Section of Taxation Publications

VOL. 62
NO. 4 The State and Local Tax Edition

Contents | TTL Home


Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.

Property Tax Exemptions for Nonprofit Hospitals:
The Implications of Provena Covenant Medical Center v. Department of Revenue

Katie Stewart

I. Introduction

In Provena Covenant Medical Center v. Department of Revenue, the Illinois Appellate Court for the Fourth District held that the decision by the Director of the Department of Revenue to deny Provena Covenant Medical Center (Provena Covenant) a property tax exemption under Illinois state law was not in error, thereby reversing the decision of the Illinois Circuit Court and denying the hospital the exemption. The court found that the hospital fell short of meeting the charitable purposes standard for allowing a property tax exemption under Illinois law, and additionally held that a property tax exemption could not be granted on the basis of a religious use for the property.

The case highlights, as many have before, the issues raised by tax exemption for nonprofit hospitals and the variety of standards that states and the federal government have used to answer questions about the proper allocation of tax exemptions for entities that increasingly resemble for-profit hospitals. In addition to questions about which theoretical standard of charitable use a legislature or court should apply, the case raises difficult issues about how to assign a metric to charity and what methods of calculation should be used. This Note argues that while the Illinois Appellate Court correctly interpreted precedent to find that Provena Covenant failed to show the charity necessary to qualify for a charitable tax exemption, the difficult questions for tax policy and health policy raised by the issue may require that the Illinois Supreme Court break from precedent and devise a new test more applicable to modern health care entities or, if the judicial branch is unwilling to take such steps, the Illinois General Assembly must re-examine the Illinois property tax exemption law.

The tax exempt status of nonprofit hospitals is not an issue unique to Illinois; a number of states have examined the issue with regard to state taxes and the standards have been reconsidered multiple times at the federal level. A number of factors have driven the debate over whether nonprofit hospitals should continue to enjoy tax exempt status on the federal and state levels, but the primary concern is whether tax exemptions can help to alleviate the massive health care problems facing the United States, particularly with respect to the number of uninsured patients.

Part I of this Note provides the factual background of Provena Covenant and outlines the procedural history of the case. Part II summarizes the relevant constitutional, statutory, and common law used by Illinois courts to determine whether a nonprofit entity is entitled to a property tax exemption with a focus on the legal test put forward in Methodist Old Peoples Home v. Korzen. Part III details the Illinois Appellate Court’s application of the law discussed in Part II to the case of Provena Covenant and explains how the court arrived at the conclusion that Provena Covenant was not entitled to a property tax exemption. Part IV acknowledges that the appellate court was correct in its decision in Provena Covenant but argues that the current standards set by the Illinois courts are poorly applicable to modern hospitals. Part IV suggests that the Illinois Supreme Court, the Illinois General Assembly, or both should re-examine the property tax exemption for property used for charitable purposes in light of the evolving nature of hospital services and the crisis of the uninsured. Part V argues that in reconsidering the standard to be applied in Illinois, the courts and the legislature should examine a number of policy alternatives. A sampling of these policy alternatives and their strengths and weaknesses are provided. Part VI concludes by reiterating that the current standard in Illinois is unworkable in its application by the courts and unhelpful to hospitals trying to keep their tax exemptions.


Published by the
American Bar Association Section of Taxation
in Collaboration with the
Georgetown University Law Center


If you are an ABA member, you can receive The Tax Lawyer and the Section NewsQuarterly, both quarterly publications, when you join the Section of Taxation. Anyone can subscribe to The Tax Lawyer by contacting the ABA Service Center.