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Hospital & Health Service, Inc. v. Aurand





APPEAL from the Circuit Court of Winnebago County; the Hon. JOHN S. GHENT, Judge, presiding.


Rehearing denied April 7, 1978.

Illinois Hospital and Health Service, Inc., a not-for-profit corporation (hereinafter referred to as the "corporation"), brought this action to enjoin the Winnebago County Treasurer from collecting real estate taxes for 1974 and future years. At this point it is to be observed that the corporation is, in effect, the Rockford Blue Cross. The real estate involved is, apparently, the office building located at 227 N. Wyman Street in Rockford. In the testimony, exhibits and briefs of the parties the corporation is variously described as "Rockford Blue Cross" or "Illinois Hospital and Health Service, Inc." After a hearing on the amended petition the court issued a permanent injunction against the defendant from collecting real estate taxes for 1974 and future years. Douglas R. Aurand, the Winnebago County treasurer (hereinafter referred to as the "County Treasurer") appeals.

The issues presented are: (1) whether the corporation is a charitable and benevolent organization within the meaning of the pertinent statutory provisions and the constitution of the State of Illinois; (2) whether section 27 of the Voluntary Health Services Plans Act (Ill. Rev. Stat. 1975, ch. 32, par. 621) is an unconstitutional usurpation of a function of the judiciary; (3) whether the corporation, after appearing before the Board of Review of Winnebago County and protesting the denial of its exemption and return to the tax rolls, should have pursued its administrative remedies by an appeal under the Administrative Review Act and whether that remedy was exclusive; and (4) whether the trial court erred in considering the county court order of May 28, 1963, enjoining the collection of personal property taxes for 1962 and subsequent years.

The corporation was initially organized as a non-profit Hospital Service Corporation (Ill. Rev. Stat. 1935, ch. 32, par. 551 et seq.) in 1939, but received a new charter under the Voluntary Health Services Plans Act (Ill. Rev. Stat. 1961, ch. 32, par. 595 et seq.) in 1961. It enjoyed a real estate tax exemption under the provisions of the latter act until 1974. The property tax division of the State of Illinois has exempted the subject property and the personal property of the corporation from payment of taxes and has continued that exemption. The U.S. Treasury Department, likewise, has exempted the corporation from income taxes. Certificates of status of exempt property were filed for the years 1973 through 1976 by the corporation.

Gerald Simonds, the Rockford Township assessor, testified that sometime during the summer of 1974 he discovered that the corporation was tax exempt. He further testified that he had sold insurance and had lost a group policy to Blue Cross and determined that the property should be returned to the tax rolls. On October 30, 1974, the Board of Review notified the corporation that the real estate had been returned to the tax rolls and that if it wanted a hearing to contact the Board of Review of Winnebago County. On November 5, 1974, the corporation requested a hearing before the Board of Review and that hearing was held on November 20, 1974. On March 12, 1975, the Board of Review advised the corporation that the Board had made a final decision that the real estate be assessed for real estate taxes for the year 1974. Thereafter, taxes were assessed for the year 1974.

In the case before us we are faced with the consideration of article IX, section 6 of the Illinois Constitution of 1970, which states:

"The General Assembly by law may exempt from taxation only the property of 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. The General Assembly by law may grant homestead exemptions or rent credits"

and the application of that constitutional provision to section 27 of the Voluntary Health Services Plans Act (Ill. Rev. Stat. 1975, ch. 32, par. 621), which reads:

"Health services plan corporations organized under this Act shall be operated and conducted not-for-profit and shall be governed by the provisions of the `General Not for Profit Corporation Act', approved July 17, 1943, as amended, to such extent as the same may be applicable and not inconsistent with this Act. Every corporation organized hereunder is declared to be a charitable and benevolent corporation, and all of its funds and property shall be exempt from every State, county, district, municipal and school tax or assessment, and all other taxes and license fees, from the payment of which charitable and benevolent corporations or institutions are now or may hereafter be exempt." Ill. Rev. Stat. 1975, ch. 32, par. 621.

