Provena Covenant Medical Center v. Department of Revenue

Docket No. 107328.

IN THE

SUPREME COURT

OF

THE STATE OF ILLINOIS

PROVENA COVENANT MEDICAL CENTER et al., Appellants,

v. THE DEPARTMENT OF REVENUE et al., Appellees.

Opinion filed March 18, 2010.

JUSTICE KARMEIER delivered the judgment of the court, with

opinion.

Chief Justice Fitzgerald and Justice Thomas concurred in the

judgment and opinion.

Justice Burke concurred in part and dissented in part, with

opinion, joined by Justice Freeman.

Justices Kilbride and Garman took no part in the decision.

OPINION

The central issue in this case is whether Provena Hospitals

established that it was entitled to a charitable exemption under section

15–65 of the Property Tax Code (35 ILCS 200/15–65 (West 2002))

for the 2002 tax year for various parcels of real estate it owns in

Urbana. The Director of Revenue determined that it had not and

denied the exemption. Provena Hospitals then filed a complaint for

administrative review in the circuit court of Sangamon County.

Following a hearing, the circuit court determined that Provena

Hospitals was entitled to both a charitable and religious exemption

(35 ILCS 200/15–40(a)(1) (West 2002)). The Department of Revenue

appealed. The appellate court found the Department’s arguments to

be meritorious and reversed the judgment of the circuit court. 384 Ill.

App. 3d 734. We granted Provena Hospitals’ petition for leave to

appeal. 210 Ill. 2d R. 315. We subsequently allowed the American

Hospital Association, the Illinois Hospital Association, and the

Catholic Health Association of the United States and related

organizations to file friend of the court briefs in support of Provena

Hospitals. We also granted leave to the Center for Tax and Budget

Accountability and the Legal Assistance Foundation of Metropolitan

Chicago to file friend of the court briefs in support of the Department

of Revenue. For the reasons that follow, we now affirm the judgment

of the appellate court upholding the decision by the Department of

Revenue to deny the exemption.

BACKGROUND

The appellant property owner and taxpayer in this case is Provena

Hospitals. Provena Hospitals is one of four subsidiaries of Provena

Health, a corporation created when the Servants of the Holy Heart

and two other groups affiliated with the Roman Catholic Church

merged their health-care operations.1 Provena Hospitals was formed

through the consolidation of four Catholic-related health-care

organizations and is organized as a not-for-profit corporation under

the laws of Illinois. The articles of consolidation for Provena

Hospitals state that the purpose of the corporation is to “coordinate

the activities of Provena Hospitals’ subsidiaries or other organizations

that are affiliated with Provena Hospitals as they pursue their

religious, charitable, educational and scientific purposes” and “to

offer at all times high quality and cost effective healthcare and human

services to the consuming public.”

Provena Hospitals is exempt from federal income tax under

section 501(c)(3) of the Internal Revenue Code (26 U.S.C. §501(c)(3)

1

According to Provena Health’s table of organization, its other three

units are Provena Senior Services, which operates numerous nursing homes

and adult care facilities; Provena Home Care; and Provena Ventures, which

consists of Provena Properties and Provena Enterprises. Provena

Enterprises, in turn, is comprised of Medicentre Laboratories and Bennett

Operating Company.

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(1988)). The Illinois Department of Revenue has also determined that

the corporation is exempt from this state’s retailers’ occupation tax

(see 35 ILCS 120/1 et seq. (West 2002)), service occupation tax (see

35 ILCS 115/1 et seq. (West 2002)), use tax (see 35 ILCS 105/1 et

seq. (West 2002)), and service use tax (see 35 ILCS 110/1 et seq.

(West 2002)). In addition, the Illinois Attorney General has concluded

that the corporation “meets the qualifications of Section 3(a) of ‘An

Act to Regulate Solicitation and Collection of Funds for Charitable

Purposes’ [225 ILCS 460/3(a) (West 2002)] and Section 4 of ‘The

Charitable Trust Act’ [760 ILCS 55/1 (West 2002)]” and constitutes

a religious organization exempt from filing annual financial reports

under those statutes.

Provena Hospitals owns and operates six hospitals, including

Provena Covenant Medical Center (PCMC), a full-service hospital

located in the City of Urbana. PCMC was created through the merger

of Burnham City Hospital and Mercy Hospital. It is one of two

general acute care hospitals in Champaign/Urbana and serves a 13-

county area in east central Illinois. The services it provides include a

24-hour emergency department; a birthing center; intensive care,

neonatal intensive care, and pediatrics units; surgical, cardiac care,

cancer treatment, rehabilitation and behavioral health services; and

home health care, including hospice. It offers case management

services to assist older persons to remain in their homes and runs

various support groups and health-related classes. It also provides

smoking cessation clinics and screening programs for high cholesterol

and blood pressure as well as pastoral care.

PCMC maintains between 260 and 268 licensed beds. Each year

it admits approximately “10,000 inpatients and 100,000 outpatients.”

Some 60% of its inpatient admissions originate through the hospital’s

emergency room, which treats some 27,000 visitors annually.

PCMC provides an emergency department because it is required

to do so by the Hospital Emergency Service Act (210 ILCS 80/0.01

et seq. (West 2002)). Where emergency room services are offered, a

certain level of health care is required to be provided to every person

who seeks treatment there. That is so as a matter of both state (210

ILCS 80/1 (West 2002); see also 210 ILCS 70/1 (West 2002)) and

federal (42 U.S.C. §1395dd) law.

Staffing PCMC are approximately 1,000 employees, 400

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volunteers and 200 physicians. The physicians are not employed or

paid by the hospital. They are merely credentialed to provide services

there in exchange for paying $50 per year in dues to the hospital’s

library fund, and agreeing to serve on hospital committees and to be

on call to attend patients without their own physicians. With respect

to the emergency department, PCMC contracts with a for-profit

private company to provide the necessary physicians. The company,

not the hospital, bills patients and any third-party payors directly for

emergency room services. The company likewise pursues payment of

those bills independently from PCMC.

Just as PCMC relies on private physicians to fill its medical staff,

it utilizes numerous third-party providers to furnish other services at

the hospital. Among these are pharmacy, laundry, MRI/CT and lab

services, and staffing for the rehabilitation and cardiovascular surgery

programs. The company providing lab services is one of the

businesses owned by Provena Enterprises, a Provena Health

subsidiary. It is operated for profit.

Provena Hospitals’ employees do not work gratuitously. Everyone

employed by the corporation, including those with religious

affiliations, are paid for their services. Compensation rates for senior

executives are reviewed annually and compared against national

surveys. Provena Health “has targeted the 75th percentile of the

market for senior executive total cash compensation.”

According to the record, PCMC’s inpatient admissions

encompass three broad categories of patients: those who have private

health insurance, those who are on Medicare or Medicaid, and those

who are “self pay (uninsured).” PCMC has agreements with some

private third-party payers which provide for payment at rates different

from “its established rates.” The payment amounts under these

agreements cover the actual costs of care. The amounts PCMC

receives from Medicare and Medicaid are not sufficient to cover the

costs of care. Although PCMC has the right to collect a certain

portion of the charges directly from Medicare and Medicaid patients

and has exercised that right, there is still a gap between the amount of

payments received and the costs of care for such patients. For 2002,

PCMC calculated the difference to be $7,418,150 in the case of

Medicare patients and $3,105,217 for Medicaid patients.

PCMC was not required to participate in the Medicare and

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Medicaid programs, but did so because it believed participation was

“consistent with its mission.” Participation was also necessary in

order for Provena Hospitals to qualify for tax exemption under federal

law. In addition, it provided the institution with a steady revenue

stream.

During 2002, Provena Hospitals’ “net patient service revenue”

was $713,911,000, representing approximately 96.5% of the

corporation’s total revenue. No findings were made regarding the

precise source of the remainder of its revenue. Provena Hospitals’

“expenses and losses” exceeded its “revenue and gains” during this

period by $4,869,000. In other words, the corporation was in the red.

The following year, this changed. The corporation’s revenue and

gains exceeded its expenses and losses by $10,548,000.

Of Provena Hospitals’ “net patient service revenue” for 2002,

$113,494,000, or approximately 16%, was generated by PCMC.

Unlike its parent, PCMC realized a net gain of income over

“expenses and losses” of $2,165,388 for that year. This surplus

existed even after provision for uncollectible accounts receivable (i.e.,

bad debt) in the amount of $7,101,000. Virtually none of PCMC’s

income was derived from charitable contributions. The dollar amount

of “unrestricted donations” received by PCMC for the year ending

Dec. 31, 2002, was a mere $6,938.

PCMC experienced a modest net loss in 2003. The record

discloses, however, that Provena Hospitals’ auditors showed accrued

property tax liabilities in the amount of $1.1 million per year for both

2002 and 2003 in the accounts payable and accrued expenses portions

of the 2003 balance sheet. Had only the 2003 property tax been

posted against the revenue and gains for 2003, that year would also

have shown a net gain for PCMC.

In years when PCMC realizes a net gain, the gain is “reinvested

in order to sustain and further [the corporation’s] charitable mission

and ministry.” No findings were made regarding how much of the

reinvestment occurs at PCMC and how much is allocated to other

aspects of Provena Hospitals’ operations. Nor were specific findings

made regarding the particular purposes to which the reinvested funds

were put. The record indicates, however, that PCMC “generally needs

approximately two to four million dollars in margin each year to

replace broken items and fix non-operating equipment.”

