Bd. of Review v. Property Tax Appeal Bd.

• Decision Date: 07 June 2007
• Docket Number: No. 102318.,102318.
• Parties: The KANKAKEE COUNTY BOARD OF REVIEW, Appellant, v. The PROPERTY TAX APPEAL BOARD et al., Appellees.
• Court: Illinois Supreme Court

871 N.E.2d 38

226 Ill.2d 36

The KANKAKEE COUNTY BOARD OF REVIEW, Appellant, v. The PROPERTY TAX APPEAL BOARD et al., Appellees.

No. 102318.

Supreme Court of Illinois.

June 7, 2007.

Edward D. Smith, John J. Boyd, State's Attorneys, Kankakee (Brenda L. Gorski, Assistant State's Attorney, Kankakee, Norbert J. Goetten, Patrick Delfino, Office of the State's Attorneys Appellate Prosecutor, David O. Edwards and Christopher E. Sherer, of Giffin, Winning, Cohen & Bodewes, P.C., Springfield, of counsel), for appellant.

Lisa Madigan, Attorney General, Springfield (Gary Feinerman, Solicitor General, and Brian F. Barov, Assistant Attorney General, Chicago, of counsel), for appellee Property Tax Appeal Board.

Francis W. O'Malley and Richard D. Worsek, of Worsek & Vihon, LLP, Chicago, for appellee Natural Gas Pipeline Company of America.

Darren J. Hunter and Nancy M. Riley, of LeBoeuf, Lamb, Greene & MacRae, LLP, Chicago, for amici curiae Central Illinois Public Service Company et al.

Michele Odorizzi, Of Mayer, Brown, Rowe & Maw, LLP, Chicago, for amicus curiae Illinois Telecommunications Association.

OPINION

Justice BURKE delivered the judgment of the court, with opinion:

Section 1-130 of the Property Tax Code (Code) defines taxable property as "[t]he land itself, with all things contained therein, and also all buildings, structures and improvements, and other permanent fixtures thereon, * * * and all rights and privileges belonging or pertaining thereto, except where otherwise specified by this Code." 35 ILCS 200/1-130 (West 2004). In the instant case, petitioner Kankakee County board of review assessed the property of respondent Natural Gas Pipeline Company of America (taxpayer¹) for the tax years of 2000 and 2001. In its assessments, petitioner included the value of the rights and privileges taxpayer enjoys to two gas storage reservoirs that lie under the surface property of others. Taxpayer appealed these assessments before the Property Tax Appeal Board (PTAB) which found that the rights and privileges to the reservoirs should not have been assessed to taxpayer's property. The PTAB then reduced the property's assessed value for each year. The appellate court confirmed the decision of the PTAB.

We granted petitioner's petition for leave to appeal (210 Ill.2d R. 315) and permitted the Central Illinois Public Service Company, Central Illinois Light Company, Centerpoint Energy-Mississippi River Transmission Corporation, Commonwealth Edison Company, Illinois Power Company, Invenergy Investment Company LLC, Magellan Pipeline Company, L.P., Northern Illinois Gas Company, d/b/a Nicor Gas, North Shore Gas Company, and the Peoples Gas Light and Coke Company to file a brief amici curiae in support of taxpayer. We have also permitted the Illinois Telecommunications Association to file a brief amicus curiae in support of all respondents. For the reasons that follow, we find that the rights and privileges to the reservoirs should not be included in the assessment of taxpayer's property, and affirm the judgment of the appellate court.

BACKGROUND

Taxpayer, a subsidiary of Kinder Morgan, a Kansas corporation, owns a 75.976-acre parcel of land in Kankakee County (hereinafter, the subject property) on which it operates a multibuilding control center. The control center, known as Compressor Station 201, facilitates the piping of gas to a cross-country pipeline 16 miles away and the storage of natural gas in two underground storage facilities. The underground storage facilities, known as "reservoirs," are actually two separate layers of porous rock lying 1,700 and 2,400 feet below the surface, respectively. These reservoirs² lie below approximately 15,600 surface acres that surround and include the subject property. Taxpayer owns the portion of the reservoirs that lies directly below the subject property, but does not own any of the surrounding 15,600 acres or the reservoirs that lie below them.

