Midwest Physician Group, Ltd. v. Department of Revenue of State of Ill.

• Decision Date: 28 April 1999
• Docket Number: No. 227,No. 1-97-3976,C,227,1-97-3976
• Citation: 711 N.E.2d 381,304 Ill.App.3d 939,238 Ill.Dec. 278
• Parties: , 238 Ill.Dec. 278 MIDWEST PHYSICIAN GROUP, LTD., f/k/a Chicago Osteopathic Academic Medical Practice Plan, Ltd., Plaintiff-Appellant, v. The DEPARTMENT OF REVENUE OF the STATE OF ILLINOIS; Kenneth E. Zehnder, Director; the Board of Education of Rich Township High School Districtook County, Illinois; Rich Township High School Districtook County, Illinois; Board of (Tax) Appeals of Cook County, Illinois; James Houlihan, Assessor of Cook County, Illinois; and Edward J. Rosewell, Treasurer of Cook County, Illinois, Defendants-Appellees.
• Court: United States Appellate Court of Illinois

Page 381

711 N.E.2d 381

304 Ill.App.3d 939, 238 Ill.Dec. 278

MIDWEST PHYSICIAN GROUP, LTD., f/k/a Chicago Osteopathic Academic Medical Practice Plan, Ltd., Plaintiff-Appellant, v.The DEPARTMENT OF REVENUE OF the STATE OF ILLINOIS; Kenneth E. Zehnder, Director; the Board of Education of Rich Township High School District No. 227, Cook County Illinois; Rich Township High School District No. 227, Cook County, Illinois; Board of (Tax) Appeals of Cook County Illinois; James Houlihan, Assessor of Cook County, Illinois and Edward J. Rosewell, Treasurer of Cook County, IllinoisDefendants-Appellees.

No. 1-97-3976.

Appellate Court of Illinois, First District, Third Division.

April 28, 1999.

Lord, Bissell & Brook(Hugh C. Griffin, John M. Hughes, George L. Burgett, Leslie J. Rosen, of counsel), Chicago, for Appellant.

James E. Ryan, Attorney General(Barbara A. Preiner, Solicitor General, Edmund C. Baird, Assistant Attorney General, of counsel), Chicago, for Appellees Illinois Department of Revenue and Kenneth E. Zehnder.

Scariano, Kula, Ellch & Himes, Chtd. (Robert H. Ellch, Brian J. Fahey, of counsel), Chicago, for Appellee Board of Education of Rich Township High School DistrictNo. 227.

Justice BURKEdelivered the opinion of the court:

PlaintiffMidwest Physician Group, Ltd., formerly known as Chicago Osteopathic Academic Medical Practice Plan, Ltd., appeals from an order of the circuit court on administrative review affirming defendantIllinois Department of Revenue's decision that Midwest Physician Group was not entitled to an exemption from real estate taxes for 1992, 1993, and 1994 with respect to its three-story office building and adjacent parking lot located in Olympia Fields, Illinois, under either the "Charitable purposes" exemption (35 ILCS 200/15-65(West 1994)) or the "Schools" exemption (35 ILCS 200/15-35(West 1994)) provisions of the Illinois Property Tax Code(Tax Code)(35 ILCS 200/1-1 et seq.(West 1994)).On appeal, Midwest Physician Group argues that: (1) it met the six guideline factors recognized in Methodist Old Peoples Home v. Korzen, 39 Ill.2d 149, 233 N.E.2d 537(1968), which are determinative of whether the use of property is for charitable purposes, and its case is indistinguishable from Lutheran General Health Care System v. Illinois Department of Revenue, 231 Ill.App.3d 652, 172 Ill.Dec. 544, 595 N.E.2d 1214(1992), thus entitling it to a charitable exemption; and (2) it fulfilled the requirements for a school exemption because the subject property is used for the administration of Midwest Physician Group, whose members comprise the "core clinical faculty" at Midwestern University, and the administrative functions performed on the property were "vital to the efficient administration of the clinical faculty" at Midwestern University.For the reasons set forth below, we affirm.

The Chicago Osteopathic Academic Medical Practice Plan, Ltd.(Chicago Osteopathic) was formed in 1975 and operated as a division of Midwestern University from 1975 until 1981.Chicago Osteopathic remained as a division of Midwestern University until it was separately incorporated in 1982 under the Illinois Business Corporation Act as a for-profit medical practice group and recognized as a section 501(c)(3) federal tax exempt organization by the Internal Revenue Service.Chicago Osteopathic relocated to a three-story, 15,000 square foot office building and parking lot in Olympia Fields in 1981 and occupied the building under a lease agreement from 1981 until 1984.Chicago Osteopathic purchased the property on December 15, 1984, and the building was used for its administrative purposes.Pursuant to an amendment to its articles of incorporation in 1993, Chicago Osteopathic changed its name to Midwest Physician Group, Ltd.(MPG).

