4-07-0500 Filed 8/26/08
IN THE APPELLATE COURT
OF ILLINOIS
FOURTH DISTRICT
SPRINGFIELD SCHOOL DISTRICT NO. 186, ) Appeal from Plaintiff-Appellant, ) Circuit Court of v. ) Sangamon County THE DEPARTMENT OF REVENUE OF THE STATE ) No. 06MR546 OF ILLINOIS; BRIAN A. HAMER, Director ) of the Department of Revenue; and THE ) Honorable SANGAMON COUNTY BOARD OF REVIEW, ) Patrick J. Londrigan, Defendants-Appellees. ) Judge Presiding. _________________________________________________________________
JUSTICE KNECHT delivered the opinion of the court:
Plaintiff Springfield School District No. 186 (Dis-
trict), appeals the decision of the Illinois Department of
Revenue (Department) to deny its application for a property tax
exemption pursuant to sections 15-60, 15-135, and 15-35(e) of the
Illinois Property Tax Code (Code) (35 ILCS 200/15-60, 15-135, 15-
35(e) (West 2004)). Plaintiff sought administrative review and
the circuit court affirmed the Department. The District appeals,
claiming the Department erred in the following respects: (1) it
found the lease between the District and Central Management
Services (CMS) was a lease with a view to profit; (2) it found
the section 15-60 exemption where a taxing district holds prop-
erty for future expansion or development did not apply to school
districts; and (3) it found the requirement of section 15-35 that
property not be leased with a view to profit applied to section
15-35(e), exempting property owned by a school district. For the reasons that follow, we affirm the circuit court's decision
affirming the Department's decision.
- 2 - I. BACKGROUND
In February 2004, the District sought a property-tax
exemption from the Sangamon County Board of Review for a former
school building for tax year 2004. The District filed an applic-
ation for nonhomestead property-tax exemption concerning the
property located at 400 West Lawrence in Springfield, Illinois.
The District's original application sought an exemption based on
section 15-35(e) of the Code. The District later amended the
application to include sections 15-60 and 15-135 as additional
grounds for exemption. On August 3, 2004, the Sangamon County
Board of Review recommended full approval of the exemption
application. On August 26, 2004, the Department denied the
application, finding the property was not in exempt ownership and
not in exempt use. In October 2004, the District requested a
formal administrative hearing in response to the denial of the
property-tax exemption. The hearing was held January 26, 2006,
in front of an administrative law judge (ALJ), who recommended
denial of tax exemption. In August 2006, defendant, Brian A.
Hamer, Director of defendant Department (Director), denied the
exemption. In September 2006, the District filed for administra-
tive review. The circuit court heard arguments and in May 2007
affirmed the Director's decision.
The District used the subject property as a school
until the mid 1990s. The building needed renovations and the
- 3 - District lacked resources to make the building handicap accessi-
ble. In early 1997, the District attempted to sell the property
through a sealed-bid auction but received no bids. The District
was approached by Public Assets Service Corporation (PASC) with a
sale-leaseback proposal. In 2001, the District again went
through the bid process and sold the building to PASC, a not-for-
profit corporation, for $535,000 and leased it back for a 20-year
term. PASC sold certificates of participation (bonds) to finance
the renovation and engaged developer Hay Edwards Associated, LLC
(Hay Edwards), to perform the renovation. The District leased
the property from PASC and subleased it to CMS. CMS's rental
payments are made to a trustee, who then pays the bonds.
The agreement further provided Hay Edwards would
advance funds to the District to cover construction-delay costs
and changes in the scope of the renovation. Hay Edwards received
an unconditional first option to purchase the building for fair
market value upon the expiration of the lease-purchase agreement
and a right of first refusal should PASC and the District decide
to sell the building earlier. The District received a subordi-
nate option to purchase the building at the expiration of the
lease-purchase agreement.
At the administrative hearing, the District entered
into evidence a net-income analysis for the 20-year term of the
sublease. The District subleased the building to CMS for 10
- 4 - years beginning April 2003 for an annual rent of $1,033,950 with
a 2% annual increase. The lease provided CMS could renew for an
additional 10 years, or could terminate after 5 and 15 years with
180 days' notice. During the first 16 years of the lease, the
District would see no positive cash flow. If the District
received a positive cash flow during the remaining four years,
the money would be applied toward the District's operating
budget.
