Grand Chapter, Order of the Eastern Star of the State of Illinois v. Topinka
117083
Supreme Court of Illinois
January 23, 2015
2015 IL 117083
Illinois Official Reports
Docket No. 117083
Filed January 23, 2015
Held (Note: This syllabus constitutes no part of the opinion of the court but has been prepared by the Reporter of Decisions for the convenience of the reader.) State taxation of a nonprofit nursing home by imposition of a “bed fee” was upheld against a challenge brought under the uniformity clause of the Illinois Constitution, but the legislature was encouraged to reconsider the question in light of the benefits provided to the State.
Decision Under Review Appeal from the Circuit Court of Macon County, the Hon. James. R. Coryell, Judge, presiding.
Judgment Reversed.
Darrell A. Woolums and Bridget C. Hogan, of Samuels, Miller, Schroeder, Jackson & Sly, LLP, of Decatur, for appellee.
Justices JUSTICE THOMAS delivered the judgment of the court, with opinion.
Chief Justice Garman and Justices Freeman, Kilbride, Karmeier, Burke, and Theis concurred in the judgment and opinion.
OPINION
¶ 1 The issue is whether, as applied in this case, section 5E-10 of the Illinois Public Aid Code (Code) (
¶ 2 BACKGROUND
¶ 3 Plaintiff, Grand Chapter, Order of the Eastern Star of the State of Illinois, is an Illinois fraternal organization and not-for-profit corporation that is recognized as tax-exempt under
¶ 4 In May 2002, the Department of Public Aid (Department) sent a letter to Grand Chapter directing it to pay the “Nursing Home License Fee” established in section 5E-10 of the Code (the bed fee). Section 5E-10 provides, in relevant part:
“[e]very nursing home provider shall pay to [the Department] on or before September 10, December 10, March 10, and June 10, a fee in the amount of $1.50 for each licensed nursing bed day for the calendar quarter in which the payment is due.”
305 ILCS 5/5E-10 (West 2012).1
In October 2002, the Department sent Grand Chapter another letter stating that Grand Chapter was delinquent in its payment of the bed fee going back to 1993 and that it owed the Department $244,233 in back fees and an additional $237,890 in penalties. Grand Chapter responded by paying its liability under protest and by filing a declaratory judgment action
¶ 5 According to Grand Chapter‘s amended complaint, admission to Eastern Star is limited to members of Grand Chapter, who either pay Eastern Star a monthly fee or else surrender to Eastern Star all of their present and future assets in exchange for lifetime care. Eastern Star does not apply for or accept any government funding or subsidies, including Medicaid reimbursement, and its residents are required to relinquish the receipt of any government aid, including Medicaid, prior to entering Eastern Star. Given this, Grand Chapter alleged that collection of the bed fee was unconstitutional as applied to it because the principle purpose of the bed fee is to fund Medicaid-related expenditures that are neither precipitated by nor paid to Eastern Star.
¶ 6 The Department filed a response, and both parties moved for summary judgment. In its motion, the State argued that the purpose of the bed fee is not simply to fund Medicaid-related expenditures. Rather, by statute, the Department is required to deposit all collected bed fees into the Long-Term Care Provider Fund (see
¶ 7 After a hearing, the circuit court of Macon County entered an order granting Grand Chapter‘s motion for summary judgment and declaring the bed fee unconstitutional under the uniformity clause. In its order, the circuit court specifically found that receipts from the bed fee are paid into the Long-Term Care Provider Fund and that such funds cannot be used either for “general administrative purposes” or for paying any expenses that the state might incur in regulating Eastern Star. Rather, according to the circuit court, the sole purpose of the bed fee is “to provide for reimbursement of Medicaid,” a purpose that bears no reasonable relationship to Grand Chapter, which is “a charitable institution that operates on a considerable deficit every year” and “receives no Medicaid funds so there is nothing to reimburse.”
¶ 8 Because the circuit court‘s judgment invalidated a statute of this state, the Department appealed directly to this court under Supreme Court Rule 302(a)(1) (Ill. S. Ct. R. 302(a)(1) (eff. Oct. 4, 2011)).
