Highland Park Hosp. v. State, Dept. of Revenue

Decision Date06 May 1987
Docket NumberNo. 2-85-0980,2-85-0980
Citation507 N.E.2d 1331,155 Ill.App.3d 272,107 Ill.Dec. 962
Parties, 107 Ill.Dec. 962 HIGHLAND PARK HOSPITAL, an Illinois not-for-profit corporation, and Groveland Properties, Inc., an Illinois not-for-profit corporation, Plaintiffs-Appellants, v. STATE of Illinois, DEPARTMENT OF REVENUE and County Board of Review of Lake County, Illinois, Defendants-Appellees.
CourtUnited States Appellate Court of Illinois

Snyder, Clarke, Dalziel & Johnson, Julian Johnson, Waukegan, for plaintiffs-appellants.

Fred L. Foreman, Lake County State's Atty., Kristine Short, Asst. State's Atty., Waukegan, for Lake Co. Bd. of Review.

Neil F. Hartigan, Atty. Gen., Kathryn A. Spalding, Roma Jones-Steward, Chicago, for State of Ill. Dept. of Rev.

Justice REINHARD delivered the opinion of the court:

Plaintiff, Highland Park Hospital (Hospital), is an Illinois not-for-profit corporation providing hospital and health services. In December 1979, the Hospital took title to the subject property which was later developed into the Grove Professional Center (Professional Center), a medical center located in Long Grove, Illinois. The Hospital transferred the property in November 1982 to plaintiff, Groveland Properties, Inc., a not-for-profit corporation set up to manage other property acquisitions of the Hospital and its parent corporation, Lakeland Health Services. On December 30, 1982, the Hospital filed a Petition for Exemption from taxation for the Professional Center for 1982 and subsequent years with the Board of Review of Lake County, Illinois (Board). The petition claimed that the property was exclusively used for charitable purposes and was exempt under section 19.7 of the Revenue Act of 1939 (Ill.Rev.Stat.1981, ch. 120, par. 500.7). After a hearing, the Board allowed a 50% exemption for the part of the Professional Center used by the Hospital, pending confirmation by the Illinois Department of Revenue.

The Department of Revenue initially disapproved the exemption, finding that the property was not an exempt use. Following a hearing which was held February 2, 1984, the Department again denied the exemption on second review. Plaintiffs filed an action for administrative review in the circuit court of Lake County. The circuit court affirmed the decision of the Department of Revenue, and plaintiffs appeal.

The property in question is a three-story brick building with a total of 29,601 square feet. The building, along with service roads and parking areas, is situated on approximately eight acres in the village of Long Grove in Lake County, Illinois. The Professional Center is owned and managed by plaintiff Groveland Properties, Inc., for the Hospital. Both Groveland Properties, Inc., and the Hospital are not-for-profit subsidiaries of Lakeland Health Services, Inc. Any funds acquired by Groveland Properties, Inc., in excess of operating expenses are turned over to the Highland Park Hospital Foundation, the fund raising and development subsidiary of the group.

In 1980, due to decreasing patient admissions, the Hospital conducted a feasibility study prior to construction of the Professional Center. The study concluded that the area around the Professional Center needed more than 20 additional physicians and that patient referrals from those physicians would meet the Hospital's admissions goal. To assure the community of quality medical care and to increase Hospital admissions, physicians renting space at the Professional Center are required to be members of the Hospital staff and are required to refer patients to the Hospital when safely possible.

Construction on the Professional Center began in late 1980, and the first tenants moved in in late 1981. The first floor houses an Immediate Care Center, a laboratory, a pharmacy, a radiology facility, and two physicians' offices. There is also a mail room, a lobby and waiting area, and mechanical spaces for the heating, air conditioning and ventilation equipment of the building.

The Immediate Care Center is a walk-in clinic open seven days a week, 12 hours a day (8 a.m. to 8 p.m.). It is owned and operated by the Hospital and is maintained by physicians on the staff of the Hospital. The physicians renting space at the Professional Center, however, are not required to serve in the Immediate Care Center. The Immediate Care Center is equipped to treat minor ailments and emergencies, but is not set up for life threatening emergencies such as myocardial infarctions. In 1982, approximately 5,000 patients were treated in the Immediate Care Center.