In August 2006, the Director denied the exemption,
finding the following: (1) the qualifying language "used with a
view to profit" applies to subsection 15-35(e) because allowing
property owned by a school district to be exempt even if used
with a view to profit would mitigate the effect of the exclusion
in the first paragraph and mitigate the effect of the exemption
provision in section 15-35; (2) the District failed to present
clear and convincing evidence the property is not used with a
view to profit as the $535,000 payment was not discussed, the
District included a property-tax loss as a deduction, the Dis-
trict derived an economic advantage from the lease of the build-
ing whether or not it produced income; and (3) the Code provides
no exemption for property used by the State, only property owned
by the State.
As stated, the District sought administrative review,
and the circuit court affirmed.
- 5 - II. ANALYSIS
The first issue raised by the District is whether the
property is eligible for exemption under sections 15-35(e) and
15-135 because it is not leased "with a view to profit." The
District argues the property qualifies for exemption under
section 15-35(e) as a transaction for the purpose of financing.
Section 15-35 provides:
"Schools. All property donated by the
United States for school purposes, and all
property of schools, not sold or leased or
otherwise used with a view to profit, is
exempt, whether owned by a resident or non-
resident of this State or by a corporation
incorporated in any state of the United
States. Also exempt is:
* * *
(e) property owned by a school
district. The exemption under this
subsection is not affected by any
transaction in which, for the pur-
pose of obtaining financing, the
school district, directly or indi-
rectly, leases or otherwise trans-
fers the property to another for
- 6 - which or whom property is not ex-
empt and immediately after the
lease or transfer enters into a
leaseback or other agreement that
directly or indirectly gives the
school district a right to use,
control, and possess the property.
In the case of a conveyance of the
property, the school district must
retain an option to purchase the
property at a future date or,
within the limitations period for
reverters, the property must revert
back to the school district." 35
ILCS 200/15-35(e) (West 2004).
Section 15-135 provides:
"School districts and community college
districts. All property of public school
districts or public community college dis-
tricts not leased by those districts or oth-
erwise used with a view to profit is exempt."
35 ILCS 200/15-135 (West 2004).
The District notes the parties stipulated (1) the sale-leaseback
between the District and PASC was for the purpose of obtaining
- 7 - financing and (2) the District is the owner of the property. The
lease was part of a larger financing transaction to allow the
District to renovate the building. The entire transaction,
including the sublease, was part of a financing transaction
pursuant to Cole Hospital, Inc. v. Champaign County Board of
Review, 113 Ill. App. 3d 96, 101, 446 N.E.2d 562, 565 (1983).
Although two leases were involved, the evidence showed both
leases constituted the entire transaction. The District contends
testimony at the departmental hearing showed (1) this transaction
was the only option to renovate the building, and (2) the Dis-
trict did not lease the building to CMS with a view to profit.
The Department argues the property is not exempt under
section 15-35 as it is leased "with a view to profit" because (1)
the property is not continuing in a tax-exempt use after leasing
and (2) the District intends for the lease to generate revenue.
Property used by the State is not tax exempt, only property owned
by the State. 35 ILCS 200/15-55 (West 2004); see Northern
Illinois University Foundation v. Sweet, 237 Ill. App. 3d 28, 36-
37, 603 N.E.2d 84, 90 (1992) (denying exemption for property
leased to State and not used primarily for educational purposes).
CMS's sublease is not a tax-exempt use of the property. See
Village of Oak Park v. Rosewell, 115 Ill. App. 3d 497, 501, 450
N.E.2d 981, 984 (1983) (religious organization not entitled to
tax exemption on parking lot leased to municipality because
- 8 - municipal tax exemption is based on ownership, not use). Because
the use of the property is not tax exempt, the District bore the
burden of proving that the sublease was not made "with a view to
profit." While revenue was pledged to pay the bonds and later
the operating costs, the District's argument fails because under
DePaul University, Inc. v. Rosewell, 176 Ill. App. 3d 755, 757,
531 N.E.2d 884, 885 (1988), a school's use of its lease revenues
for school expenses does not make the leased property tax exempt.
