In the closing days of its January term, a unanimous Illinois Supreme Court upheld the constitutionality of a “bed tax” on Illinois nursing homes, reversing the Circuit Court’s judgment that the tax violates the state constitution’s Uniformity Clause. The statute, 305 ILCS 5/5E-10, imposes a “fee” of “$1.50 for each licensed nursing bed day for the calendar quarter.” The proceeds of the tax are deposited “into the Long-Term Care Provider Fund.” The case is Grand Chapter, Order of the Eastern Star of the State of Illinois v. Topinka. Our report on the oral argument is here.
The plaintiff in Grand Chapter is a fraternal organization and not-for-profit corporation which owns a nursing home in Macon, Illinois, licensed by the Illinois Department of Public Health. Admission into the home is limited to members of the plaintiff organization. Residents either pay a monthly fee, or surrender all their present and future assets to the plaintiff in return for lifetime care. Residents are also required to decline any government aid, including Medicaid, prior to entering the home.
The Uniformity Clause of the Illinois Constitution provides that:
In 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.
The plaintiff alleged that the tax was used principally to fund Medicaid-related expenditures. But the plaintiff argued that it didn’t contribute to the problem addressed by Medicaid; indeed, it helped mitigate the problem by providing life-care to members of the plaintiff order who would otherwise be receiving government aid. Nor did the plaintiff receive any money in connection with Medicaid. So the question for the Court was – did any of that matter for the tax’s constitutionality?
The Circuit Court said yes, but in an opinion by Justice Thomas, the Illinois Supreme Court said no. The Circuit Court’s reasoning involved two fatal mistakes, according to the Court.
First, it was based on the proposition that the tax was intended to reimburse Medicaid expenses. In fact, the statute set forth seven distinct purposes for the Fund into which tax receipts were deposited, including paying the Department’s administrative expenses, enforcing the State’s nursing home standards and supporting a Department nursing home ombudsman program.
Second, it just wasn’t true that a taxpayer couldn’t be required to pay a tax it receives no benefit from. The Circuit Court and the plaintiff had relied mostly on the Court’s opinion in Primeco Personal Communications, LP v. Illinois Commerce Commission. Primeco was limited to its facts, the Court held, standing only for the proposition that a tax functioning essentially as a rent payment could be imposed only on those actually enjoying the leasehold. It didn’t help the plaintiff with the broader proposition that only quid pro quo taxes were permissible.
The Supreme Court concluded with an invitation to the legislature: “the mere fact that a tax is permissible does not necessarily mean it is wise.” The plaintiff painted a “compelling picture” of the “noble charitable work” it was performing, according to the Court – work which was significantly burdened by the tax. The Court suggested that the legislature might want to reevaluate whether including operations like the plaintiff’s within the scope of the tax was really necessary.