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In 2002, PCMC budgeted $813,694 for advertising and advertised

in newspapers, phone directories, event playbills, and Chamber of

Commerce publications; on television and radio; and through public

signage. Its also advertised using “booths, tables, and/or tents at

community health or nonprofit fundraising events; sponsorship of

sports teams and other community events; and banner advertisements

at sponsored community events.” The ads taken out by PCMC in

2002 covered a variety of matters, including employee want ads.

None of its ads that year mentioned free or discounted medical care.2

While not mentioned in PCMC’s advertisements, a charity care

policy was in place at the hospital, and the parties stipulated that

PCMC’s staff made “outreach efforts to communicate the availability

of charity care and other assistance to patients.” The charity care

policy, which was shared with at least one other hospital under

Provena Hospitals’ auspices, provided that the institution would

“offer, to the extent that it is financially able, admission for care or

treatment, and the use of the hospital facilities and services regardless

of race, color, creed, sex, national origin, ancestry or ability to pay for

these services.”3

The charity policy was not self-executing. An application was

required. Whether an application would be granted was determined

by PCMC on a case-by-case basis using eligibility criteria based on

federal poverty guidelines. A sliding scale was employed. Persons

whose income was below the guidelines were eligible for “a 100%

2

In subsequent years, Provena Hospitals altered its advertisements and

increased its efforts to communicate the availability of charity care to

patients. The case before us is concerned only with the situation as of 2002.

With respect to that time period, the Director of Revenue bluntly concluded

that “the record does not show that [PCMC] made any material effort to

publicize the availability of charity care to those who were most in need of

it.”

3

Of course, to the extent this policy addresses racial and other forms of

noneconomic discrimination, it does not concern “charity” at all as we use

that term today. Treating all persons equally regardless of such factors as

race, religion or gender is no longer considered a matter of grace. In most

situations, it is a legal requirement.

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reduction from the patient portion of the billed charges.” Persons

whose income was not more than 125% of the guidelines could

qualify for a 75% reduction. With an income level not more than

150% of the guidelines the discount fell to 50%. At an income level

not more than 200% of the guidelines, the potential reduction was

25%.4 Eligibility was also affected by the value of an applicant’s

assets. Patients who qualified based on low income might

nevertheless be rendered ineligible if the equity in their principal

residence exceeded $10,000 or they held other assets valued at more

than $5,000.

PCMC’s policy specified that the hospital would give a charity

care application to anyone who requested one, but it was the patient’s

responsibility to provide all the information necessary to verify

income level and other requested information. To verify income, a

patient was required to present documentation “such as check stubs,

income tax returns, and bank statements.”

PCMC believed that its charity care program should be the payer

of last resort. It encouraged patients to apply for charity care before

receiving services, and if a patient failed to obtain an advance

determination of eligibility under the program, normal collection

practices were followed. PCMC would look first to private insurance,

if there was any; then pursue any possible sources of reimbursement

from the government. Failing that, the hospital would seek payment

from the patient directly.

Short-term collection matters were handled by Provena Hospitals’

“Extended Business Office.” Staffed by a small group of employees

in Joliet, the Extended Business Office would typically make three or

four phone calls and send three or four statements to patients owing

outstanding balances.5 If a balance remained unpaid following such

4

Uninsured patients appear to have been billed for services at PCMC’s

full “established” rates. Using Provena Hospitals’ figures, its actual cost of

service was only about 47% of the price it charged such patients. As a

result, the corporation could still garner a surplus in cases where it

conferred discounts at the 25% and 50% levels.

5

Provena Hospitals’ explanation for utilizing collection agencies was

that its own financial system “[did] not have a mechanism for sending

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efforts, which typically did not extend beyond three months, Provena

Hospitals would treat the account as “bad debt” and refer it to a

collection agency. From time to time, the collection agencies would

seek and were given authorization to pursue legal action against an

account “on which, over the course of several months, the agency had

not received any response, cooperation or payment from the patient.”

Provena Hospitals’ decision as to whether to pursue legal action

against a patient depended on review of the particular account. During

2002, it did not have a blanket policy requiring referral to a collection

attorney in every case.

The fact that a patient’s account had been referred to collection

did not disqualify the patient from applying to the charity care

program. Applications would be considered “[a]t any time during the

collection process.” PCMC had financial counselors to assist patients

with paying outstanding balances and review all payment options

with them. The counselors helped patients seek and qualify for

financial assistance from other sources. Where a patient was given an

application for charity care but failed to return it, the counselors

would send letters and call the patients to remind them to do so.

During 2002, the amount of aid provided by Provena Hospitals to

PCMC patients under the facility’s charity care program was modest.

The hospital waived $1,758,940 in charges, representing an actual

cost to it of only $831,724. This was equivalent to only 0.723% of

PCMC’s revenues for that year and was $268,276 less than the $1.1

million in tax benefits which Provena stood to receive if its claim for

a property tax exemption were granted.6

The number of patients benefitting from the charitable care

program was similarly small. During 2002, only 302 of PCMC’s

statements to patients on a long-term basis.”

6

The disparity between the amount of free or discounted care dispensed

and the amount of property tax that would be saved through receipt of a

charitable exemption is in no way unique to the case before us here.

Excluding bad debt, “the amount of uncompensated care provided by as

many as three-quarters of nonprofit hospitals is less than their tax benefits.”

J. Colombo, Federal and State Tax Exemption Policy, Medical Debt and

Healthcare for the Poor, 51 St. Louis L.J. 433, 433 n.2 (2007).

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10,000 inpatient and 100,000 outpatient admissions were granted

reductions in their bills under the charitable care program. That figure

is equivalent to just 0.27% of the hospital’s total annual patient

census.

The PCMC complex is comprised of 43 separate real estate

parcels. The main PCMC hospital building consists of parcels bearing

the parcel identification numbers 91-21-07-404-001 through 91-21-

07-404-010 and measures 395,685 square feet. Of this, 795 square

feet (0.2% of the total) are used for the outpatient pharmacy; 1,592

square feet (0.4%) are devoted to the gift shop; 3,933 square feet

(0.99%) are leased to the Board of Trustees of the University of

Illinois; and 9,319 square feet (2.4%) are occupied by the hospital’s

emergency department. An additional 22,065 square feet (5.6%) is

leased to for-profit entities or otherwise used for purposes which, the

parties agree, render the space ineligible for any real estate tax

exemption.

In addition to the main hospital building, the PCMC complex

includes a parking garage, which consists of parcels numbered 91-21-

07-408-001 through 91-21-07-408-011; a cancer center, consisting of

parcels 91-21-07-403-006 through 91-21-07-403-009; the cancer

center’s parking lot, which includes parcels 91-21-07-403-001

through 91-21-07-403-005; the Crisis Nursery of Champaign/Urbana,

which occupies parcels 91-21-07-407-001 through 91-21-07-407-003;

and the Crisis Center’s parking lot, situated on parcel 91-21-07-407-

004. The complex also includes six additional parking lots: B, which

is on parcel 46-21-07-336-001; C, which consists of parcel 46-21-07-

338-006; D, which is located on parcel 46-21-07-337-006; E, which

is on a parcel identified as 91-21-07-408-012; H, which includes

parcels numbered 46-21-07-336-002 and 46-21-07-336-003; and a lot

for PCMS employees covering parcels 91-21-07-409-18, 91-21-07-

409-19, and 91-21-07-409-23.

Provena Hospitals applied to the Champaign County board of

review to exempt all 43 of the parcels in the PCMC complex from

property taxes for 2002. Exemption was requested under section

15–65(a) of the Property Tax Code (35 ILCS 200/15–65(a) (West

2002)) on the grounds that the parcels were owned by an institution

of public charity and that the property was “actually and exclusively

used for charitable or beneficent purposes, and not leased or

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otherwise used with a view to profit.” The board of review

recommended this application be denied. The Illinois Department of

Revenue agreed and denied the application in February of 2004,

ruling that the property “was not in exempt ownership” and “not in

exempt use.”

As suggested earlier in this opinion, the tax to which the disputed

property was subject totaled approximately $1.1 million. In March of

2004, PCMC paid that sum, under protest, to the treasurer of

Champaign County. 7 It then filed a timely petition for a hearing on the

exemption decision pursuant to section 8–35(b) of the Property Tax

Code (35 ILCS 200/8–35(b) (West 2002)). The parties subsequently

realized that because PCMC itself is not a legal “person,” the

exemption request should be treated as if it had been submitted by

Provena Hospitals, which holds title to the 43 parcels at issue here.

Because the parties agree that Provena Hospitals is the proper party

to seek the exemption, we shall consider it to be the true applicant, as

did the appellate court. 384 Ill. App. 3d 734.

In requesting a hearing on denial of the exemption, counsel for

Provena Hospitals asserted that it could provide “clear evidence that

it is a charitable organization entitled to charitable exemptions for the

subject properties in accordance with section 15–65 of the Property

Tax Code (35 ILCS 200/15–65 (West 2002)), Illinois case law and

exemption determinations made by [the Department of Revenue] for

other charitable institutions.” Initially, no claim was made that any of

the 43 subject properties might also qualify for exemption under

section 15–40 of the Property Tax Code (35 ILCS 200/15–40 (West

2002)), which pertains to property used exclusively for “religious

purposes,” “school and religious purposes,” or “orphanages,” or that

they might be exempt from property tax under any other provision of

Illinois law. Later in the proceedings, however, Provena Hospitals

asserted that the evidence “also conclusively establishes that [the]

property also qualifies for exemption based on religious use.”

