City of Chicago v. Illinois Dept. of Revenue

• Decision Date: 26 March 1992
• Docket Number: No. 71673,71673
• Citation: 147 Ill.2d 484,590 N.E.2d 478,168 Ill.Dec. 841
• Parties: , 168 Ill.Dec. 841 The CITY OF CHICAGO, Appellee, v. The ILLINOIS DEPARTMENT OF REVENUE, Appellant.
• Court: Illinois Supreme Court

Page 478

590 N.E.2d 478

147 Ill.2d 484, 168 Ill.Dec. 841

The CITY OF CHICAGO, Appellee, v. The ILLINOIS DEPARTMENT OF REVENUE, Appellant.

No. 71673.

Supreme Court of Illinois.

March 26, 1992.

Roland W. Burris, Atty. Gen., Springfield, (Rosalyn B. Kaplan, Sol. Gen., and Jerald S. Post, Asst. Atty. Gen., Chicago, of counsel), for appellant.

Kelly R. Welsh, Corp. Counsel, Chicago, (Lawrence Rosenthal, Benna Ruth Solomon and Frederick S. Rhine, of counsel), for appellee.

Justice FREEMAN delivered the opinion of the court:

The plaintiff, the City of Chicago (City), filed two complaints for administrative review in the circuit court of Cook County, seeking to reverse decisions by the defendant, the Illinois Department of Revenue (DEPARTMENT), which denied plaintiff's request for property tax exemptions under section 19.6 of the Revenue Act of 1939 (Ill.Rev.Stat.1987, ch. 120, par. 500.6) for four parcels of land. The City holds title to improvements on the land, two buildings and a parking lot. Chicago Dock-Equitable Venture, a private, non-exempt entity, holds title to the underlying land. The two related complaints for administrative review were consolidated before trial.

The circuit court confirmed the Department's decision denying exemptions with respect to the land itself and the parking lot, but set aside the decision as to the denial of exemptions for the two buildings. The Department subsequently appealed the circuit court's decision that the buildings were tax-exempt; the City cross-appealed the court's decision that the land and parking lot were not tax-exempt. The appellate court affirmed the circuit court's decision in its entirety. (210 Ill.App.3d 273, 155 Ill.Dec. 65, 569 N.E.2d 65.) We granted the Department's petition for leave to appeal (134 Ill.2d R. 315), and we now entertain the City's cross-appeal (134 Ill.2d R. 318(a)). The City's cross-appeal does not take issue with the appellate court's decision that the parking lot is not tax-exempt.

The sole issue on review is whether the value of the two buildings, titled to the City, and the value of the underlying land, titled to a private entity, are exempt from property taxes under section 19.6 of the Revenue Act of 1939 (the Act). For reasons which follow, we affirm.

FACTUAL BACKGROUND

The facts are undisputed. In 1936, the Chicago Dock and Canal Company, predecessor-in-interest to Chicago Dock-Equitable Venture, leased four parcels of land, comprised of 2.17 acres, located at 500 Peshtigo Court, Chicago, Illinois, to the Kraft Phenix Cheese Corporation (Kraft) for a term of approximately 50 years, ending April 30, 1986. The lease agreement gave Kraft the option to extend the lease for an additional period of 20 or 30 years. The lease agreement also allowed Kraft to erect buildings on the land, to remove those buildings if it so chose, and to hold title to the buildings until the termination of the lease, at which time all buildings and improvements were to be surrendered to Chicago Dock and Canal Company. The agreement further provided that Kraft was allowed to sublet the premises, but could not assign the lease without the written consent of Chicago Dock and Canal Company. Kraft was also responsible for all taxes and assessments, upkeep costs, and the maintenance of adequate insurance on the entire property. Kraft also paid a monthly rental which accelerated over the years. Kraft soon built two buildings (Kraft buildings) on the property.

At some point in time, Chicago Dock-Equitable Venture, a joint venture of the Chicago Dock and Canal Trust and the Equitable Life Assurance Society of America, became the successor-in-interest to Chicago Dock and Canal Company. For purposes of this review, we shall refer to both entities as Chicago Dock.

On December 30, 1982, Kraft conveyed all rights, title and interest in the two buildings and improvements to the City by quitclaim deed. On the same day, by means of a "Donation and SubLease Agreement," Kraft recognized this title conveyance and also sublet the underlying land to the City for a period ending April 29, 1986, one day before the termination of the original lease. The terms of the sublease provided that Kraft remain obligated as lessee under the original lease, but that the City assume all of Kraft's rights, duties and obligations under the lease, including those related to alienation of the property, payment of rent, taxes and assessments, upkeep costs, and the maintenance of adequate insurance. Kraft was to act as the City's agent concerning any rights and obligations under the lease, including a stated option to extend the lease.