¶ 9 DISCUSSION
¶ 10 The issue before this court is whether the circuit court erred in declaring the bed fee, as applied to Eastern Star, unconstitutional under the uniformity clause. The constitutionality of a
¶ 11 The uniformity clause of the Illinois Constitution provides that “[i]n any law classifying the subjects or objects of non-property taxes or fees, the classes shall be reasonable and the subjects and objects within each class shall be taxed uniformly.”
¶ 12 In declaring the bed fee unconstitutional under the uniformity clause, the circuit court followed the precise formula set forth above. The circuit court correctly noted that its first task was to identify the purpose of the bed fee, which it determined was “reimbursement of Medicaid.” From there, the circuit court asked whether the inclusion of Eastern Star within the class of taxpayers subject to the bed fee bore any reasonable relationship to that purpose. The circuit court concluded that it did not, explaining that Eastern Star is “a charitable institution that operates on a considerable deficit every year” and “receives no Medicaid funds so there is nothing to reimburse.” In other words, the circuit court concluded that, because the sole purpose of the bed fee is the reimbursement of Medicaid, it is unreasonable to impose that tax on an institution like Eastern Star, which in no way participates in the Medicaid program.
¶ 13 For its part, Grand Chapter effectively adopts and endorses the circuit court‘s reasoning in its brief before this court. According to Grand Chapter, the purpose of the bed fee is “to fund Medicaid, including reimbursement to nursing home providers who operate within the Medicaid program.” Grand Chapter then argues that, given this purpose, it is both “absurd and unreasonable” to collect the bed fee from Eastern Star, “a nursing home provider that does not benefit from or participate in the Medicaid program, and who will not benefit from or participate in the Medicaid program in the future.”
¶ 14 Though structurally sound, the argument advanced by both the circuit court and Grand Chapter suffers from two important and fatal errors. First, the purpose of the bed fee is not simply “to fund Medicaid, including reimbursement to nursing home providers who operate within the Medicaid program.” On the contrary, though Medicaid reimbursement is certainly one of the purposes of the bed fee, it is clear that the bed fee serves many additional purposes that are wholly unrelated to the Medicaid program. Indeed, section 5E-10 of the Code, which establishes the bed fee, expressly states that “[a]ll fees received by [the Department] under this
¶ 15 The second error we find in the argument advanced by both the circuit court and Grand Chapter is the assumption that a taxpayer cannot be made to pay a tax for which he receives no direct, reciprocal, and proportionate benefit. Both the circuit court and Grand Chapter clearly assume that a taxpayer cannot be made to pay a tax that exists either to fix a problem that the taxpayer did not cause or to fund a benefit that the taxpayer does not receive. Indeed, in its order striking down the bed fee as applied to Eastern Star, the circuit court lamented that “[Eastern Star] receives no Medicaid funds so there is nothing to reimburse.” And in its brief before this court, Grand Chapter repeatedly insists, in a variety of forms, that it is “patently unfair to impose the bed tax on a nursing home provider who does not, and will not in the future, participate in the Medicaid program nor receive Medicaid reimbursement.” The problem with both the circuit court‘s and Grand Chapter‘s argument is that this court has never required perfect reciprocity between the payment of a tax and the receipt of a benefit from that tax. On the contrary, ” ‘[n]othing is more familiar in taxation than the imposition of a tax upon a class or upon individuals who enjoy no direct benefit from its expenditure, and who are not responsible for the condition to be remedied.’ ” Arangold Corp., 204 Ill. 2d at 151 (quoting Carmichael v. Southern Coal & Coke Co., 301 U.S. 495, 521-22 (1937)). And because of this, this court has “repeatedly held that a tax may be imposed upon a class even though the class enjoys no benefit from the tax.” Empress Casino, 231 Ill. 2d at 71-72. Again, the operative inquiry in uniformity cases is not whether there is perfect reciprocity between payment of the tax and distribution of the tax, but rather only whether the taxing classification bears “some reasonable relationship” to the object or purpose of the tax. (Internal quotation marks omitted.) Id. at 72. This has always been this court‘s uniformity standard, and it is a far less stringent standard than that advanced by both the circuit court and Grand Chapter.
