1 million in charity care and it contracted out to for-profit companies many of its? departments including its emergency room.??

The ruling may embolden officials of Cook County to withdraw the tax exemption of nonprofit hospitals in and around Chicago. At least one Commissioner raised this possibility in the past and the County Assessor has conducted a formal study of the resulting impact on property taxes.??

What the decision means for nonprofits in other states is less clear. Many institutions, like schools and churches are exempt per se, so they would be unaffected. But hospitals are rarely exempt per se. As in Illinois, they are usually exempt as institutions of “purely public charity”—a catch-all category. The issue of tax exemption, therefore, turns on the definition of charity. Although it varies state-by-state, nearly all definitions embody some notion of giving away services, at least in part.??

If Congress passes a health care bill mandating insurance coverage for substantially all Americans, the issue may gradually go away until challenges are raised to another institution of purely public charity.—Woods Bowman