As an update to previous articles on the Carle Foundation case, on March 23rd, the Supreme Court has decided to vacate the appellate court’s decision and to remand the case to the circuit court for further proceedings.  Carle Foundation v Cunningham Township, 2017 IL 120427.   Notably, the Court did not opine on the principal question many hospitals and municipalities have been anxiously awaiting: Was Section 15-86 of the Property Tax Code constitutional or not?


The power to exempt properties from tax obligations is created by the Illinois Constitution.  Specifically, Article IX, Section 6 provides that in order to qualify for exemption as a “charitable” use, the property must be “used exclusively for charitable purposes.” The charitable use exemption was codified in the Property Tax Code.  Over the years, Illinois courts modified the exclusivity requirement to allow properties that were primarily put to charitable uses to qualify as exempt.

However, in 2010, the Illinois Supreme Court issued a decision in Provena Covenant Medical Center v. Dept. of Revenue, 925 N.E.2d 1131 (2010), finding that a hospital had failed to qualify as a charity institution under the Korzen characteristics, Methodist Old Peoples Home v. Korzen, 39 Ill. 2d 149 (1968) and, as a consequence, would be required to pay property taxes.

Frustrated and facing financial burdens, the hospital industry turned to the General Assembly which in 2012 enacted Section 15-86 of the Property Tax Code allowing hospitals to claim a real estate tax exemption “if the value of services or activities [that address the health care needs of low-income or underserved individuals or relieves the burden of government] equals or exceeds the relevant hospital entity’s estimated property tax liability for the year for which exemption is sought” (35 ILCS 200/15-86). The legislation was retroactive requiring many taxing bodies to return multiple years of property taxes, regardless of whether the money had already been spent.

The Fourth Appellate District declared Section 15-86 unconstitutional in  Carle Foundation, 2016 IL App (4th) 140795.  It reasoned that “[a] property owner cannot buy a charitable exemption” by “in a manner of speaking, pay[ing] for its property tax exemptions with certain services of equivalent value.”  The court concluded that Section 15-86 failed to adhere to the constitutional standard of “exclusive” charitable use and that “it was unenforceable from its inception.”

What Comes Next

When the case went to the Illinois Supreme Court many observers expected to settle the legality of Section 15-86.  Instead, the Illinois Supreme Court overturned the Appellate Court’s position and sent the Carle Foundation case back to the Champaign County Circuit Court so that the trial court can determine the constitutionality issue.  In the meantime, Illinois’ not-for-profit hospitals can continue to skip on paying real estate taxes under Section 15-86.  This creates a burden for many local tax bases as noted by the Urbana Mayor Laurel Prussing who remarked “The tenth-most profitable hospital in the U.S. probably doesn’t need a tax break.”

The Supreme Court may also review Oswald v. Hamer, 2016 IL App (1st) 152691, where the Fourth Division Appellate Court ruled that Section 15-86 was constitutional.

We will continue to follow the Carle Foundation case and will provide updates as they become available. If you have any questions about how this applies specifically to your agency, please contact your Tressler attorney.