A. Leased "With a View to Profit"
We note the parties disagree on the standard of review.
The ALJ heard substantial testimony and considered documents and
stipulated facts, which for the most part were undisputed. Where
the fact finder determines the legal effect of a given set of
facts, it decides a mixed question of law and fact. See Elemen-
tary School District 159 v. Schiller, 221 Ill. 2d 130, 143, 849
N.E.2d 349, 358 (2006). "An agency's conclusion on a mixed
question of law and fact is reviewed for clear error." District
159, 221 Ill. 2d at 143, 849 N.E.2d at 358. The agency decision
will be found clearly erroneous only where we are left with the
definite and firm conviction a mistake was committed. Cinkus v.
Village of Stickney Municipal Officers Electoral Board, 228 Ill.
2d 200, 211, 886 N.E.2d 1011, 1018 (2008). "Such review is
significantly deferential to an agency's experience in construing
and applying the statutes that it administers." District 159,
- 9 - 221 Ill. 2d at 143, 849 N.E.2d at 358; see also Board of Educa-
tion of Glen Ellyn Community Consolidated School District No. 89
v. Department of Revenue, 356 Ill. App. 3d 165, 171, 825 N.E.2d
746, 752-53 (2005) (the Department determined whether the facts
indicated the property was used with a "view to profit"; District
employed clearly erroneous standard).
On this issue, we find no clear error in the Depart-
ment's decision the property was ineligible for exemption because
it was leased "with a view to profit." The District's net-income
analysis showed the District would earn income of over $13
million and while it would apply $11,530,600 toward repaying its
financing obligation, $2 million in net profits would be realized
over the 20-year term. Under Village of Oak Park, it is irrele-
vant whether the lease actually results in a profit. Village of
Oak Park, 115 Ill. App. 3d at 500, 450 N.E.2d at 983-84.
B. Property Owned by a School District
The second issue raised by the District is the proper
construction of section 15-35(e) of the Code. Interpretation of a
statute is a question of law where the agency's interpretation is
considered relevant but not binding on the court. Branson v.
Department of Revenue, 168 Ill. 2d 247, 254, 659 N.E.2d 961, 965
(1995). Our review is de novo with deference to the Department's
interpretation. We note at the outset, "'It is the well settled
rule of law in the State of Illinois that all property is subject
- 10 - to taxation, unless exempt by statute, in conformity with the
constitutional provisions relating thereto. Taxation is the
rule--tax exemption is the exception.'" City of Chicago v.
Illinois Department of Revenue, 147 Ill. 2d 484, 491, 590 N.E.2d
478, 481 (1992), quoting Rogers Park Post No. 108 v. Brenza, 8
Ill. 2d 286, 289-90, 134 N.E.2d 292, 295 (1956).
The statutory question is whether property leased "with
a view to profit" is entitled to tax exemption under section 15-
35(e) of the Code. The District contends subsection (e) of
section 15-35 exempts "property owned by a school district"
without qualification that the property not be sold or leased or
used with a view to profit. If the legislature had intended for
the language of the opening paragraph, "not sold or leased or
otherwise used with a view to profit," to apply to each subsec-
tion, it need not have stated within subsections (a) the property
must be used on a not-for-profit basis and (d) the property must
not be used with a view to profit. 35 ILCS 200/15-35(a), (d)
(West 2004). The legislature's use of repetitive language in
subsections (a) and (d) becomes surplusage if the section is read
as the Department recommends with the phrase "not sold or leased
or otherwise used with a view to profit" applying to each subsec-
tion. The Illinois Supreme Court states that statutes should not
be read in a manner which makes certain terms or phrases mere
surplusage. See Land v. Board of Education of the City of
- 11 - Chicago, 202 Ill. 2d 414, 422, 781 N.E.2d 249, 255 (2002). The
District notes this interpretation is consistent with the Illi-
nois Constitution, which makes a distinction between property
owned by a school district and property used for school purposes.
See Eden Retirement Center, Inc. v. Department of Revenue, 213
Ill. 2d 273, 286, 821 N.E.2d 240, 248 (2004).
