                                Illinois Official Reports

                                        Supreme Court



          Grand Chapter, Order of the Eastern Star of the State of Illinois v. Topinka,
                                       2015 IL 117083




Caption in Supreme         GRAND CHAPTER, ORDER OF THE EASTERN STAR OF THE
Court:                     STATE OF ILLINOIS, Appellee, v. JUDY BAAR TOPINKA et al.,
                           Appellants.



Docket No.                 117083



Filed                      January 23, 2015



Held                       State taxation of a nonprofit nursing home by imposition of a “bed
(Note: This syllabus fee” was upheld against a challenge brought under the uniformity
constitutes no part of the clause of the Illinois Constitution, but the legislature was encouraged
opinion of the court but to reconsider the question in light of the benefits provided to the State.
has been prepared by the
Reporter of Decisions
for the convenience of
the reader.)




Decision Under             Appeal from the Circuit Court of Macon County, the Hon. James. R.
Review                     Coryell, Judge, presiding.



Judgment                   Reversed.
     Counsel on                  Lisa Madigan, Attorney General, of Springfield (Carolyn E. Shapiro,
     Appeal                      Solicitor General, and Evan Siegel, Assistant Attorney General, of
                                 Chicago, of counsel), for appellants.

                                 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) (305 ILCS 5/5E-10 (West 2012)), which taxes the licensed beds of all Illinois nursing
       home providers, violates the uniformity clause of the Illinois Constitution (Ill. Const. 1970, art.
       IX, § 2). We hold that it does not.

¶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
       section 501(c)(10) of the federal Internal Revenue Code (26 U.S.C. § 501(c)(10) (1988)).
       Plaintiff owns, operates, and maintains the Eastern Star Home, a nursing home in Macon,
       Illinois (Eastern Star). Eastern Star is licensed by the Illinois Department of Public Health,
       which also has granted Eastern Star a permit to enter into life care contracts under the Life Care
       Facilities Act (210 ILCS 40/1 et seq. (West 2012)).
¶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


           Although the statute refers to the charge as a “fee,” it is in fact a tax, as it is being charged not in
           1

       exchange for the rendering of a particular service but rather for the raising of general revenues. See
       Crocker v. Finley, 99 Ill. 2d 444, 452 (1984).

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       seeking to have the bed fee declared unconstitutional under the uniformity clause of the Illinois
       Constitution.
¶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 305 ILCS 5/5B-8 (West 2012)), which is used for
       a variety of purposes, only one of which is the reimbursement of Medicaid-related
       expenditures and many of which either benefit or are precipitated by the operation of nursing
       homes generally, including Eastern Star. In light of this, the State argued, it is perfectly
       reasonable to include Eastern Star in the class of “every nursing home” for purposes of
       enforcement and collection of the bed fee. In contrast, Grand Chapter’s motion argued that the
       bed fee exists solely to fund the reimbursement of nursing homes that charge the state of
       Illinois through the Medicaid system. Because of this, Grand Chapter argued, it is both
       unreasonable and absurd to collect that fee from Eastern Star, which does not, never has, and
       never will participate in the Medicaid system or any other government-funded program.
       According to Grand Chapter’s motion, “[t]here is no conceivable benefit to Eastern Star from
       the bed fee program and there is no conceivable way that Eastern Star contributes to the
       problem” that the bed fee was enacted to remedy.
¶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



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       statute is a question of law, and our review therefore is de novo. People v. Molnar, 222 Ill. 2d
       495, 508 (2006).
¶ 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.” Ill. Const. 1970, art. IX, § 2.
       “To survive scrutiny under the uniformity clause, a nonproperty tax classification must (1) be
       based on a real and substantial difference between the people taxed and those not taxed, and (2)
       bear some reasonable relationship to the object of the legislation or to public policy.” Arangold
       Corp. v. Zehnder, 204 Ill. 2d 142, 153 (2003). Here, the first of these standards is not at issue,
       as Grand Chapter is not arguing that there is no real and substantial difference between those
       who are taxed and those who are not—i.e., those who are subject to the bed fee and those who
       are not. Rather, Grand Chapter is arguing that there is a real and substantial difference within
       the class of those who are taxed, namely between nursing homes that participate in the
       Medicaid program and nursing homes that do not. Thus, our inquiry in this case is limited to
       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. This is a
       narrow inquiry, and we will uphold a taxing classification as long as “a set of facts ‘can be
       reasonably conceived that would sustain it.’ ” Empress Casino Joliet Corp. v. Giannoulias,
       231 Ill. 2d 62, 73 (2008) (quoting Geja’s Cafe v. Metropolitan Pier & Exposition Authority,
       153 Ill. 2d 239, 248 (1992)).
¶ 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


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       Section shall be deposited into the Long-Term Care Provider Fund.” 305 ILCS 5/5E-10 (West
       2012). The Long-Term Care Provider Fund is established in section 5B-8 of the Code, which
       enumerates no less than seven distinct purposes for which disbursements from the Fund may
       be made. In addition to Medicaid reimbursement, these purposes include paying the
       administrative expenses of the Department and its agents, the enforcement of Illinois’s nursing
       home standards, support of a nursing home ombudsman program, the expansion of home- and
       community-based services, and the funding of Illinois’s General Obligation Bond Retirement
       and Interest Fund. 305 ILCS 5/5B-8 (West 2012). Each of these purposes may be funded by the
       bed fee, and not one of these purposes is tied in any way directly to the Medicaid program.
       Clearly, then, the objects and purposes of the bed fee are far broader than what the circuit court
       and Grand Chapter would claim.
¶ 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

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       public rights-of-way.” Id. at 92. In fact, this court went so far as to characterize the municipal
       IMF as an outright “quid pro quo,” exacting “payment of the fee in exchange for access to the
       public rights-of-way.” Id. at 94. In light of this decidedly reciprocal arrangement, this court
       ultimately concluded that it was unreasonable to charge the municipal IMF to providers of
       wireless telecommunications, as such providers “do not own, operate, or maintain any portion
       of their infrastructure within the public rights-of-way and do not need or desire to have access
       to the public rights-of-way for the purpose of installing any such infrastructure.” Id. at 97.
¶ 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

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       Medicaid system by providing private nursing home care to indigent citizens at substantially
       below market rates and often at a substantial financial loss. And the State itself conceded
       below that it is “second to none in [its] admiration of the charitable works” that Grand Chapter
       performs. In light of this, we invite the legislature to reexamine the bed fee statute and, in doing
       so, to assess fully whether the inclusion of enterprises such as Grand Chapter and Eastern Star
       within the applicable taxing classification is truly necessary and essential as a matter of public
       policy. As this court has noted, “ ‘[e]xemption to charitable, educational and religious
       organizations is bottomed upon the fact that they render service to the State, for which reason
       they are relieved of certain burdens of taxation.’ ” In re Estate of Schureman, 8 Ill. 2d 125, 132
       (1956) (quoting Morgan v. Atchison, T. & S.F. Ry. Co., 225 P. 1029, 1031 (1924)). It would
       certainly appear that, in its operation of Eastern Star, Grand Chapter is rendering a service that
       benefits not only its indigent residents but also the taxpayers of Illinois. Whether this is indeed
       the case, and if so whether Grand Chapter and others like it deserve to be “relieved of certain
       burdens of taxation” as a result, are questions we encourage the legislature to consider closely.

¶ 20                                        CONCLUSION
¶ 21      For the foregoing reasons, the judgment of the circuit court of Macon County is reversed.

¶ 22      Reversed.




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