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Illinois Supreme Court Considers Constitutionality of Nursing Home Tax

In the state of Illinois, under current state law (306 ILCS 5/5E-10), the government collects a fee of $1.50 per “each licensed nursing bed day” from nursing home providers on a quarterly basis. The money collected from this fee is placed into a Long-Term Care Provider Fund. It is important to note, however, that nursing homes are prohibited from passing this cost along to residents, meaning the fee must be paid out directly by the home without an increase of $1.50 per bed per fiscal quarter for each resident’s bill. A nursing home sued the state, arguing that the fee is unconstitutional.

A state Circuit Court invalidated the fee statute on the grounds that it violates the Uniformity Clause of the Illinois Constitution. Under Article IX, Section 2 of the state Constitution, non-property taxes or fees must be “reasonable” and applied to the relevant subjects “uniformly.” The U.S. Constitution and other state constitutions have similar such uniformity provisions as pertains to those governments’ respective taxing powers. The State in this case obviously argued the opposite, that the fee is reasonable and thus constitutional under the Uniformity Clause.

The IL Supreme Court Review

This particular case made it up to the state’s highest court – the Illinois Supreme Court – and justices heard oral arguments a couple of months ago. The State’s attorney has argued that statutes are “presumed to be constitutional under the uniformity clause” because the legislature has the “broad discretion to classify different groups of taxpayers.” Thus this deference to the legislature’s judgment as to how to tax which groups of taxpayers is the underlying rationale for this presumption of validity. The State therefore simply has to demonstrate that the tax classification (in this case a per-bed quarterly fee for nursing homes) is reasonable.

A person or entity challenging a classified tax like this one under the Uniformity Clause can only win where they show that neither the factual circumstances or the law can support such a tax because it is so arbitrarily burdensome and unreasonable for the particular class – here nursing homes – to pay. The State has argued that the tax is in no way arbitrary, and serves the reasonable and legitimate purpose of “supporting indigent and at risk populations in the area of health care” since the money goes directly to the Long Term Care Provider Fund, as opposed to simply going into the state’s general treasury or other unrelated fund or expenses.

As a report indicates, the fund recently had about $650 million, the vast majority of which went to the Department of Health Care and Family Services in 2011, and some of which also went to the Department of Public Health. These departments oversee or deal with nursing homes in some way, such as through licensing and other oversight.

Lower Court Analysis

In invalidating the statute, the Circuit Court found the fee unreasonable because taxpayers do not receive something in return, that the Long Term Care Provider Fund only kicks money over to Medicaid funding, and that the plaintiff nursing home should be exempt from the tax because of its charity status under the tax code. Yet as the State has argued, the money generated from this bed fee is used for a number of programs or other expenses related to nursing homes and healthcare.

Furthermore, as opposed to targeting just the particular plaintiff nursing home, all nursing homes across Illinois are subject to the tax, thus making it a broader class than argued by the nursing home. The State has overall disputed the nursing home’s arguments as factually false or limited. A decision on this interesting constitutional issue as it pertains to nursing home taxation, is expected from the Illinois Supreme Court in the next few months.

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