7

Provena Hospitals subsequently managed to obtain a refund of the tax

pending this appeal. The propriety of that refund is the subject of a separate

appeal, and Provena has acknowledged that it could be ordered to repay any

taxes legally levied against it.

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After a lengthy hearing at which voluminous evidence was

presented, the administrative law judge (ALJ) assigned to the case

recommended that 94.4% of the subject parcels be granted a

charitable exemption. She did not address and made no findings

regarding Provena Hospitals’ alternate claim for a religious

exemption.

The Director of Revenue rejected the ALJ’s recommendation. He

believed that under the evidence and the law, Provena Hospitals had

failed to meet its burden of establishing that the property at issue here

qualified for a charitable exemption. The Director further concluded

that the property did not qualify for a religious exemption under

section 15–40 of the Property Tax Code (35 ILCS 200/15–40 (West

2002)).8

The circuit court of Sangamon County disagreed with the Director

on both counts. In a written order entered on administrative review

pursuant to the Administrative Review Law (735 ILCS 5/3–101 et

seq. (West 2002)), the circuit court held that Provena Hospitals was

entitled to both a charitable tax exemption and a religious tax

exemption for the subject parcels. As noted earlier in this opinion, the

appellate court subsequently reversed. Rejecting the circuit court’s

view, it held that the Director’s decision to deny Provena Hospitals

either a charitable or religious exemption for the disputed property

was not clearly erroneous. 384 Ill. App. 3d 734. It is in this posture

that the matter now comes before our court.

ANALYSIS

The parcels of real estate at issue in this case are all located in

Champaign County, which has fewer than 3 million inhabitants. In

8

In turning down Provena Hospitals’ claim for a religious exemption, the

Director wrote that he was concurring “with the ALJ’s recommendation

that the property does not qualify for the religious purpose exemption.”

Because the ALJ did not address the religious purpose exemption, this was

obviously a misstatement by the Director. It is evident, however, that the

Director did not believe that the hospital complex was entitled to a property

tax exemption under any of the bases claimed, including use for religious

purposes, and his decision is the one under review.

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such counties, applications for exemption from property tax are made,

in the first instance, to the county board of review or board of appeals.

See 35 ILCS 200/15–5, 16–70 (West 2002). The county board’s

decision, however, is not final except as to homestead exemptions.

With applications for all other exemptions, the matter is forwarded to

the Department of Revenue for a determination as to “whether the

property is legally liable to taxation.” 35 ILCS 200/16–70 (West

2002). The Department of Revenue’s procedures with respect to

exemption decisions are governed by section 8–35 of the Property

Tax Code (35 ILCS 200/8–35 (West 2002)), and such decisions by

the Department are subject to judicial review in accordance with the

Administrative Review Law (735 ILCS 5/3–101 et seq. (West 2002)).

35 ILCS 200/8–40 (West 2002).

When an appeal is taken to the appellate court following entry of

judgment by the circuit court on administrative review, it is the

decision of the administrative agency, not the judgment of the circuit

court, which is under consideration. See Anderson v. Department of

Professional Regulation, 348 Ill. App. 3d 554, 560 (2004). Similarly,

when we grant leave to appeal from a judgment of the appellate court

in an administrative review case, as we did here, it is the final

decision of the administrative agency, not the judgment of the circuit

court or the appellate court, which is before us. Wade v. City of North

Chicago Police Pension Board, 226 Ill. 2d 485, 504 (2007);

Sangamon County Sheriff’s Department v. Illinois Human Rights

Comm’n, 233 Ill. 2d 125, 136 (2009).

Judicial review of administrative decisions is subject to important

constraints regarding the issues and evidence that may be considered.

If an argument, issue, or defense was not presented in the

administrative proceedings, it is deemed to have been procedurally

defaulted and may not be raised for the first time before the circuit

court. Cinkus v. Village of Stickney Municipal Officers Electoral

Board, 228 Ill. 2d 200, 213 (2008). In addition, “[t]he findings and

conclusions of the administrative agency on questions of fact shall be

held to be prima facie true and correct” and “[n]o new or additional

evidence in support of or in opposition to any finding, order,

determination or decision of the administrative agency shall be heard

by the court.” 735 ILCS 5/3–110 (West 2002). Consistent with these

statutory mandates, we have held that “it is not a court’s function on

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administrative review to reweigh evidence or to make an independent

determination of the facts.” Kouzoukas v. Retirement Board of the

Policemen's Annuity & Benefit Fund, 234 Ill. 2d 446, 463 (2009).

When an administrative agency’s factual findings are contested, the

court will only ascertain whether such findings of fact are against the

manifest weight of the evidence. Cook County Republican Party v.

Illinois State Board of Elections, 232 Ill. 2d 231, 244 (2009).

The standard of review is different when the only point in dispute

is an agency’s conclusion on a point of law. There, the decision of the

agency is subject to de novo review by the courts.9 Yet a third

standard governs when the dispute concerns the legal effect of a given

set of facts, i.e., where the historical facts are admitted or established,

the rule of law is undisputed, and the issue is whether the facts satisfy

the statutory standard. In such cases, which we have characterized as

involving a mixed question of law and fact, an agency’s decision is

reviewed for clear error. Exelon Corp. v. Department of Revenue, 234

Ill. 2d 266, 273 (2009).

In the case before us now, the historical facts are not disputed and

the governing legal principles are well established. The sole question

is whether, under the facts present here, the real property at issue in

this case qualifies for an exemption from taxation under the Property

Tax Code (35 ILCS 200/1–1 et seq. (West 2002)). Under the

standards just discussed, this presents a mixed question of law and

fact and will therefore be set aside only if clearly erroneous. See

Swank v. Department of Revenue, 336 Ill. App. 3d 851, 861 (2003);

Metropolitan Water Reclamation District of Greater Chicago, 313 Ill.

App. 3d at 475. This standard is “significantly deferential.” See

LeaderTreks, Inc. v. Department of Revenue, 385 Ill. App. 3d 442,

446 (2008). An administrative decision will be set aside as clearly

9

Even where review is de novo, an agency’s construction is entitled to

substantial weight and deference. Courts accord such deference in

recognition of the fact that agencies make informed judgments on the issues

based upon their experience and expertise and serve as an informed source

for ascertaining the legislature’s intent. See Metropolitan Water

Reclamation District of Greater Chicago v. Department of Revenue, 313

Ill. App. 3d 469, 475 (2000).

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erroneous only when the reviewing court is left with the definite and

firm conviction that a mistake has been committed. Exelon Corp.,

234 Ill. 2d at 273. For reasons we shall now explain, this is not such

a case.

Under Illinois law, taxation is the rule. Tax exemption is the

exception. All property is subject to taxation, unless exempt by

statute, in conformity with the constitutional provisions relating

thereto. Statutes granting tax exemptions must be strictly construed

in favor of taxation (Board of Certified Safety Professionals of the

Americas, Inc. v. Johnson, 112 Ill. 2d 542, 547 (1986)), and courts

have no power to create exemption from taxation by judicial

construction (City of Chicago v. Illinois Department of Revenue, 147

Ill. 2d 484, 491 (1992)).

The burden of establishing entitlement to a tax exemption rests

upon the person seeking it. City of Chicago v. Illinois Department of

Revenue, 147 Ill. 2d at 491. The burden is a very heavy one. The party

claiming an exemption must prove by clear and convincing evidence

that the property in question falls within both the constitutional

authorization and the terms of the statute under which the exemption

is claimed. See Streeterville Corp. v. Department of Revenue, 186 Ill.

2d 534, 539-40 (1999) (Harrison, J., dissenting, joined by

McMorrow, J.). A basis for exemption may not be inferred when

none has been demonstrated. To the contrary, all facts are to be

construed and all debatable questions resolved in favor of taxation

(Follett’s Illinois Book & Supply Store, Inc. v. Isaacs, 27 Ill. 2d 600,

606 (1963)), and every presumption is against the intention of the

state to exempt property from taxation (Reeser v. Koons, 34 Ill. 2d 29,

36 (1966)). If there is any doubt as to applicability of an exemption,

it must be resolved in favor of requiring that tax be paid. Streeterville

Corp. v. Department of Revenue, 186 Ill. 2d at 539 (Harrison, J.,

dissenting, joined by McMorrow, J.).

As noted earlier in this opinion, Provena Hospitals has been

granted a tax exemption by the federal government. There is no

dispute, however, that tax exemption under federal law is not

dispositive of whether real property is exempt from property tax

under Illinois law. See Eden Retirement Center, Inc. v. Department

of Revenue, 213 Ill. 2d 273, 291 (2004). Similarly, the fact that

Provena Hospitals is exempt from state retailers’ occupation, service

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occupation, use and service use taxes does not mean that the

corporation must likewise be granted an exemption from paying tax

on the real property it owns. People ex rel. County Collector v.

Hopedale Medical Foundation, 46 Ill. 2d 450, 464 (1970); Willows

v. Munson, 43 Ill. 2d 203, 209 (1969); see Institute of Gas

Technology v. Department of Revenue, 289 Ill. App. 3d 779, 785

(1997).