In an action prior to the case at bar, MPG, then known as Chicago Osteopathic, sought a property tax exemption from the Illinois Department of Revenue(Department) for the 1985 tax year.MPG argued in that case that it was entitled to a charitable purposes exemption.The Department denied the exemption, finding:

" * * * [T]he benefits derived [from the property] were primarily for the benefit of the physician members of [Chicago Osteopathic].[Chicago Osteopathic], I find, did have capital, capital stock, and shareholders.However, [Chicago Osteopathic] did not profit from the enterprise.[Chicago Osteopathic] funds, I find, were derived primarily from fees for services, and were used for the purposes expressed in the charter.[Chicago Osteopathic] failed to demonstrate, I find, that charity was dispensed to all who needed and applied for it, and that no obstacles were placed in the way of those seeking the benefits.Finally, I find, that the primary use of this property was not for charitable purposes, but for the benefit of [Chicago Osteopathic] stockholder members during 1985."

In subsequently affirming the Department's decision, the trial court stated:

"[Chicago Osteopathic] is not a charitable organization.It consists of a group of physicians who are paid a salary for their services.[Chicago Osteopathic] was organized to attract patients and any incidental benefits to the College or community are far outweighed by the benefits to [Chicago Osteopathic].All patients are billed and only after it is determined that the debt is uncollectible are these debts written off as charity.The parcel in question is an office building.No medical care is dispensed from the premises and it can not be said that charity is dispensed in any form from the premises.

The fact that an organization donates time or money which may indirectly benefit the public by making available competent medical care is insufficient to establish that a group is entitled to a charitable exemption.Although the College, the centers and the clinics are charitable institutions, [Chicago Osteopathic] is not.Furthermore, it does not stand in the place and does not qualify for the exemption."

MPG again sought a tax exemption for the property for the tax years 1992, 1993, and 1994, which are at issue in this appeal.MPG based its request for exemption for the 1992 and 1993 assessment years on the "Charitable institutions" exemption pursuant to section 19.7 of the Tax Code(35 ILCS 205/19.7(West 1992)).For the 1994 assessment year, MPG based its request on the "Charitable purposes" exemption pursuant to section 15-65 of the Tax Code(35 ILCS 200/15-65(West 1994)).MPG alternatively requested an exemption based on the "School property" exemption for the 1992 and 1993 assessment years pursuant to section 19.1 of the Tax Code(35 ILCS 205/19.1(West 1992)).For the 1994 assessment year, MPG based its request under the "Schools" exemption pursuant to section 15-35 of the Tax Code(35 ILCS 200/15-35(West 1994)).Notwithstanding that the statutory provisions providing for a school and charitable exemption differed slightly for these assessment years, the parties agreed that the result should be the same under either the earlier or later provisions, and that there was no need to engage in a separate analysis under the different versions of the exemption statutes.The Department denied the exemption for 1992, 1993 and 1994.

Thereafter, MPG requested a formal hearing before the Department, which was held on January 22, 1996.Intervenor Board of Education of Rich Township High School DistrictNo. 227(Board of Education) appeared at the hearing to oppose MPG's applications for the tax exemptions.Louis Porn, the chief executive officer of MPG, testified that MPG's physicians are the clinical faculty for Midwestern University, "which is the Chicago College of Osteopathic Medicine," and Midwestern University owns the Chicago Osteopathic Health System (COHS).Porn further stated that Midwestern University is an accredited medical school in Illinois for osteopathic physicians and consists of two hospitals, the Olympia Field Osteopathic Medical Center and the Chicago Osteopathic Medical Center (medical centers) in Hyde Park, and 19 outreach clinics located in Chicago, collectively referred to as COHS.

Porn also testified that MPG employed approximately 150 to 200 physicians and that most of the members were clinical faculty of Midwestern University.According to Porn, MPG physicians constituted more than 90% of the clinical faculty of Midwestern University.Porn further stated that not all of the physicians who practice at the medical centers are members of MPG.Porn also stated that members of MPG were on the medical staff of COHS facilities.

Porn further stated that in order for a physician to become a shareholder of MPG, he or she was required to purchase one share of stock for $10 par value upon joining MPG, was required to sell the stock for the same price upon leaving MPG, and no dividends were paid on the stock.The salaries of MPG's physicians were set by the dean of Midwestern University and the department chairmen, who were appointed by the dean and were subject to oversight by a board of directors, COHS and senior medical staff, and were to be comparable to similarly situated doctors at other hospitals in the Chicago area.Porn also stated that the relationship between Midwestern University, MPG, and the COHS facilities was set out in the "Physician Services Agreement," entered into on March 18, 1983, and the "Affiliation Agreement," effective July 1, 1993.These two agreements characterized MPG as an independent contractor and stated that MPG's physicians' salaries were to be reasonable in amount and competitive in the market place.The MPG members were also compensated by wages and benefits that included a pension plan, disability coverage, malpractice insurance, and reimbursement for business expenses.

Porn further stated that MPG provided approximately $800,000 to $900,000 in charity or free care to patients each year in question, including the "Hill-Burton" indigent patients.Porn also explained...