Could a municipality impose a hotel-like excise tax on nonresident patients of a nonprofit hospital?

Plain-English summary

A requester asked whether a municipality could impose an excise tax resembling a hotel room tax on nonprofit-hospital patients who lived outside specified local ZIP codes.

IDOR did not decide whether the proposal was legal. Local Hotel Operators' Occupation Taxes were generally outside the Department's jurisdiction and administered by the municipality imposing them. IDOR directed a municipality considering the tax to consult its State's Attorney and review the Municipal Code's tax-preemption provisions.

The letter also explained the limited meaning of a hospital's Illinois sales-tax exemption number. It showed that IDOR recognized the hospital as exempt from Use Tax on qualifying organizational-purpose purchases and allowed a very limited amount of retail selling without Retailers' Occupation Tax. It did not establish exemption from every form of tax, and IDOR declined to address property-tax effects.

What this means for you

A state-issued exempt-organization number is not a blanket immunity from municipal excise taxes or property taxes. Local taxing authority must be analyzed under the law governing that particular local tax.

Common questions

Did IDOR approve the proposed hospital-patient tax? No.

Who administered the local hotel tax discussed? The municipality imposing it.

Did the hospital's exemption number cover all taxes? No.

Citations and references

• 65 ILCS 5/8-3-14 and 5/8-11-6a.
• 35 ILCS 120/2-5(11) and 120/2-9.
• 86 Ill. Adm. Code 130.2005.

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2015.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2015/st-15-0077-gil.pdf

Original ruling text

ST 15-0077-GIL 12/07/15 LOCAL TAXES
Local Hotel Operators’ Occupation Taxes are generally outside of the jurisdiction of the Illinois
Department of Revenue and are administered by the municipality imposing the tax. See 65
ILCS 5/8-3-14 . (This is a GIL.)

December 7, 2015

Dear Xxxxx:
This letter is in response to your letter received July 13, 2015, in which you request
information. The Department issues two types of letter rulings. Private Letter Rulings (“PLRs”) are
issued by the Department in response to specific taxpayer inquiries concerning the application of a
tax statute or rule to a particular fact situation. A PLR is binding on the Department, but only as to the
taxpayer who is the subject of the request for ruling and only to the extent the facts recited in the PLR
are correct and complete. Persons seeking PLRs must comply with the procedures for PLRs found in
the Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information
Letter (“GIL”) is to direct taxpayers to Department regulations or other sources of information
regarding the topic about which they have inquired. A GIL is not a statement of Department policy
and is not binding on the Department. See 2 Ill. Adm. Code 1200.120. You may access our website
at www.tax.illinois.gov to review regulations, letter rulings and other types of information relevant to
your inquiry.
The nature of your inquiry and the information you have provided require that we respond with
a GIL. In your letter you have stated and made inquiry as follows:
I have a taxing question regarding non-for-profit hospitals. I know these types of
business entities are exempt from sales and property taxes once they are granted nonfor-profit status. However, I was wondering if it is legal for a municipality to institute an
excise tax similar to a municipal hotel room tax. My idea would be to institute a room
tax on hospital patients residing outside the zip codes that serve the municipality in
question. That way the city’s burden of providing police, fire, and certain public works
services would be equally spread across all patients served by the hospital in question.
I appreciate your review of this idea as I was unable to determine from your website if
non-for-profit status exempts a business entity from all forms of taxes. You can email
your reply or a written reply can be sent to me.
Thanks in advance for your help on this matter.
DEPARTMENT’S RESPONSE:
Local Hotel Operators’ Occupation Taxes are generally outside of the jurisdiction of the Illinois
Department of Revenue and are administered by the municipality imposing the tax. See 65 ILCS 5/83-14. A municipality seeking to impose such a tax should consult with its local State’s Attorney’s
Office about the legal implications of imposing such a tax on hospital patients living outside the

municipality. Section 8-11-6a of the Illinois Municipal Code also provides some guidance on what
taxes a municipality is preempted from imposing as well as taxes a municipality is not preempted
from imposing. (65 ILCS 5/8-11-6a) The sales tax exemption number (“E number”) issued to a
hospital under the Retailers’ Occupation Tax Act and Use Tax Act (See 35 ILCS 120/2-5(11) and 35
ILCS 120/2-9) evidences only that the Department recognizes the hospital as exempt from incurring
Use Tax when purchasing tangible personal property in furtherance of its organizational purpose and
that the hospital is allowed to engage in a very limited amount of retail selling without incurring
Retailers’ Occupation Tax liability. See 86 Ill. Adm. Code 130.2005. I am unable to speak to the
impact of a property tax exemption.
I hope this information is helpful. If you require additional information, please visit our website
at www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217) 782-3336.

Very truly yours,

Samuel J. Moore
Associate Counsel
SJM:mdb