Authority to exempt certain real property from taxation emanates

from article IX, section 6, of the 1970 Illinois Constitution (lll. Const.

1970, art. IX, §6). Section 6 provides that the General Assembly may,

by law, exempt from taxation property owned by “the State, units of

local government and school districts” and property “used exclusively

for agricultural and horticultural societies, and for school, religious,

cemetery and charitable purposes.” Ill. Const. 1970, art. IX, §6.

Section 6 is not self-executing. It merely authorizes the General

Assembly to enact legislation exempting certain property from

taxation. Chicago Patrolmen’s Ass’n v. Department of Revenue, 171

Ill. 2d 263, 269 (1996). The General Assembly is not required to

exercise that authority. Where it does elect to recognize an

exemption, it must remain within the limitations imposed by the

constitution. No other subjects of property tax exemption are

permitted. The legislature cannot add to or broaden the exemptions

specified in section 6. Chicago Bar Ass’n v. Department of Revenue,

163 Ill. 2d 290, 297 (1994).

While the General Assembly has no authority to grant exemptions

beyond those authorized by section 6, it “may place restrictions,

limitations, and conditions on [property tax] exemptions as may be

proper by general law.” North Shore Post No. 21 of the American

Legion v. Korzen, 38 Ill. 2d 231, 233 (1967). In accordance with this

power, the legislature has elected to impose additional restrictions

with respect to section 6’s charitable exemption. Pursuant to section

15–65 of the Property Tax Code (35 ILCS 200/15–65 (West 2002)),

eligibility for a charitable exemption requires not only that the

property be “actually and exclusively used for charitable or beneficent

purposes, and not leased or otherwise used with a view to profit,” but

also that it be owned by an institution of public charity or certain

other entities, including “old people’s homes,” qualifying not-for-

profit health maintenance organizations, free public libraries and

-15-

historical societies. Chicago Patrolmen’s Ass’n v. Department of

Revenue, 171 Ill. 2d at 270.

In Methodist Old Peoples Home v. Korzen, 39 Ill. 2d 149, 156-57

(1968), we identified the distinctive characteristics of a charitable

institution as follows: (1) it has no capital, capital stock, or

shareholders; (2) it earns no profits or dividends but rather derives its

funds mainly from private and public charity and holds them in trust

for the purposes expressed in the charter; (3) it dispenses charity to all

who need it and apply for it; (4) it does not provide gain or profit in

a private sense to any person connected with it; and (5) it does not

appear to place any obstacles in the way of those who need and would

avail themselves of the charitable benefits it dispenses. Methodist Old

Peoples Home v. Korzen, 39 Ill. 2d at 157. For purposes of applying

these criteria, we defined charity as “a gift to be applied *** for the

benefit of an indefinite number of persons, persuading them to an

educational or religious conviction, for their general welfare–or in

some way reducing the burdens of government.” Methodist Old

Peoples Home v. Korzen, 39 Ill. 2d at 156-57.

This court has held, on several occasions, that a “hospital not

owned by the State or any other municipal corporation, but which is

open to all persons, regardless of race, creed or financial ability,”

qualifies as a charitable institution under Illinois law provided certain

conditions are satisfied. See People ex rel. Cannon v. Southern

Illinois Hospital Corp., 404 Ill. 66, 69-70 (1949). There is, however,

no blanket exemption under the law for hospitals or health-care

providers. Whether a particular institution qualifies as a charitable

institution and is exempt from property tax is a question which must

be determined on a case-by-case basis. See Coyne Electrical School

v. Paschen, 12 Ill. 2d 387, 394 (1957).

Provena Hospitals clearly satisfies the first of the factors

identified by this court in Methodist Old Peoples Home v. Korzen for

determining whether an organization can be considered a charitable

institution: it has no capital, capital stock, or shareholders. Provena

Hospitals also meets the fourth Korzen factor. It does not provide gain

or profit in a private sense to any person connected with it. While the

record focused on PCMC rather than Provena Hospitals, it was

assumed by all parties during the administrative proceedings that

Provena Hospitals’ policies in this regard were the same as those of

-16-

PCMC, and it was stipulated that PCMC diverted no profits or funds

to individuals or entities for their own interests or private benefit.

The Director correctly points out that PCMC subcontracted many

of its operations to third-party providers, including pharmacy,

laboratory, laundry and MRI/CT services; the entire emergency

department; and the management, administration, and staffing of

rehabilitation and cardiovascular surgery programs. One of those

third-party providers, the one which furnished lab services to PCMC,

was actually owned by Provena Health, Provena Hospitals’ parent,

and was operated on a for-profit basis. While all of the third-party

providers were subject to a conflict of interest policy designed “to

prevent private inurement and other conduct that may be inimical to

[the organization’s] mission,” no evidence was presented that any of

them were themselves charities or operated on anything other than a

for-profit basis. This, however, is not dispositive.

The fact that an organization contracts with third-party, for-profit

providers for ancillary services does not, in itself, preclude the

organization from being characterized as an institution of charity

within the meaning of section 15–65 of the Property Tax Code (35

ILCS 200/15–65 (West 2002)). Virtually all charities must contract

with for-profit vendors to one degree or another in order to carry on

their operations and perform their charitable functions. See J.

Colombo, Hospital Property Tax Exemption in Illinois: Exploring the

Policy Gaps, 37 Loy. U. Chi. L.J. 493, 521-22 (2006). The real

concern is whether any portion of the money received by the

organization is permitted to inure to the benefit of any private

individual engaged in managing the organization. The authority cited

by the Korzen case with respect to the prohibition against private gain

or profit so holds. See Sisters of the Third Order of St. Francis v.

Board of Review, 231 Ill. 317, 321 (1907). No private enrichment of

that type is evident in this case.

While Korzen factors one and four thus tilt in favor of

characterizing Provena Hospitals as a charitable institution,

application of the remaining factors demonstrates that the

characterization will not hold. Provena Hospitals plainly fails to meet

the second criterion: its funds are not derived mainly from private and

public charity and held in trust for the purposes expressed in the

charter. They are generated, overwhelmingly, by providing medical

-17-

services for a fee. While the corporation’s consolidated statement of

operations for 2002 ascribes $25,282,000 of Provena Hospitals’

$739,293,000 in total revenue to “other revenue,” that sum represents

a mere 3.4% of the Provena’s income, and no showing was made as

to how much, if any, of it was derived from charitable contributions.

The only charitable donations documented in this case were those

made to PCMC, one of Provena Hospitals’ subsidiary institutions,

and they were so small, a mere $6,938, that they barely warrant

mention.

Provena Hospitals likewise failed to show by clear and

convincing evidence that it satisfied factors three or five, namely, that

it dispensed charity to all who needed it and applied for it and did not

appear to place any obstacles in the way of those who needed and

would have availed themselves of the charitable benefits it dispenses.

While the record is filled with details regarding PCMC’s operations,

PCMC is but one of numerous institutions owned and operated by

Provena Hospitals. It does not hold title to any of the property for

which an exemption is sought. The actual owner is Provena

Hospitals. As the Director of Revenue expressly concluded, however,

“the record contains no information as to Provena Hospitals’

charitable expenditures in 2002.” Department of Revenue v. Provena

Covenant Medical Center, No. 04-PT-0014, slip op. at 15 (2004). The

Director reasoned that without such information, it is simply “not

possible to conclude that the true owner of the property is a charitable

institution as required by Illinois law.” Department of Revenue v.

Provena Covenant Medical Center, No. 04-PT-0014, slip op. at 15

(2004). We fully agree. The appellate court was therefore correct

when it concluded that this aspect of the Department’s decision was

not clearly erroneous. See 384 Ill. App. 3d at 750.

As detailed earlier in this opinion, eligibility for a charitable

exemption under section 15–65 of the Property Tax Code (35 ILCS

200/15–65 (West 2002)) requires not only charitable ownership, but

charitable use. Specifically, an organization seeking an exemption

under section 15–65 must establish that the subject property is

“actually and exclusively used for charitable or beneficent purposes,

and not leased or otherwise used with a view to profit.” 35 ILCS

200/15–65 (West 2002). When the law says that property must be

“exclusively used” for charitable or beneficent purposes, it means that

-18-

charitable or beneficent purposes are the primary ones for which the

property is utilized. Secondary or incidental charitable benefits will

not suffice, nor will it be enough that the institution professes a

charitable purpose or aspires to using its property to confer charity on

others. “[S]tatements of the agents of an institution and the wording

of its governing legal documents evidencing an intention to use its

property exclusively for charitable purposes will not relieve such

institution of the burden of proving that its property actually and

factually is so used.” Methodist Old Peoples Home v. Korzen, 39 Ill.

2d at 157.

In rejecting Provena Hospitals’ claim for exemption, the

Department determined that the corporation also failed to satisfy this

charitable use requirement. As with the issue of charitable ownership,

the appellate court concluded that this aspect of the Department’s

decision was not clearly erroneous. Again we agree.

In explaining what constitutes charity, Methodist Old Peoples

Home v. Korzen, 39 Ill. 2d at 156-57, applied the definition adopted

by our court more than a century ago in Crerar v. Williams, 145 Ill.