¶ 16 Now we note that, in support of the more stringent standard described above, both the circuit court and Grand Chapter rely heavily and almost exclusively upon this court‘s decision in Primeco Personal Communications, L.P. v. Illinois Commerce Comm‘n, 196 Ill. 2d 70 (2001). Such reliance is misplaced, however, as Primeco involved a factual anomaly that distinguishes it from this and virtually every other of this court‘s uniformity decisions. In Primeco, this court faced a statutory scheme that not only established a very specific tax but also described with both precision and resolve the single and very narrow purpose that tax was designed to serve. At issue in Primeco was the “municipal infrastructure maintenance fee” (municipal IMF), which was charged to all Illinois telecommunications providers, both landline-based and wireless alike. Id. at 73. Based on clear and pervasive statutory language, this court concluded that the municipal IMF was effectively “a charge for obtaining access to
¶ 17 Thus, contrary to both the circuit court‘s and Grand Chapter‘s understanding, Primeco does not stand for the broad proposition that the State may impose a tax or fee only on those who either directly benefit from or directly necessitate that tax or fee. Indeed, in case after case, we have said precisely the opposite. See, e.g., Arangold, 204 Ill. 2d at 151; Empress Casino, 231 Ill. 2d at 71-72. Rather, Primeco stands for the very narrow proposition that, when a “tax” or “fee” is operating effectively and exclusively as a rent payment, it may be charged only to those actually enjoying the leasehold. This is a singular holding that has no relevance to the case at hand, as the bed fee is not charged in exchange for the use of anything but rather, like a conventional tax, contributes to the funding of a broad spectrum of state obligations.
¶ 18 So with these two analytical errors identified and corrected, we may now proceed to ask the pertinent uniformity question: whether the taxing classification at issue, which in this case is “every nursing home,” bears some reasonable relationship to the object of the legislation or to public policy. We hold that it does. Again, contrary to both the circuit court‘s and Grand Chapter‘s understanding, the object of the bed fee is not simply Medicaid reimbursement. Rather, all collected bed fees are deposited into the Long-Term Care Provider Fund, which may be used to fund not only Medicaid reimbursement but also the administrative expenses of the Department and its agents, the enforcement of Illinois‘s nursing home standards, the nursing home ombudsman program, the expansion of home- and community-based services, and the General Obligation Bond Retirement and Interest Fund. The question, then, becomes whether there is a reasonable relationship between (1) collecting the bed fee from “every nursing home,” including Eastern Star, and (2) the state‘s need to fund these various obligations. Clearly, there is. To begin with, “every nursing home,” including Eastern Star, is licensed and operates under various permits issued by the Illinois Department of Public Health, which receives nearly $2 million annually from the Long-Term Care Provider Fund. Secondly, “every nursing home,” including Eastern Star, benefits from operating within a regulated industry that is subject to uniform standards of quality and care, the enforcement and oversight of which is paid for in part by the Long-Term Care Provider Fund. And lastly, everyone who lives or does business in the state of Illinois, including “every nursing home,” benefits from and has an interest in ensuring that Illinois‘s bond obligations remain adequately funded. As necessary, the bed fees deposited into the Long-Term Care Provider Fund are available for precisely this purpose. Arguably, any one of these three rationales would be enough to uphold the collection of the bed fee in this case. Taken together, they leave no doubt that the collection of the bed fee from Grand Chapter is perfectly constitutional.
¶ 19 All of that said, we observe in closing that the mere fact that a tax is permissible does not necessarily mean it is wise. Over the course of briefing and arguing its case before this court, Grand Chapter paints a compelling picture of both the noble charitable work it performs and the substantial financial burden it experiences as a result of the bed fee. At numerous points, Grand Chapter emphasizes that the work it performs helps to relieve the burden on the Illinois
¶ 20 CONCLUSION
¶ 21 For the foregoing reasons, the judgment of the circuit court of Macon County is reversed.
¶ 22 Reversed.