The Department argues the Director correctly denied the
exemption because the restriction against leasing (and by extens-
ion subleasing) with a view to profit in section 15-35 is appli-
cable to section 15-35(e) under Swank v. Department of Revenue,
336 Ill. App. 3d 851, 858, 785 N.E.2d 204, 209-10 (2003). To
interpret the two provisions as the District suggests would mean
a school district cannot lease its property with a view to profit
without losing exemption, but could finance the same property
with a leaseback contract, and then sublease the property for
profit and be exempt under section 15-35(e). Nothing in the
language of section 15-35(e) suggests it was intended to allow
school districts to avoid the section 15-35 restriction on
leasing with a view to profit.
We agree with the Department. A statute should be
evaluated in its entirety, with each section construed in connec-
tion with every other provision. Swank, 336 Ill. App. 3d at 858,
785 N.E.2d at 209. Section 15-35(e) is the codification of Cole
Hospital, 113 Ill. App. 3d 96, 446 N.E.2d 562. In Cole, the
- 12 - hospital qualifying for tax exemption was a not-for-profit
organization which entered a sale leaseback agreement to finance
the construction of a new building. "[T]ax-exemption statutes in
Illinois are to be construed narrowly." Swank, 336 Ill. App. 3d
at 859, 785 N.E.2d at 210. Reading section 15-35(e) without the
"view-to-profit" language would substantially diminish section
15-35 and have the effect of mitigating a portion of the Cole
decision which has been law for 25 years. We determine the
"view-to-profit" language in section 15-35 applies to section 15-
35(e).
As earlier stated, the sale-leaseback agreement with a
sublease to CMS was "with a view to profit" and thus we find no
error in the Department's decision that the District was ineligi-
ble for property-tax exemption under section 15-35(e).
C. Property Held for Future Expansion
The third issue raised by the District is whether the
District could rely on section 15-60 for an exemption. The
District argues the property qualifies for an exemption as
property held by a taxing district for future expansion. Section
15-60 of the Code provides, "all property owned by a taxing
district that is being held for future expansion or development
[is exempt], except if leased by the taxing district to lessees
for use for other than public purposes." 35 ILCS 200/15-60 (West
2004). The District argues it is entitled to an exemption
- 13 - because the subleased property is (1) owned by a taxing district,
(2) being held for future expansion, and (3) not leased for use
for other than public purposes.
The ALJ's decision found the District could not rely on
the more general exemptions for taxing districts of section 15-60
ahead of the specific provisions for schools in sections 15-35
and 15-135. The decision states:
"The 'undisputed rule is that specific
statutory provisions control as against gen-
eral provisions on the same subject, appear-
ing either in the same act or in other acts.'
People ex rel. Oller v. Cairo & Theses R.
Co., 364 Ill. 329[, 333, 4 N.E.2d 482, 484]
(1936). Each section of a statute should be
construed with every other section to produce
a harmonious whole. [Land, 202 Ill. 2d at 422
781 N.E.2d at 254]. Words and phrases should
be interpreted in light of other relevant
portions of the statute so that no term is
rendered superfluous or meaningless. [Land,
202 Ill. 2d at 422, 781 N.E.2d at 255].
Section 15-135 applies to school dis-
tricts, which is a specific type of taxing
district. In order to construe sections 15-
- 14 - 60 and 15-135 harmoniously, the property of a
school district may not qualify for the ex-
emption if it is leased or otherwise used
with a view to profit. Allowing an exemption
for property of a school district that is
used with a view to profit would render sec-
tion 15-135 meaningless."
On appeal, the District argues the ALJ erred in finding this
section does not apply to the District and the District meets the
requirements of section 15-60. Whether section 15-60 and sec-
tions 15-35 and 15-135 provide independent exemptions or must be
construed together is a question of law. Agency decisions on
questions of law are reviewed de novo. Exelon Corp. v. Depart-
ment of Revenue, 376 Ill. App. 3d 918, 921, 876 N.E.2d 1081, 1083
(2007).
The District contends under Illinois law, "where [the]
language [of the statute] is unambiguous, the statute must be
enforced as written." Krautsack v. Anderson, 223 Ill. 2d 541,
567, 861 N.E.2d 633, 651 (2006) (Karmeier, J., dissenting). When
the statute is unambiguous, the "court cannot depart from the
plain language of the statute by reading into it exceptions,
limitations, or conditions not expressed by the legislature."