The laboratory provides some of the basic testing for patients of the Professional Center's physicians and for patients of the Immediate Care Center. The laboratory also conducts some of the testing for patients at the Hospital. The laboratory is characterized as a satellite of the Hospital laboratory, and, although the complaint for administrative review states that the laboratory is rented, the evidence presented before the Board of Review indicated that no rent is received from the laboratory.

The pharmacy and radiology unit are both rental units, as are the physicians' suites. While the Board of Review's initial grant of exemption included the radiology unit, plaintiffs now concede that neither the pharmacy nor the radiology unit are entitled to exemption.

The second floor contains more physicians' offices, a community room, and an exercise room. The community room accommodates 40 to 50 people and is available to residents of the community at no charge for programs and meetings. The Hospital also conducts a series of health education programs in the community room which are open to the public. The community room produces no income.

The exercise room has a dual purpose. It is open to patients of the Professional Center's physicians. Also, the Hospital conducts exercise programs, weight control programs, and aerobics classes, all of which are open to the public. It produces no income, although a fee is charged to pay an outside instructor. The third floor consists entirely of physicians' suites.

All patients of the Immediate Care Center are initially billed for their treatment. Bills are sent out every 15 to 30 days, and patients are contacted by telephone if no payment is made after 90 days. At this point, if patients can prove an inability to pay, the collection process will stop, and the Hospital will write off that particular charge. Otherwise, formal collection efforts begin. The Immediate Care Center generated $106,885 in patient revenues in 1982. Of that amount, $6,000, or approximately 6%, was uncollectable and written off as free care.

Several advertisements for the Immediate Care Center were utilized by plaintiffs to promote the center. Essentially, these advertisements stated the hours that the facility was open, the availability of care without an appointment, the nature of the services provided, and the relative low cost of the services compared to other medical facilities. It is further stated that private health insurance will probably cover the cost, or a Visa or Master Card may be used. No mention is made of free care for those unable to pay.

The circuit court in this case found that the Department of Revenue's denial of exemption was "not against the manifest weight of the evidence."

Defendants first urge that this court also defer to the Department of Revenue's decision unless it is against the manifest weight of the evidence. Hearings in this matter were held before both the Lake County Board of Review and the Illinois Department of Revenue. No disputed testimony or documentary evidence was presented at either hearing. The only witness, other than those from the Hospital, was an employee of the Department of Revenue who testified as to the criteria he employed in determining that the property in question was not primarily used for charitable purposes. The evidence presented by plaintiffs was not challenged for truthfulness or accuracy.

Because the relevant facts are uncontradicted, "[t]he issue before us is not whether the Department of Revenue's decision was against the manifest weight of the evidence. When the facts upon which a decision of tax exempt status rests are undisputed, whether property is exempt is a question of law." (Cook County Masonic Temple Association v. Department of Revenue (1982), 104 Ill.App.3d 658, 660, 60 Ill.Dec. 341, 432 N.E.2d 1240; see also Caterpillar Tractor Co. v. Department of Revenue (1963), 29 Ill. 2d 564, 566, 194 N.E.2d 257.) Thus, the decision as to whether the property is exempt "depends solely upon an application of the appropriate legal standard to the undisputed facts." Illinois Central Gulf R.R. Co. v. Department of Local Government Affairs (1983), 95 Ill.2d 111, 129, 69 Ill.Dec. 98, 447 N.E.2d 315.

The Lake County Board of Review has taken an interesting position in this appeal. When plaintiffs requested an exemption for the Professional Center, the Board granted a 50% exemption. This percentage was determined by comparing the amount of floor space used to generate rental income with the amount of floor space used by the Hospital itself. The Board now takes the position that a proportionate exemption is inappropriate, even if portions of the property otherwise meet the requirements for exemption, relying on Illinois Institute of Technology v. Skinner (1971), 49 Ill.2d 59, 273 N.E.2d 371.

The Board, however, has misinterpreted the holding of Skinner. The Skinner court noted that while the primary use of property determines tax exemption status, there are two distinct situations to which this principle applies. One is where the property as a whole is used for both exempting and nonexempting purposes. In that case, an exemption is appropriate only if the exempting use is primary and the nonexempting use is incidental. (49 Ill.2d 59, 66, 273 N.E.2d 371.) The second situation is where distinct portions of the property are used for exempting purposes while the...

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