625 (1893). We held there that

“ ‘charity, in a legal sense, may be more fully defined as

a gift, to be applied consistently with existing laws, for the

benefit of an indefinite number of persons, either by bringing

their hearts under the influence of education or religion, by

relieving their bodies from disease, suffering or constraint, by

assisting them to establish themselves for life, or by erecting

or maintaining public buildings or works, or otherwise

lessening the burthens of government.’ ” Crerar v. Williams,

145 Ill. at 643, quoting Jackson v. Phillips, 96 Mass. 539, 556

(1867).

Following Crerar, we explained that “[t]he reason for exemptions

in favor of charitable institutions is the benefit conferred upon the

public by them, and a consequent relief, to some extent, of the burden

upon the State to care for and advance the interests of its citizens.”

People v. Young Men’s Christian Ass’n of Chicago, 365 Ill. 118, 122

(1936). See also People ex rel. Carr v. Alpha Pi of Phi Kappa Sigma

Educational Ass’n of the University of Chicago, 326 Ill. 573, 578

(1927) (“The reason for exempting certain property from public taxes

arises from the fact that such property, in its use for charitable

-19-

purposes, tends to lessen the burdens of government and to affect the

general welfare of the public”). Our court continues to apply this

rationale. See Quad Cities Open, Inc. v. City of Silvis, 208 Ill. 2d 498,

509-10 (2004).

Conditioning charitable status on whether an activity helps relieve

the burdens on government is appropriate. After all, each tax dollar

lost to a charitable exemption is one less dollar affected governmental

bodies will have to meet their obligations directly. If a charitable

institution wishes to avail itself of funds which would otherwise flow

into a public treasury, it is only fitting that the institution provide

some compensatory benefit in exchange. While Illinois law has never

required that there be a direct, dollar-for-dollar correlation between

the value of the tax exemption and the value of the goods or services

provided by the charity, it is a sine qua non of charitable status that

those seeking a charitable exemption be able to demonstrate that their

activities will help alleviate some financial burden incurred by the

affected taxing bodies in performing their governmental functions.

Our state and federal governments have both undertaken to

provide health care for individuals meeting various criteria. To the

extent Provena Hospitals’ operations help reduce the burdens faced

by those levels of government in providing health care, it may

therefore be appropriate for Provena Hospitals to qualify for state and

federal tax exemptions. Those taxes, however, are not at issue here,

and we make no ruling regarding them. The case before us is

concerned solely with Provena Hospitals’ eligibility for a property tax

exemption for the 43 parcels of real estate in the PCMC complex. If

permitted, that exemption would result in the loss of tax revenue by

the following taxing districts: Champaign County, Champaign

County Forest Preserve District, Community College District 505,

Unit School District 116, Urbana Corporation, Cunningham

Township, Urbana-Champaign Sanitary District, Urbana Park

District, Champaign-Urbana Mass Transit District, and Champaign-

Urbana Public Health District. The record is devoid of findings

regarding any of these taxing bodies or the services and support they

provide to Champaign County residents. As a result, we have no way

to judge how, if at all, Provena Hospitals’ use of its PCMC property

in 2002 lessened the burdens those bodies would otherwise have been

-20-

required to bear.10

We further note that even if there were evidence that Provena

Hospitals used the PCMC property to provide the type of services

which the local taxing bodies might find helpful in meeting their

obligations to the citizenry of Champaign County, that still would not

suffice, in itself, to meet this requirement. The terms of the service

also make a difference. As the appellate court correctly recognized,

“ ‘services extended *** for value received *** do not relieve the

[s]tate of its burden.’ ” 384 Ill. App. 3d at 744, quoting Willows v.

Munson, 43 Ill. 2d 203, 208 (1969).

The situation before us here stands in contrast to People ex rel.

Cannon v. Southern Illinois Hospital Corp., 404 Ill. 66 (1949). In that

case, the hospital seeking the charitable exemption adduced evidence

showing that the county in question did undertake to provide

treatment for indigent residents. The hospital charged the county

deeply discounted rates to treat those patients. Moreover, because the

hospital was the only one in the area, the court reasoned that its

acceptance of relief patients relieved the government from having to

transport and pay for the treatment of those patients elsewhere.

People ex rel. Cannon, 404 Ill. at 73-74. As a result, the hospital’s

operations could be said to reduce a burden on the local taxing body.

No such conclusion was made or could be made based on the record

in this case.

Even if Provena Hospitals were able to clear this hurdle, there was

ample support for the Department of Revenue’s conclusion that

Provena failed to meet its burden of showing that it used the parcels

in the PCMC complex actually and exclusively for charitable

purposes. As our review of the undisputed evidence demonstrated,

both the number of uninsured patients receiving free or discounted

care and the dollar value of the care they received were de minimus.

10

In reaching this conclusion, we do not mean to suggest that Provena

Hospitals’ entitlement to a charitable property tax exemption was

dependent on its ability to show that its use of the PCMC parcels reduced

the burden on each of the affected taxing districts. It was, however,

required to demonstrate that its use of the property helped alleviate the

financial burdens faced by the county or at least one of the other entities

supported by the county’s taxpayers.

-21-

With very limited exception, the property was devoted to the care and

treatment of patients in exchange for compensation through private

insurance, Medicare and Medicaid, or direct payment from the patient

or the patient’s family.

To be sure, Provena Hospitals did not condition the receipt of care

on a patient’s financial circumstances. Treatment was offered to all

who requested it, and no one was turned away by PCMC based on

their inability to demonstrate how the costs of their care would be

covered. The record showed, however, that during the period in

question here, Provena Hospitals did not advertise the availability of

charitable care at PCMC. Patients were billed as a matter of course,

and unpaid bills were automatically referred to collection agencies.

Hospital charges were discounted or waived only after it was

determined that a patient had no insurance coverage, was not eligible

for Medicare or Medicaid, lacked the resources to pay the bill

directly, and could document that he or she qualified for participation

in the institution’s charitable care program. As a practical matter,

there was little to distinguish the way in which Provena Hospitals

dispensed its “charity” from the way in which a for-profit institution

would write off bad debt. Under similar circumstances, our appellate

court has consistently refused to recognize a medical facility’s actions

as the bestowal of charity within the meaning of section 15–65 of the

Property Tax Code (35 ILCS 200/15–65 (West 2002). See Riverside

Medical Center v. Department of Revenue, 342 Ill. App. 3d 603, 608-

09 (2003); Alivio Medical Center v. Department of Revenue, 299 Ill.

App. 3d 647, 651-52 (1998); Highland Park Hospital v. Department

of Revenue, 155 Ill. App. 3d 272, 280-81 (1987). The appellate

court’s decision in the present case is in accord with this line of

precedent.

The minimal amount of charitable care dispensed by Provena

Hospitals at the PCMC complex cannot be rationalized on the

grounds that the area’s residents did not require additional services.

For one thing, the argument that there really was no demand for

additional charitable care in Champaign County is one that Provena

Hospitals cannot comfortably make. That is so because such a

contention, if true, would bring into question the veracity of the

corporation’s claim that it is committed to the values of the Catholic

health-care ministry PCMC was purportedly obligated to advance.

-22-

One of those values was that the institution was to

“distinguish itself by service to and advocacy for those people

whose social condition puts them at the margins of our

society and makes them vulnerable to discrimination: the

poor[,] the uninsured and the underinsured.”

If the number of poor, uninsured and underinsured residents of

Champaign County was as insignificant as PCMC’s charitable care

program reflects, the opportunities for Provena Hospitals to further its

mission there would be virtually nonexistent. And if the opportunites

were so limited, it is difficult to understand why Provena Hospitals

would continue to devote its resources to serving that community.

The only plausible explanation would be that its principle purposes

in operating PCMC were, in reality, more temporal than it professes.

The argument is problematic for other reasons as well. Federal

census figure show that approximately 13.4% of Champaign County’s

more than 185,000 residents have incomes below the federal poverty

guidelines. That amounts to nearly 25,000 people. In addition, nearly

20,000 county residents are estimated to be without any health-care

coverage. There is no reason to believe that these groups of indigent

and/or uninsured citizens are any healthier than the population at

large. To the contrary, experience teaches that such individuals are

likely to have significant unmet health-care needs. If Provena

Hospitals were truly using the PCMC complex exclusively for

charitable purposes, one would therefore expect to see a significant

portion of its annual admissions served by Provena Hospitals’

charitable care policy. Instead, as we have noted, a mere 302 of its

110,000 admissions received reductions in their bills based on

charitable considerations.

Further undermining Provena Hospitals’ claims of charity is that

even where it did offer discounted charges, the charity was often

illusory. As described earlier in this opinion, uninsured patients were

charged PCMC’s “established” rates, which were more than double

the actual costs of care. When patients were granted discounts at the

25% and 50% levels, the hospital was therefore still able to generate

a surplus. In at least one instance, the discount was not applied until

after the patient had died, producing no benefit to that patient at all.