Krautsack, 223 Ill. 2d at 567-68, 861 N.E.2d at 651 (Karmeier,
J., dissenting). The District argues section 15-60 is clear and
- 15 - unambiguous and should be applied according to its plain language
to provide an exemption to the District for the property. The
exemption of section 15-135 applies to property owned by a school
district not leased with a view to profit but does not address
property held by a school district for future expansion. Section
15-60 provides an additional exemption to property owned by a
taxing district held for future expansion and not leased for
other than public purpose.
The Department argues when sections 15-60, 15-35, and
15-135 are applicable to the same property, they are presumed to
be governed by a single policy. Dundee Township v. Department of
Revenue, 325 Ill. App. 3d 218, 223, 757 N.E.2d 982, 985-86
(2001). The statutes must be construed together to determine the
legislative intent when the exemption statutes address the same
property and an interpretation that gives effect to both provi-
sions must be adopted. Dundee Township, 325 Ill. App. 3d at 223,
757 N.E.2d at 985-86. In Dundee Township, section 15-60 of the
Code was construed together with section 115-115 of the Township
Code (60 ILCS 1/115-115 (West 1998)).
The Department argues by reading the sections together,
the underlying legislative intent is property that would other-
wise be tax exempt due to its current use is exempt under section
15-60 for its future use. Section 15-60 removes only the re-
quirement of current tax-district-specific exempt use to qualify
- 16 - for an exemption. The Department contends this is shown by the
legislature's retention of the requirement the leased property
must be used for public purposes. Section 15-60 should not be
interpreted as intending to remove restrictions on exemptions
other than current tax-district-specific use.
"'Statutes which relate to the same thing or to the
same subject or object are in pari materia ***.'" People ex rel.
Daley v. Datacom Systems Corp., 146 Ill. 2d 1, 17-18, 585 N.E.2d
51, 58 (1991), quoting People v. Wallace, 291 Ill. 465, 470, 176
N.E. 175, 176 (1920). "A court presumes that the legislature
intended that two or more statutes which relate to the same
subject are to be operative and harmonious. A court must compare
statutes relating to the same subject and construe them with
reference to each other, so as to give effect to all of the
provisions of each if possible." Cinkus v. Village of Stickney,
228 Ill. 2d at 218, 886 N.E.2d at 1022-23. However, we cannot,
under the guise of statutory interpretation, remedy an apparent
legislative oversight by rewriting a statute in a way that is
inconsistent with its clear and unambiguous language. People v.
Pullen, 192 Ill. 2d 36, 42, 733 N.E.2d 1235, 1238 (2000).
In this case, the statute's language is clear and
unambiguous. "When the plain language of the statute is clear
and unambiguous, the legislative intent that is discernable from
this language must prevail, and no resort to other tools of
- 17 - statutory construction is necessary." Land, 202 Ill. 2d at 421-
22, 781 N.E.2d at 254. While a review of case law on section 15-
60 does not reveal application of the statute to school dis-
tricts, neither does it restrict application to school districts.
The statutory definition of a taxing district explicitly includes
school districts. Further, the District's statutory reading is
easily understood and applied, while the Department's interpreta-
tion is convoluted and appears to rewrite the statute.
Thus, three elements must be met for the property to be
exempt under section 15-60: (1) the property must be owned by a
taxing district; (2) the property must be held for future expan-
sion; and (3) the property must be not for use for other than a
public purpose.
1. Element One: Is Property Owned by a Taxing District?
The District is a taxing district as defined by the
Code: "Any unit of local government, school district[,] or
community college district with the power to levy taxes." 35
ILCS 200/1-150 (West 2004). Under the School Code, the District
has the power to levy taxes. The "school board of any district
having a population of less than 500,000 inhabitants may levy a
tax annually *** upon all the taxable property of the district."
105 ILCS 5/17-2 (West 2004). The Department does not present an
argument on the first element.
2. Element Two: Is Property Held for Future Expansion?
- 18 - The second element is the property must be held for
future expansion. One of the two stipulated facts is that the
District owns the property. Testimony and exhibits showed the
District will get possession of the property pursuant to its
reversionary interest in approximately 20 years subject to the
Hay Edwards' rights under the right-to-purchase agreement. The
District intends to use the property for administrative facili-
ties because it is centrally located.