The trial court, in enjoining the collection of the real estate taxes herein, in a memorandum opinion, relied upon Rotary International v. Paschen (1958), 14 Ill.2d 480, 153 N.E.2d 4, and in so doing found that the legislature determined that such an organization or association was organized for charitable purposes as it would, to some extent, relieve the burden of the State in caring for and advancing the interests of its citizens. Rotary International involved only the construction and application of the provisions of section 19 of the Revenue Act of 1939 (Ill. Rev. Stat. 1955, ch. 120, par. 500(7)), in which the legislature declared all property of institutions of public charity, including old people's homes when operated under the auspices of a religious, fraternal, charitable or other nonprofit organization, is exempt from taxation. The Rotary International case involved the taxation of property located in Evanston which was the headquarters of Rotary International. The court found that the various clubs belonging to Rotary International were in fact engaged in many charitable endeavors. However, in substance, the court determined that the Rotary International building must be actually and exclusively used for charitable or beneficent purposes and that, "It is, therefore, incumbent upon the plaintiff to show clearly that its organization and the use of its property come within the provisions of the statute and section 3 of article IX of the

constitution of the State, as charitable." (Rotary International, 14 Ill.2d 480, 487, 153 N.E.2d 4, 8.) The court determined that its income was not derived from public or private charity in any way but from per capita assessments on the individual members and interest on investments, fees and sale of publications and supplies. The court further stated that in determining whether an organization was charitable or not that it was proper to consider the provision of its charter, concluding that:

"We find nothing in plaintiff's charter which requires it to devote its funds to purposes which will necessarily relieve, even to a slight extent, the burden upon the State." (14 Ill.2d 480, 489, 153 N.E.2d 4, 9.)

The court thereupon reversed the trial court's injunction restraining the collection of taxes on the real estate in question. We do not find that Rotary International supports the finding of the trial court herein.

• 1 It can readily be seen that with the exception of the named exemptions in article IX, section 6, of the Illinois Constitution, we are limited to those properties used for "charitable purposes." The legislature has, by statute, specifically provided that an organization such as the not-for-profit corporation herein, is declared to be a charitable and benevolent corporation. The County Treasurer argues that the legislature in exempting such organizations is usurping the function of the judiciary. The corporation's main argument is that the legislature may determine what is a charitable and benevolent corporation and that it is not for the judiciary to rewrite legislation. We do not agree. It has been repeatedly held that regardless of what the legislature declares to be exempt by statute, the courts> of this state are empowered to determine whether an organization is a charitable organization within the meaning of the above quoted constitutional provision. In Small v. Pangle (1975), 60 Ill.2d 510, 516, 328 N.E.2d 285, 288, our supreme court stated:

"We reiterated that the association must further comply unequivocally with the constitutional requirement of exclusive charitable use and that that determination is a judicial function, which may not be usurped by the legislature."

See also People ex rel. Nordlund v. Association of the Winnebago Home for the Aged (1968), 40 Ill.2d 91, 237 N.E.2d 533; MacMurray College v. Wright (1967), 38 Ill.2d 272, 230 N.E.2d 846; Locust Grove Cemetery Association v. Rose (1959), 16 Ill.2d 132, 156 N.E.2d 577.

In further support of its contention as to tax exemption, the corporation has cited Associated Hospital Service Inc. v. City of Milwaukee (1961), 13 Wis.2d 447, 109 N.W.2d 271; and Cleveland Hospital Service Association v. Ebright (Ohio App. 1942), 36 Ohio L. Abs. 600, 45 N.E.2d 157, aff'd (1943), 142 Ohio St. 51, 26 Ohio Op. 256, 49 N.E.2d 929.

In Associated Hospital Service, we find an excellent summary of the history of legislation in various states relating to the exemption of Blue Cross property. It appears that the Blue Cross movement originated in the plan of Baylor University Hospital in Dallas, Texas, in 1929. The experiment was successful and spread to other states. Enabling legislation was enacted by the New York Legislature in 1934. The American Hospital Association was instrumental in promoting such Blue Cross enabling acts. Its Council on Hospital Service Plans drafted and distributed a model enabling act which was subsequently adopted by a considerable number of states, and was adopted in Illinois in ...

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