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August 17, 1995


Appeal from the Circuit Court of Du Page County. No. 93-MR-0236. Honorable John W. Darrah, Judge, Presiding.

Rehearing Denied August 17, 1995. Petition for Leave to Appeal Denied December 6, 1995.

The Honorable Justice Thomas delivered the opinion of the Court: Doyle and Colwell, JJ., concur.

The opinion of the court was delivered by: Thomas

JUSTICE THOMAS delivered the opinion of the Court:

The plaintiff, Wyndemere Retirement Community (Wyndemere), sought a charitable exemption from the Illinois Retailer's Occupation Tax Act (35 ILCS 120/2-5 (West 1992)) and the Illinois Use Tax Act (35 ILCS 105/3-5 (West 1992)). The Illinois Department of Revenue (Department) denied the exemption and the circuit court of Du Page County affirmed the Department's decision. The plaintiff appeals.

The record reveals that Wyndemere is an Illinois not-for-profit corporation and is exempt from Federal income tax as a charitable organization under section 501(c)(3) of the Internal Revenue Code of 1986. (26 U.S.C. ยง 501(c)(3) (1988)). Wyndemere is a subsidiary of the Central DuPage Health System (CDHS), an Illinois not-for-profit corporation which is also a section 501(c)(3) charitable organization and additionally is exempt from Illinois sales, use, and real estate taxes as an organization operated exclusively for charitable purposes.

Wyndemere is in the process of developing a 216-unit, life-care community for the elderly in Wheaton, Illinois. Wyndemere provides residents with a range of programs and services to aid the elderly, which include programs regarding nutrition, personal finance, wellness education, and exercise. The units are designed for easy accessibility and are comprised of one, two, and three bedroom units ranging in size from 660 square feet to 1,560 square feet. The 22-acre facility will include a library, beauty and barber shop, convenience store, woodworking shop, exercise room, medical facilities, bank, and postal facility.

Wyndemere residents do not own their units, but instead pay an entrance fee based on the size of their unit. The fee ranges from $99,000 for a one-bedroom unit to $285,000 for a three-bedroom unit. In addition to the entrance fee, residents must pay a monthly fee of $1,007 to $2,159 to cover available services such as meals, housekeeping, laundry service, transportation, cable television, utilities, and wellness programs. A percentage of the monthly fee is also allocated to cover the resident's future health care needs.

To apply for a unit at the facility, an applicant must fill out a detailed application from which it is determined whether the applicant can afford Wyndemere or should be considered for charitable assistance. The application process further helps to determine whether an applicant qualifies from a health standpoint in that he must be able to live independently. Additionally, the resident must maintain medicare parts A and B and supplemental health insurance. Once an applicant qualifies, Wyndemere will allow an applicant to remain even if his health declines as time passes, and the resident will be allowed to remain even if he can no longer pay the monthly fee or other charges. If a resident can no longer live independently, he may transfer to a smaller assisted living unit. If a resident is transferred to a long-term care facility, he will continue to pay the monthly fee to Wyndemere, and Wyndemere will pay the provider of the long-term care facility. If the resident's declining health forces a permanent move to a long-term or skilled health-care facility, such as a nursing home, the resident's unit at Wyndemere will be "resold," and 75% of the market value will be placed in an account for the resident. The resident then continues to pay the monthly fee to Wyndemere even after moving to the nursing home. If he is no longer capable of paying the monthly fee, Wyndemere then has the right to access his account from the sale of the unit to pay the monthly fees.

Wyndemere's "Charitable Policy" provides in part:

"Wyndemere is committed to assisting the needy elderly. Accordingly, Wyndemere shall maintain in residence any persons who become unable to pay Wyndemere's monthly fee, by using Wyndemere's own reserves, by soliciting funds from its sponsoring organization, its members or some combination of these means. Wyndemere also shall waive or reduce its entrance fee and monthly charge, based on an individual's ability to pay. Recipients of charitable assistance shall neither be required to pay for such assistance, nor be restricted in any manner."

The policy further provides that the amount of charitable assistance shall be consistent with Wyndemere's financial resources. Thus, the number of people who may receive a waiver or reduction in the entrance fee and the monthly charge is subject to Wyndemere's ability to afford additional assistance and remain financially viable.

As of January 1993, Wyndemere had provided charitable assistance to two residents out of the 125 units sold. Specifically, Wyndemere waived the entrance and monthly fees for two 81-year-old widows. These were the only two applications for charitable assistance, and Wyndemere did not turn down any requests for assistance by needy applicants.

Charles E. Behl, Jr., testified before the administrative law judge that he was in charge of overseeing the financial affairs of CDHS and its member organizations, including Wyndemere. He stated that Wyndemere had currently made a commitment to provide in excess of $800,000 in charity care. He further stated if residents at Wyndemere used up their resources, they would not be asked to leave. Although he could not estimate the value of such free services that would be provided by Wyndemere, he noted that Wyndemere would help reduce the government's burden to care for the elderly. He explained that studies show that residents in continuing-care facilities such as Wyndemere use about 30% less skilled nursing home care than does the rest of the general population. Furthermore, studies show that 15% of the elderly in long-term-care facilities either spend down or divert their assets. ...

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