The Department argues the plain meaning of the statute
includes at a minimum that the tax-exempt owner presently intends
to own and use the property for a tax-exempt purpose in the
future. Future tax-exempt ownership and use are required for a
present tax exemption under section 15-60 because the legislature
can only exempt those categories of property authorized for
exemption by article IX, section 6, of the Illinois Constitution.
A statutory property-tax exemption cannot be broader than the
constitutional provisions. Chicago Bar Ass'n v. Department of
Revenue, 163 Ill. 2d 290, 297, 644 N.E.2d 1166, 1170 (1994). The
party seeking an exemption must show the property qualifies under
both the statute and the Constitution. Chicago Bar Ass'n, 163
Ill. 2d at 300-01, 644 N.E.2d at 1171. The legislature could not
grant and an owner could not seek a present tax exemption on
property under section 15-60 based on holding that property for
future expansion unless the future use and ownership were tax
- 19 - exempt under article IX, section 6. The tax-exempt owner must
demonstrate a present intent to own and use the property for a
tax-exempt purpose in the future to qualify for an exemption
under section 15-60.
The Department argues the District's grant of an
unconditional option to Hay Edwards is direct evidence contradic-
ting the District's asserted intention to own and use property
for a tax-exempt purpose in the future. "[T]he right to choose
when and if property may be transferred is the single most
significant incident of real estate ownership." Henderson County
Retirement Center, Inc. v. Department of Revenue, 237 Ill. App.
3d 522, 527, 604 N.E.2d 1003, 1006 (1992) (amending a lease to
grant the lessee an unconditional option to purchase upon expira-
tion of the leasehold changed the incidents of ownership and
rendered the leasehold tax-exempt). The District does not
clearly and convincingly establish that it intends to own the
property in the future where it has granted a third party the
right to transfer ownership. The Department contends the Dis-
trict fails to sustain its burden of proof and should be denied
relief.
3. Element Three: Is Property Used for Public Purposes?
The third element is whether CMS's use of the property
is for public purposes and no other purposes. The District
states the State of Illinois uses the office space and such use
- 20 - is a public purpose. No profit-making activities are conducted
by CMS on the premises. The Department makes no argument on the
third element.
4. Standard of Review
"[W]hen an agency is required to interpret a statute's
meaning and determine whether the facts of the case fit within
that definition, the case" presents a mixed question of fact and
law "which should be affirmed unless clearly erroneous." Illi-
nois Beta House Fund Corp. v. Illinois Department of Revenue, 382
Ill. App. 3d 426, 429, 887 N.E.2d 847, 849-50 (2008). The
clearly erroneous standard gives some deference to the agency's
expertise and experience with the Code. We accept the agency's
findings unless we have a definite conviction a mistake was made.
"[W]e may affirm the agency's decision on any basis appearing in
the record." Illinois Beta House, 382 Ill. App. 3d at 429, 887
N.E.2d at 850.
At issue is whether the District clearly established
the second element of section 15-60. In the disposition, the ALJ
made a finding of fact stating, "The applicant currently has
inadequate administrative facilities that are at different
locations. The renovated buildings are centrally located within
the school district and may provide a site to consolidate the
administrative facilities in the future." Evidence shows the
District hopes to use the renovated buildings after the 20-year
- 21 - sale and leaseback agreement concludes, but Hay Edwards' first
option to purchase the property for fair market value at the
conclusion of the 20-year agreement imparts too great a doubt on
future holding of the property by the District. "[T]he party
claiming the benefit of an exemption bears the burden of proving
clearly and conclusively that it is entitled to the exemption,
and all facts and all debatable questions are resolved in favor
of taxation." Illinois Beta House Fund Corp., 382 Ill. App. 3d
at 429, 887 N.E.2d at 850. We are not left with the definite and
firm conviction the decision of the Director, affirmed by the
circuit court, was in error.
III. CONCLUSION
For the reasons stated, we affirm the circuit court's
decision affirming the Department's decision.
Affirmed.
McCULLOUGH and STEIGMANN, JJ., concur.
- 22 -