The tax man finally cameth for the Joint Commission on Accreditation of Healthcare Organizations, which the Illinois court system said runs more like a business than a public charity.
After losing a five-year legal battle to exempt its new $23 million corporate headquarters building complex from local real estate taxes, the Oakbrook Terrace, Ill.-based healthcare accrediting agency got a bill last month for five years' worth of back taxes. The JCAHO owes DuPage County a little less than $1.5 million, payable by May 15.
A JCAHO spokeswoman said the organization also got its bill for about $359,000 for 1995 property taxes payable in 1996. That's due to the county in June, she said. The $1.5 million covers the JCAHO tax liability from 1990 through 1994.
In 1994, the JCAHO began setting aside money to cover its tax bill if it ever came due, according to the organization's latest annual tax filing with the Internal Revenue Service. Consequently, the past-due amounts won't be paid out of current operating revenues. As of Dec. 31, 1994, the
JCAHO already had set aside nearly $1.7 million to cover "accrued real estate taxes."
But in the future the annual tax bill will become an ordinary operational expense that the JCAHO "will manage like all expenses within its budget," spokeswoman Alice Brown said.
The dispute over the JCAHO's property-tax exemption dates back to December 1990, eight months after the JCAHO opened its 150,000-square-foot office complex in the far west Chicago suburb. The JCAHO previously leased office space in downtown Chicago for its corporate headquarters.
That month, the JCAHO filed for an exemption from property taxes for the new building. A month later, in January 1991, the DuPage County Board of Review forwarded the JCAHO's application to the Illinois Department of Revenue with the recommendation that the application be denied.
However, the department approved the JCAHO's exemption application in May 1991. Villa Park (Ill.) School District 45 and the county board appealed to an administrative law judge assigned to the revenue department.
Judge George Nafziger in May 1993 upheld the decision and the JCAHO's exemption. The county board and school district then appealed to the DuPage County Circuit Court, which issued the pivotal ruling.
In an eight-page decision rendered in June 1994, DuPage County Circuit Court Judge Bonnie Wheaton stripped the JCAHO of its property-tax exemption. She ruled that the JCAHO operated more like a business than a charity, concluding that the JCAHO's activities directly benefited healthcare facilities, not the public, and the organization generated "a substantial surplus of funds" from survey fees, not from any public or private donations.
The JCAHO said it deserved the exemption as a public charity because it serves the public interest by improving the quality of healthcare services at accredited facilities used by the public.
The JCAHO's cause wasn't helped by the fact that, during the course of the tax dispute, it was setting record highs for annual revenues and profits (Nov. 28, 1994, p. 18).
In August 1995, the 2nd District Appellate Court of Illinois in Elgin upheld the trial court decision. The JCAHO appealed the case to the Illinois Supreme Court, but the state's highest court refused to hear the case in December 1995, letting the lower court decisions stand and requiring the JCAHO to pay real estate taxes.
The JCAHO still is recognized as a tax-exempt public charity under Section 501(c)(3) of the Internal Revenue Code.