Moreover, it appears that in every case when a “charitable” discount

was granted or full payment for a bill was otherwise not received, the

-23-

corporation expected the shortfall to be offset by surpluses generated

by the higher amounts it was able to charge other users of its facilities

and services. Such “cross-subsidies” are a pricing policy any fiscally

sound business enterprise might employ. We cannot fault Provena

Hospitals for following this strategy, and there is no question that an

institution is not ineligible for a charitable exemption simply because

those patients who are able to pay are required to do so. Sisters of the

Third Order of St. Francis v. Board of Review, 231 Ill. 317, 321

(1907). We note merely that such conduct is in no way indicative of

any form of charitable purpose or use of the subject property. 11

The minimal amount of free and discounted care provided at the

PCMC cannot be excused under the theory that aid to indigent

persons is not a prerequisite to charity. In the context of municipal

taxation, we recently reaffirmed that, under Illinois law, charity “is

not confined to the relief of poverty or distress or to mere almsgiving”

but may also include gifts to the general public use from which the

rich as well as to the poor may benefit. Quad Cities Open, Inc. v. City

of Silvis, 208 Ill. 2d 498, 510-11 (2004), quoting People v. Young

Men’s Christian Ass’n of Chicago, 365 Ill. 118, 122 (1936). It is a

fundamental principle of law, however, that a gift is “a voluntary,

gratuitous transfer of property by one to another,” and that “[i]t is

essential to a gift that it should be without consideration.” Martin v.

Martin, 202 Ill. 382, 388 (1903). When patients are treated for a fee,

consideration is passed. The treatment therefore would not qualify as

a gift. If it were not a gift, it could not be charitable.

Provena Hospitals argues that the amount of free and discounted

care it provides to self-pay patients at the PCMC complex is not an

accurate reflection of the scope of its charitable use of the property.

In its view, its treatment of Medicare and Medicaid patients should

also be taken into account because the payments it receives for

11

Some commentators have been more pointed in assessing the

charitable nature of this practice. See M. Bloche, Health Policy Below the

Waterline: Medical Care and the Charitable Exemption, 80 Minn. L. Rev.

299, 355 (1995) (“the imagery of charity rings hollow when it comes to

hospitals” because, most obviously, “the free care provided by nonprofit

hospitals is financed largely by private payers, who are hardly inspired by

donative benevolence”).

-24-

treating such patients do not cover the full costs of care. As noted

earlier in this opinion, however, participation in the Medicare and

Medicaid is not mandatory. Accepting Medicare and Medicaid

patients is optional. While it is consistent with Provena Hospitals’

mission, it also serves the organization’s financial interests. In

exchange for agreeing to accept less than its “established” rate, the

corporation receives a reliable stream of revenue and is able to

generate income from hospital resources that might otherwise be

underutilized. Participation in the programs also enables the

institution to qualify for favorable treatment under federal tax law,

which is governed by different standards.

Mindful of such considerations, our appellate court has held that

discounted care provided to Medicare and Medicaid patients is not

considered charity for purposes of assessing eligibility for a property

tax exemption. See Riverside Medical Center v. Department of

Revenue, 342 Ill. App. 3d at 610; see also Alivio Medical Center v.

Department of Revenue, 299 Ill. App. 3d at 651-52 (charitable real

estate exemption denied to medical center where, inter alia, most of

the center’s revenue was derived from patient fees and the majority

of those fees were Medicaid payments). Similarly, the Catholic

Health Association of the United States, one of the signatories to a

friend of the court brief filed in this case in support of Provena

Hospitals, does not include shortfalls from Medicaid and Medicare

payments in its definition of charity. Provena Health itself adopted

this view. The consolidated financial statements and supplementary

information it prepared for itself and its affiliates for 2001 and 2002

did not identify any costs or charges incurred by PCMC in connection

with subsidizing Medicaid or Medicare patients in its explanation of

“charity care.” That being so, it can scarcely complain that such costs

and charges should have been included by the Department in

evaluating Provena Hospitals’ charitable contributions.12

12

It would, in fact, be anomalous to characterize services provided to

Medicare and Medicaid patients as charity. That is so because, as the

Department correctly points out, charity is, by definition, a type of gift and

gifts, as we have explained, must, by definition, be gratuitous. Hospitals do

not serve Medicare and Medicaid patients gratuitously. They are paid to do

so.

-25-

Provena Hospitals asserts that assessment of its charitable

endeavors should also take into account subsidies it provides for

ambulance service, its support of the crisis nursery, donations made

to other not-for-profit entities, volunteer initiatives it undertakes, and

support it provides for graduate medical education, behavioral health

services, and emergency services training. This contention is

problematic for several reasons. First, while all of these activities

unquestionably benefit the community, community benefit is not the

test. Under Illinois law, the issue is whether the property at issue is

used exclusively for a charitable purpose.13

Provena Hospitals’ decision to make charitable contributions to

other not-for-profit entities does not demonstrate an exclusively

charitable use of the PCMC complex. Indeed, it tells us nothing about

the use of the property at all. It is relevant only with respect to the

question of how Provena Hospitals elected to disburse funds

generated by the facility. That, however, is not dispositive. The

critical issue is the use to which the property itself is devoted, not the

use to which income derived from the property is employed. See City

of Lawrenceville v. Maxwell, 6 Ill. 2d 42, 49 (1955); see also People

ex rel. Goodman v. University of Illinois Foundation, 388 Ill. 363,

13

Illinois’ charity requirements distinguish our property tax exemption

standards from the requirements a hospital must meet in order to qualify for

tax-exempt status under the Internal Revenue Code. When the Medicare

and Medicaid programs were being established in the late 1960s, there was

concern that many hospitals would lose their federal tax exempt status

because there would no longer be sufficient demand for charity care to

satisfy IRS requirements. In response, the IRS loosened its previous

standards, under which hospitals were required to provide financial

assistance to those who could not afford to pay for services, and began to

measure a hospital’s eligibility for tax exemption by utilizing other

“community benefit” factors. Adoption of this community benefit standard

“abandoned charity care as the touchstone of exemption at the federal

level.” See 37 Loy. U. Chi. L.J. at 497. Illinois has not adopted this

approach. Although our General Assembly now requires certain hospitals

in Illinois to file annual “community benefits plans” with the Illinois

Attorney General’s office (see 210 ILCS 76/1 et seq (West 2006)) that

requirement is not part of the Property Tax Code and does not purport to

alter Illinois law with respect to property tax exemptions.

-26-

374 (1944) (“the test [is] the present use of the property rather than

the ultimate use of the proceeds derived from the property sought to

be exempted”).14

With respect to the ambulance subsidy, the costs for most patients

who were transported by ambulance appear to have been covered by

third-party insurers. The deficit claimed by Provena may therefore

result primarily from the reduced rates insurers are allowed to pay,

something which clearly would not qualify as charitable in nature.

How much, if any, is attributable to free or discounted service

provided to those who could not afford to pay is not apparent from

the record.15 We further note (1) that there is no evidence that any of

the 43 parcels for which an exemption is sought was ever used

directly or indirectly for the ambulance service, and (2) that the

ambulance service provided noncharitable benefits to the institution.

It complemented PCMC’s emergency room, which it was required by

law to provide and which was operated by a for-profit corporation,

and enhanced PCMC’s ability to fill its beds and cover its fixed costs.

The volunteer classes and services cited by Provena Hospitals

included such items as free health screenings, wellness classes, and

classes on handling grief. Again, while beneficial to the community,

they were not necessarily charitable. Private for-profit companies

frequently offer comparable services as a benefit for employees and

customers and a means for generating publicity and goodwill for the

organization.16

The behavioral health subsidy listed by Provena Hospitals

14

Even as to the nature of Provena Hospitals, the donations tell us little.

Charitable contributions, after all, can be made by anyone. They are not the

exclusive or even the primary domain of charitable organizations.

15

We do know from testimony presented by PCMC’s chief financial

officer at the administrative hearing that none of it involved Medicaid or

Medicaid patients.

16

That such programs can serve as an effective advertising tool was well

understood by PCMC’s management, which explained that part of the

reason for the programs they offered was to let the community know

“where they can go for services if they need more health care.”

-27-

involved operation of two shelters, one primarily for adult men and

the other for runaway teens. These shelters do not appear to have been

located on the PCMC complex, and the connection between the

medical services offered at PCMC and the operation of the shelters

was not explained. So far as we can tell, the only relationship between

the PCMC complex and the shelters is that PCMC’s owner helped

support the shelters financially. As in the case of donations to other

charitable organizations, however, that does not demonstrate that the

subject property is used exclusively for charitable purposes.

The amount Provena Hospitals devoted to emergency medical

services suffers from similar problems. These services, which were

described as training “prehospital responders and providers in how to

most effectively respond to patients in need as they are responding

and transporting those patients to the hospital,” are furnished to

“about 175 different agencies throughout Central Illinois.” There is

no indication that any of that training actually occurs on the premises

of the PCMC complex. Indeed, from the record before us, we cannot

tell whether any of this training even occurs in Champaign County.

Provena Hospitals’ reliance on this expense is problematic for

other reasons as well. None of the taxing bodies affected by the

exemption sought by Provena here is claimed to be responsible for

training health-care professionals, and they are certainly not

responsible for training health-care professionals outside their

jurisdictions. As a result, Provena Hospitals’ decision to support this

training does not relieve any of these taxing bodies of any burden they

would otherwise be required to bear. Another key element for charity

eligibility is therefore absent. We further note that the decision to

train “prehospital responders and providers” is not necessarily

altruistic. In a competitive health-care environment, it may be an

effective means for increasing awareness of the hospital, encouraging

others outside the immediate community to use its services.

