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FOURTH DIVISION

September 30, 1998

No. 1-97-3456

PRESIDING JUSTICE SOUTH delivered the opinion ofthe court:

Plaintiff, Alivio Medical Center, filed a real estate taxexemption complaint with the Board of Appeals of Cook County andan application for property tax exemption for the year 1993 withthe Illinois Department of Revenue (Department), which denied theapplication. Plaintiff requested a formal hearing which was heldbefore an administrative law judge (ALJ). After the hearing, theDepartment issued a denial. Plaintiff then filed a complaint foradministrative review in the circuit court of Cook County, whichaffirmed the Department's decision.

The sole question presented for review is whether or notplaintiff's property is exempt from taxation under ourconstitution and the applicable statute.

Alivio Medical Center, a comprehensive ambulatorymedical carefacility, was incorporated on March 21, 1988, under the General-Not-For-Profit Corporation Actof 1986. Alivio has no capitalstock or shareholders and has 17 uncompensated members on itsBoard of Directors. Alivio's by-laws state its purpose is to: (a)increase Hispanic access to comprehensive, affordable qualityhealth care through the availability of bilingual and biculturalpersonnel; (b) increase the Hispanic community's knowledge andunderstanding of wellness and factors leading to ill health; (c)promote effective communication between Hispanic consumers andhealth providers; and (d) increase the representation ofHispanics in health care professions at all levels. Alivio'sservices are available to anyone regardless of color, race,national origin, religion or gender.

Prior to Alivio's ownership of the property, the property wasgranted exemption from real estate property taxation based uponits ownership by Mercy Hospital. Alivio is exempt from Federalincome tax payment pursuant to a 501(c)(3) designation from theInternal Revenue Service.

Alivio's fiscal year ends on June 30th. For the period fromJuly1, 1992 to June 30, 1993, Alivio's operating revenue was$1,855,673. Of this revenue, 59% was garnered from patient fees,25% from contributions, 15% from federal grant income, and 1%from other sources. Of the patient fees, 78% came from Medicaidreimbursement, 15% came from patient collections, 5% came fromthird party reimbursement and 2% came from Medicaidreimbursement. Alivio's operating expenses for that period were$1,717,417.

In 1993, Alivio employed 3.5 physicians. This included apediatrician, an internist, a family practitioner and a part-timeobstetrician. Alivio also employed a full-time nurse and a numberof midwives. Alivio's staff physicians were not allowed toengage in any competitive private practice but were allowed towork at another clinic or hospital as well as Alivio's medicalcenter. Alivio's director was paid $84,249 that year and itsstaff physicians received salaries ranging from $70,000 to$90,000 that year, depending on their experience.

Alivio has an established policy for billing. All newpatientsare referred to the financial evaluator for assessment of theircapabilities to pay. The required payments for patientsexpressing financial need are based upon the poverty guidelinespromulgated in the Federal Register. This evaluation is done onthe first visit and six months thereafter.

Alivio initially charges a patient the same amount regardlessofthe patient's financial classification. The bill then proceedsto the financial officer where it is adjusted to the appropriatefinancial category. Alivio has two categories of payment: self-payment and Medicaid. Onlyself-pay patients are referred to thesliding scale evaluation. Alivio files its Medicaid claims on afee-for-service basis, and Medicaid patients who lose theireligibility are referred to the financial evaluator for thesliding scale evaluation.

Alivio bills its patients on the day of the visit. If thepatient cannot pay on that day, a statement of account is mailedthe next business day and remailed at three 30-day intervalsuntil the bill is paid in full. After 180 days, the unpaidportion of the account is written off following therecommendation of the patient account coordinator and after theapproval of the Director of Finance and the Executive Director. Alivio requests payment during any patient visits within that180-day period. Alivio has no fee-waiver policy but Alivioestimates approximately 25% of its bills are written off. Patients with outstanding balances are still eligible to receivemedical treatment.

On October 30, 1995, the ALJ recommended that Alivio bedeniedthe real estate property tax exemption. This recommendation wasbased on the determination that Alivio was not a charitableorganization. Specifically, the ALJ determined that Alivio madea profit in 1993, did not dispense charity to all that needed orapplied for it, placed obstacles in the way of those seekingbenefits, and the organization's primary use of the property wasnot for charitable purposes, all in contravention of the criteriaestablished by the Illinois Supreme Court.

On November 1, 1995, the Department's Director, KennethE.Zehnder, accepted the ALJ's recommendation and denied Alivio theexemption. On December 19, 1995, Alivio filed a complaint foradministrative review in the circuit court.

At the circuit court proceedings, Alivio sought reversal oftheDepartment's decision, asserting that it did not make a profit,and did not place obstacles in the way of those seeking charity. The circuit court affirmed the Department's decision, holdingthat Alivio failed to prove it "primarily" used its property forcharitable purposes. The court specifically looked to Alivio'sby-laws and determined that Alivio's policy of writing off baddebts was not the same as "dispensing charity." The court alsonoted that there was no evidence the public was aware of anycharitable care.

Alivio asserts that the property owned and operated by it isentitled to an exemption from real estate taxes for the 1993assessment year under article IX, section 6 of the IllinoisConstitution (Ill. Const. 1970, art. IX,