For storage purposes, natural gas is injected into the reservoirs through a system of pipes that connect the pipeline to the compressor station, and connect the compressor station with 281 wells that reach down into the reservoirs at various surface points throughout the 15,600 acres. The injected gas displaces the water that naturally occurs within the porous rock. The displaced water then creates a natural "vessel" which keeps the gas from escaping laterally. The gas is prevented from exiting to the surface by a layer of nonporous rock that is likened to an upside-down soup bowl. The injection process is reversed when gas is removed from the reservoirs. Taxpayer charges its customers monthly reservation charges and tariffs based on gas volume transported.

In the early 1950s, before it acquired the subject property or began construction of the compressor station, taxpayer secured voluntary easements from the owners of the land that lay above and included the reservoirs so that it could install and operate the wells and pipes used in its storage system. The easements taxpayer acquired are similar for each granting owner. An easement identified as "the Dickman easement," which was found to be representative by the PTAB, reads in pertinent part: "This instrument made this [date] by record owner [name of the fee landowner], herein referred to as Grantors, is in favor of Natural Gas Storage Company of Illinois, a Delaware corporation, herein referred to as Grantee." The easements give taxpayer, as grantee, "the exclusive right, privilege and easement to introduce natural gas or other gases or vapors * * * into the [reservoirs] * * * to store gas in said storage reservoir and retain the possession of gas so stored as personal property, [and] to remove gas * * * from the storage reservoir."

The easements also give taxpayer the right to drill wells, construct and maintain those wells, lay pipes and electric lines on the grantees' properties, and to enter onto the grantees' properties to maintain the wells and pipes. In return, taxpayer pays each landowner an annual monetary sum. Taxpayer also agrees to pay the landowners for any damage to crops, timber, or fences that its activities may cause, and to provide grantees with free city water.

In 1952, orders from the Illinois Commerce Commission (ICC) and Federal Power Commission (FPC) gave taxpayer the exclusive right to store gas in the reservoirs, to construct Compressor Station 201, to run approximately 16 miles of pipe from Compressor Station 201 to the cross-country pipeline, to dig the wells down to the reservoirs, and to lay the pipe that connects the wells with Compressor Station 201.³ Once the FPC and ICC orders were in place, taxpayer purchased the subject property from Otto Kruse and constructed Compressor Station 201. Operations began thereafter and continue to this day.

Petitioner assessed the subject property based on market values of $17,160,849 for the tax year of 2000, and $32,000,000 for the tax year of 2001. Market value is defined by the Uniform Standards of Professional Appraisal Practice as "the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus."

Taxpayer paid the taxes in full for each year, and then appealed both the 2000 and 2001 assessments to the PTAB. These appeals were consolidated. Before the PTAB, taxpayer submitted several other appraisals of the subject property, all of which estimated its market value at between $1,625,000 and $1,700,000. Kankakee County officials, employees of taxpayer, and the drafters of all the appraisals appeared and testified at two hearings before the PTAB in April 2002 and May 2003.

At the 2002 hearing, Brad Baker, the assessor for the subject property's township, testified that he assessed the subject property for the 2000 tax year based on a market value of $17,000,000. He testified that this market value "was on the books, and it was just a value that's been carried on throughout the years." Baker stated that he did not know how any of the previous assessment values, or the "cost ladders" detailing appreciation, were calculated.

Sheila Donohoe, the chief county assessment officer for Kankakee County, also testified. Donohoe testified that she had no record of any complete appraisal of the subject property prior to the year 1999, although adjustments to the valuation of the subject property had been made throughout the years to account for the addition of new buildings and structures. Donohoe stated that the county's assessment records for the subject property make no reference to the reservoirs, nor attribute a value to them. Donohoe also testified that the county does not assess pipelines.

Steven Beatty, a member of the board of review, testified that petitioner endorsed the $17,000,000 market value provided by Baker for 2000 based on "testimony and research that was done and review of information that was available at the hearings that we had, as well as research that we did elsewhere." Beatty also testified that petitioner based its 2001 assessment on an appraisal of the subject property's market value prepared by Gary DeClark and Nancy Myers of Integra Realty Resources of Chicago (Integra).

Integra's appraisal was entitled "A Converted Aquifer Natural Gas Storage Facility of 101.4 BCF Capacity Beneath 75.976 Fee Owned Acres at 5611 S. West Road And Inclusive of Subterranean Easement Rights Beneath Some 15,600 Acres of Unowned Land." The "Special Limiting Conditions" section of the appraisal stated,

"[T]he subject's storage field actually lies below the surface of some 15,600 acres of land; meanwhile, that land area under fee ownership, according to available public records, is 75.976 acres, a mere fraction of the total surface area over the storage field. Therefore, this analysis assumes that the rights to be...