Provena Hospitals’ reliance on expenses associated with the

medical residency program is also problematic. The record indicates

that the program is run by the University of Illinois and that Provena

Hospitals receives reimbursement for participating in it. Although the

corporation apparently does not believe that the reimbursement

covers the full actual costs of its affiliation with the residency

program, PCMC’s president and chief operating officer, who testified

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about this item at the administrative hearing, did not explain how the

claimed shortfall was computed. We note, moreover, that in addition

to generating direct payments from the University, Provena Hospitals’

participation in the program unquestionably adds to PCMC’s prestige

and enables it to supplement its medical staff with well-trained, if

inexperienced, physicians. While we cannot exclude the possibility

that there is some charity in this relationship, it is difficult to know in

which direction such charity flows, from Provena Hospitals to the

University of Illinois or vice versa.

That leaves only the $25,851 Provena Hospitals attributes to crisis

nursery services and support. The nursery services to which Provena

Hospitals refers are provided by the Crisis Nursery in Urbana. Crisis

Nursery is a separate not-for-profit entity. Although some PCMC

employees serve on its board of directors, it has no corporate

affiliation with PCMC or Provena Health. Crisis Nursery paid to

construct the facilities it uses and maintains its own staff. The land on

which its facilities are situated is, however, owned by Provena

Health. Provena Health allows Crisis Nursery use of the land under

a long-term lease for a nominal rent of $1 per year. Provena also

furnishes various in-kind services to the nursery including telephone

service, utilities, building and grounds maintenance, laundry, meals,

occasional medical consultations for children using the nursery, and

meeting space at PCMC for meetings and other events. In addition,

Provena Hospitals periodically helps sponsor fund raising events held

by the Crisis Nursery.

As its name implies, the Crisis Nursery provides a temporary

haven for young children whose families are experiencing some form

of crisis. When parents reach the point, for whatever reason, that they

are incapable of caring for their children or pose a threat to their

children’s well-being, the Crisis Nursery will take the child in

temporarily. It sometimes also admits children when mothers who are

making the transition from welfare to the work force need child

assistance in order to manage their work schedules. The goal, always,

is to protect children from situations in which they may be at

heightened risk of abuse or neglect.

The Crisis Nursery is designed for infants and children up to age

five. The facility allows children to stay overnight, if necessary, for

up to three days, though longer stays are sometimes permitted. During

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these stays, the Crisis Nursery feeds and bathes the children and

provides them with “developmentally appropriate activities.” Post-

visit family support services are offered in order to help improve

parenting skills and stabilize children’s home environments. The

Crisis Nursery also serves as a conduit for various social services for

poor families and children in need.

Of the 43 real estate parcels involved in this, the four utilized by

the Crisis Nursery may have the strongest claim on being used

exclusively for charitable purposes. Even if we assume an exclusive

charitable use to have been established, however, it would not aid

Provena Hospitals’ position. Charitable use of these four parcels

would not, under any legal theory, be sufficient to also confer a

charitable exemption on the remaining 39 parcels comprising the

PCMC complex. Moreover, even as to these four parcels, the claim

for exemption must fail. That is so because a critical qualification for

the exemption is absent. For the reasons set forth earlier in this

opinion, Provena Hospitals, the actual owner of the four parcels,

failed to meet its burden of establishing that it is a charitable

institution. Without charitable ownership as well as charitable use, no

exemption is permitted. The Department of Revenue was therefore

correct when it denied Provena Hospitals’ request for a charitable

exemption as to any of the 43 parcels comprising the PCMC

complex.

We likewise find no error in the Department of Revenue’s

rejection of Provena Hospitals’ request for a religious exemption

under section 15–40(a)(1) of the Property Tax Code (35 ILCS

200/15–40(a)(1) (West 2002)). To qualify for an exemption under

that statute, the property in question must be used exclusively for

religious purposes. There is no all-inclusive definition of religious

purpose for tax cases. Whether an entity has been organized and

operated exclusively for religious purposes is determined from its

charter, bylaws, and actual method and facts relating to its operation.

See Fairview Haven v. Department of Revenue, 153 Ill. App. 3d 763,

774 (1987), citing Scripture Press Foundation v. Annunzio, 414 Ill.

339, 349 (1953). As with the claim for a charitable exemption, it was

Provena Hospitals’ burden to show, by clear and convincing

evidence, that it satisfied these requirements. As with its claim for a

charitable exemption, it failed to do so.

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Provena Hospitals’ claim to a religious exemption is founded

largely on the proposition that it is, itself, a ministry of the Catholic

Church. A threshold problem with this argument is that the facts cited

to support it pertain to PCMC, not Provena Hospitals. According to

evidence presented in the administrative proceeding, which we cited

earlier in this opinion, the articles of consolidation adopted when

Provena Hospitals was formed state that its purpose is to “coordinate

the activities of Provena Hospitals’ subsidiaries or other organizations

that are affiliated with Provena Hospitals as they pursue their

religious, charitable, educational and scientific purposes” and “to

offer at all times high quality and cost effective healthcare and human

services to the consuming public.” While there is plainly a religious

component to this mission, advancing religion is not identified as the

corporation’s dominant purpose.

Provena Hospitals suggests that we cure this evidentiary problem

by imputing the religious values underlying the church’s support of

PCMC to Provena Hospitals itself. But we can no more do that than

we could deem the corporation a charity based on what PCMC alone

did. Such a course would require that we resolve facts and debatable

questions in favor of exemption. The law requires just the opposite.

Even if Provena Hospitals could overcome this obstacle, its claim

to a religious exemption for the 43 parcels at issue in this case would

fail. Religious purpose is not determined solely by the professed

motives or beliefs of the property’s owner. A court must also take

into account the facts and circumstances regarding how the property

is actually used. See People ex rel. McCullough v. Deutsche

Evangelisch Lutherische Jehovah Gemeinde Ungeaenderter

Augsburgischer Confession, 249 Ill. 132, 136 (1911). As the appellate

court recently observed, intentions are not enough. We must ask

whether, in actuality or practice, the building is used primarily for a

religious purpose. “In a sense, everything a deeply devout person does

has a religious purpose,” the court explained,

“[b]ut if that formulation determined the exemption from

property taxes, religious identity would effectively be the sole

criterion. A church could open a restaurant, for instance, and

because waiters attempted to evangelize customers while

taking their orders, the restaurant would be exempt. But the

operation of a restaurant is not necessary for evangelism and

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religious instruction, although, like any other social activity,

it can provide the occasion for those religious purposes.” See

Faith Builders Church, Inc. v. Department of Revenue, 378

Ill. App. 3d 1037, 1046 (2008) (denying a religious exemption

for property used by a church group for a fee-based day-care

center serving infants, toddlers and preschool children).

In this case, the record clearly established that the primary

purpose for which the PCMC property was used was providing

medical care to patients for a fee. Although the provision of such

medical services may have provided an opportunity for various

individuals affiliated with the hospital to express and to share their

Catholic principles and beliefs, medical care, while potentially

miraculous, is not intrinsically, necessarily, or even normally

religious in nature. We note, moreover, that no claim has been made

that operation of a fee-based medical center is in any way essential to

the practice or observance of the Catholic faith.

Provena Hospitals argues that religious institutions alone have the

right to assess the religious nature of their activities and that courts

may not second-guess those assessments without violating

constitutional guarantees regarding the free exercise of religion (see

Ill. Const. 1970, art. I, §3; U.S. Const., amend. I). If Provena

Hospitals’ argument were valid, it would mean that the church rather

than the judiciary is the ultimate arbiter of when and under what

circumstances church property is exempt from taxation under the

constitution and statutes of the State of Illinois. Provena Hospitals has

not cited any authority to support such a claim, nor was it raised by

Provena Hospitals in its petition for leave to appeal. It is therefore not

properly before us. See Vine Street Clinic v. HealthLink, Inc., 222 Ill.

2d 276, 301 (2006); People v. Whitfield, 228 Ill. 2d 502, 509 (2007).

CONCLUSION

For the foregoing reasons, the Department of Revenue properly

denied the charitable and religious property tax exemptions requested

by Provena Hospitals in this case. The judgment of the appellate court

reversing the circuit court and upholding the Department’s decision

is therefore affirmed.

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Affirmed.

JUSTICES KILBRIDE and GARMAN took no part in the

consideration or decision of this case.

JUSTICE BURKE, concurring in part and dissenting in part:

I join that portion of the plurality opinion which holds that

Provena Hospitals failed to demonstrate it was entitled to a religious

exemption based on the lack of sufficient evidence. See slip op. at 30-

32.

I also join the plurality opinion’s conclusion that Provena

Hospitals failed to establish it is a charitable institution. The defining

characteristics of a charitable institution include, inter alia, that the

institution dispenses charity to all who need it and apply for it, and

that it does not appear to place any obstacles in the way of those who

need and would avail themselves of the charitable benefits it

dispenses. Methodist Old Peoples Home v. Korzen, 39 Ill. 2d 149,

157 (1968). There is evidence in the record detailing Provena

Covenant Medical Center’s (PCMC) charity care policy, evidence

that PCMC’s staff engaged in outreach efforts to communicate the

availability of charity care and encouraged patients to apply, and

evidence that charitable care would be considered by PCMC at any

time. However, there is no such evidence in connection with Provena

Hospitals, the actual owner of the subject property. Accordingly, the

record in the case at bar is inadequate to establish that Provena

Hospitals is a charitable institution, a necessary prerequisite to

receiving a charitable exemption. For this reason alone, I agree with

the plurality that Provena Hospitals is not entitled to a charitable

exemption in this case.

I do not join that portion of the plurality opinion which addresses

the doctrine of charitable use. Without citation to authority, the

plurality holds that Provena Hospital’s use of the property in 2002

was not a “charitable use” because the charity care provided was de

minimus. Specifically, the plurality concludes that “there was ample

support for the Department of Revenue’s conclusion that Provena

failed to meet its burden of showing that it used the parcels in the

PCMC complex actually and exclusively for charitable purposes. As

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our review of the undisputed evidence demonstrated, both the number

of uninsured patients receiving free or discounted care and the dollar

value of the care they received were de minimus.” Slip op. at 21. I

disagree with this rationale. By imposing a quantum of care

requirement and monetary threshold, the plurality is injecting itself

into matters best left to the legislature.

The legislature did not set forth a monetary threshold for

evaluating charitable use. We may not annex new provisions or add

conditions to the language of a statute. Hines v. Department of Public

Aid, 221 Ill. 2d 222, 231 (2006). Yet, this is exactly what the plurality

does. The Michigan Supreme Court in Wexford Medical Group v.

City of Cadillac, 474 Mich, 192, 713 N.W.2d 734 (2006), aptly set

out this principle. In Wexford, the court held that “there can be no

threshold [dollar amount of free medical services provided] imposed

under the statute. The Legislature provided no measuring device with

which to gauge an institution’s charitable composition, and we cannot

presuppose the existence of one. To say that an institution must

devote a certain percentage of its time or resources to charity before

it merits a tax exemption places an artificial parameter on the

charitable institution statute that is unsanctioned by the Legislature.”

Wexford, 474 Mich. at 213, 713 S.W.2d at 745.

Not only did the Wexford court reject a monetary threshold

because it was not provided for in the statute, the court also believed

it would be unwise to impose such a requirement, finding that such

a requirement “would be, by its very nature, quite arbitrary.” Wexford,

474 Mich. at 213, 713 S.W.2d at 745. In addition, the court stated:

“As petitioner aptly pointed out, there are multiple reasons

why inventing legislative intent in this regard would be

ill-advised and most unworkable. In fact, the difficulties with

formulating a monetary threshold illuminate why setting one

is the Legislature’s purview, not the courts’. To set such a

threshold, significant questions would have to be grappled

with. For instance, a court would have to determine how to

account for the indigent who do not identify themselves as

such but who nonetheless fail to pay. A court would have to

determine whether facilities that provide vital health care

should be treated more leniently than some other type of

charity because of the nature of its work, or even if a health

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care provider in an underserved area, such as petitioner, is

more deserving of exemption than one serving an area of

lesser need. A court would need to consider whether to

premise the exemption on whether the institution had a

surplus and whether providing below-cost care constitutes

charity. Clearly, courts are unequipped to handle these and

many other unanswered questions. Simply put, these are

matters for the Legislature.” Wexford, 474 Mich. at 214, 713

S.W.2d at 745-46.

The Wexford court concluded: “[I]t does not follow that an institution

must present evidence of a particular level of charitable care because

there is no such threshold level contained in the statute. And we

refuse to create one.” (Emphasis omitted.) Wexford, 474 Mich. at 220,

713 S.W.2d at 748.

Similarly, in Medical Center Hospital of Vermont, Inc. v. City of

Burlington, 152 Vt. 611, 566 A.2d 1352 (1989), the Vermont

Supreme Court, in rejecting the taxing authority’s argument that the

amount of free care dispensed must exceed revenues, concluded there

was nothing in any Vermont case that required an institution to

dispense any free care to qualify as charitable for purposes of the

charitable property tax exemption. Medical Center Hospital of

Vermont, 152 Vt. at 616, 566 A.2d at 1354. In fact, the court had

previously held that “ ‘[t]he fact that none of its patients are cared for

without charge does not deprive [an institution] of its charitable

feature.’ [Citation.]” (Emphasis omitted.) Medical Center Hospital of

Vermont, 152 Vt. at 616, 566 A.2d at 1355. The court further

concluded, “[T]his state has never required a certain percentage of

free care to be rendered before finding an organization to be a

tax-exempt charity ***.” Medical Center Hospital of Vermont, 152

Vt. at 616, 566 A.2d at 1355. The court declared: “In our opinion,

pegging charitability to a stated amount of free care rendered would

not be workable in determinating an organization’s taxable status.

Instead, uncertainty would reign ***.” Medical Center Hospital of

Vermont, 152 Vt. at 616, 566 A.2d at 1355. Rather, “[t]he better

inquiry, it seems to us, is the one used by the trial court in this case:

whether health care was made available by the plaintiff to all who

needed it, regardless of their ability to pay.” Medical Center Hospital

of Vermont, 152 Vt. at 617, 566 A.2d at 1355.

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In addition to the difficulties in formulating a monetary threshold

pointed out by the Wexford court, the Medical Center court noted

another problem that would be encountered if a quantum approach is

imposed–uncertainty. Specifically, taxability would necessarily be

determined on a year to year basis, depending upon economic factors

which are not in the control of an organization. Medical Center

Hospital of Vermont, 152 Vt. at 617, 566 A.2d at 1355. The court

stated: “As plaintiff pointed out at trial, if the economy in the

Burlington area were to fall off dramatically and unemployment to

soar, fewer people would be covered by health care insurance through

employers and, consequently, more free care would be rendered to

those in need. Should the economy make a turnaround the following

year, the amount of free care given might fall again should

unemployment levels drop.” Medical Center Hospital of Vermont,

152 Vt. at 617 n.3, 566 A.2d at 1355 n.3. See also City of Richmond

v. Richmond Memorial Hospital, 202 Va. 86, 90, 116 S.E.2d 79, 81-

82 (1960) (“A tax exemption cannot depend upon any such vague and

illusory concept as the percentage of free service actually rendered.

This would produce chaotic uncertainty and infinite confusion,

permitting a hodgepodge of views on the subject. Thus there would

be no certainty nor uniformity in the application of the section

involved”).

I find these authorities persuasive. I do not believe this court can,

under the plain language of section 15–65, impose a quantum of care

or monetary requirement, nor should it invent legislative intent in this

regard. Setting a monetary or quantum standard is a complex decision

which should be left to our legislature, should it so choose. The

plurality has set a quantum of care requirement and monetary

requirement without any guidelines. This can only cause confusion,

speculation, and uncertainty for everyone: institutions, taxing bodies,

and the courts. Because the plurality imposes such a standard, without

any authority to do so, I cannot agree with it.

I also disagree with the plurality’s conclusion that Provena

Hospitals was “required to demonstrate that its use of the property

helped alleviate the financial burdens faced by the county or at least

one of the other entities supported by the county’s taxpayers.” Slip

op. at 20 n.10. Alleviating some burden on government is the reason

underlying the tax exemption on properties, not the test for

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determining eligibility. Despite acknowledging this (slip op. at

19-20), the plurality converts this rationale into a condition of

charitable status. I neither agree with this, nor do I believe that

Provena Hospitals failed to show it alleviated some burden on

government.

In Wexford, the court, similar to the plurality, defined charity as:

“ ‘[Charity] *** [is] a gift, to be applied consistently with

existing laws, for the benefit of an indefinite number of

persons, either by bringing their minds or hearts under the

influence of education or religion, by relieving their bodies

from disease, suffering or constraint, by assisting them to

establish themselves for life, or by erecting or maintaining

public buildings or works or otherwise lessening the burdens

of government.’ ” Wexford, 474 Mich. at 211, 713 N.W.2d at

744, quoting Retirement Homes of the Detroit Annual

Conference of the United Methodist Church, Inc. v. Sylvan

Township, 416 Mich. 340, 348-49, 330 N.W.2d 682, 686

(1982), quoting Jackson v. Phillips, 96 Mass. 539, 556

(1867).

See slip op. at 19, quoting Crerar v. Williams, 145 Ill. at 643, quoting

Jackson v. Phillips, 96 Mass. 539, 556 (1867).

The Michigan court then concluded: “Implicit in the definition is

that relieving bodies from disease or suffering is lessening the burden

of government.” (Emphasis omitted.) Wexford, 474 Mich. at 219, 713

N.W.2d at 748. That court specifically held that “petitioner does not

have to prove that its actions lessen the burden of government.

Rather, it has to prove, as it did, that it ‘reliev[es] their bodies from

disease, suffering or constraint,’ which is, by its nature, a lessening of

the burden of government.” Wexford, 474 Mich. at 219, 713 N.W.2d

at 748. I believe the Michigan Supreme Court’s conclusion is correct.

While “lessening the burden of government” is a component of the

definition of charity, it is inextricably tied to the public policy

justifying the exemption itself and is not a requirement for

demonstrating entitlement to the exemption. The plurality here errs

in requiring Provena Hospitals to specifically demonstrate some

burden of government it relieved. There is no such requirement.

For the above reasons, I cannot join in the charitable use portion

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of the plurality opinion. I note that the discussion of charitable use

does not command a majority of the court and, therefore, is not

binding under the doctrine of stare decisis.

JUSTICE FREEMAN joins in this partial concurrence and partial

dissent.

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