On July 9, 1984, the City exercised its right and option to extend its sublease of the land for a term ending April 29, 2016. The City directed Kraft, as its agent, to exercise Kraft's right and option to extend the lease agreement with Chicago Dock. The lease was subsequently extended by Kraft for a 30-year term, through April 30, 2016. As of 1986, the City's monthly rental obligation under the sublease was $2,696.66.

The Kraft buildings represent an area of 350,000 square feet of office space. City departments and agencies occupy the two Kraft buildings. Several of those departments and agencies include the cable commission, department of human services, health systems agency, mayor's commission on women's affairs, department of health, department of personnel, mayor's office of employment and training, public vehicle operations, department of consumer services-debt counseling center, Chicago police department and Chicago fire department. The buildings also contain a small cafeteria which provides food services to building employees. The City entered into a concession license agreement with a private vendor to occupy an area necessary to provide those services. The portion of the real estate not occupied by the two Kraft buildings is a parking lot, which is used solely for City vehicles by the traffic control division of the Chicago police department.

Sometime after acquiring the buildings in 1982, the City applied for and was granted a tax exemption as the property owner of the four parcels. The Department issued a certificate to the City approving an exemption for the 1984 assessment year and for all subsequent years provided the four parcels continued to meet "all qualifications" for exemption. In December 1987, however, the Department notified the City that the four parcels would be placed on the tax rolls for 1988.

On January 6, 1988, the City filed an application for a 1988 tax exemption, under sections 19 and 19.6 of the Act, for the Kraft buildings and the underlying land. The application claimed that no income was derived from the property and the buildings were owned by a unit of local government. The City further maintained that section 19.6 allows for an exemption of such buildings with the underlying land. In response, the Department denied the application on the basis that the "property" was not in exempt ownership or in exempt use. Following a hearing, an administrative law judge determined that Chicago Dock owned the four parcels and recommended that the entire value of the land and its buildings be assessed against Chicago Dock for the 1988 tax year. The Department immediately approved this recommendation. Consequently, on May 13, 1988, the City filed a complaint in administrative review in the circuit court of Cook County.

During these proceedings regarding the 1988 tax year, the Cook County assessor's office notified the City that the four parcels would be subject to assessed valuation for the 1987 tax year. In response, the City filed a complaint with the Cook County board of tax appeals (the Board). Following a hearing, the Board found that the "property" was owned by a unit of local government and recommended to the Department that the entire property remain tax-exempt. The Department, however, overruled the Board's recommendation and on December 8, 1988, issued its own recommendation that the entire value of the land and the buildings be assessed against Chicago Dock for the 1987 tax year. On January 13, 1989, the City filed a second complaint in administrative review in the circuit court.

The two administrative review actions, filed in circuit court, were subsequently consolidated and are now before us on review.

STANDARD OF REVIEW--BURDEN OF PROOF--PRESUMPTIONS

Where facts are undisputed, a determination of whether property is exempt from taxation is a question of law. (Harrisburg-Raleigh Airport Authority v. Department of Revenue (1989), 126 Ill.2d 326, 331, 127 Ill.Dec. 944, 533 N.E.2d 1072.) Thus, the decision as to whether property is exempt "depends solely upon an application of the appropriate legal standard to the undisputed facts." Illinois Central Gulf R.R. Co. v. Department of Local Government Affairs (1983), 95 Ill.2d 111, 129, 69 Ill.Dec. 98, 447 N.E.2d 315.

"It is the well settled rule of law in the State of Illinois that all property is subject to taxation, unless exempt by statute, in conformity with the constitutional provisions relating thereto. Taxation is the rule--tax exemption is the exception." (Rogers Park Post No. 108 v. Brenza (1956), 8 Ill.2d 286, 289-90, 134 N.E.2d 292.) "Provisions granting tax exemptions are to be construed strictly and must come not only within the terms of the statute but also the authority given by the constitution." (Rogers Park Post, 8 Ill.2d at 290, 134 N.E.2d 292.) Courts have no power to create exemption from taxation by judicial construction, and the burden of establishing statutory authority within the limitations of the constitution, for such an exemption rests upon the person asserting it. People ex rel. Cannon v. Southern Illinois Hospital Corp. (1949), 404 Ill. 66, 68, 88 N.E.2d 20, citing Oak Park Club v. Lindheimer (1938), 369 Ill. 462, 465-66, 17 N.E.2d 32.

Each individual claim must be determined from the facts presented. (Coyne Electrical School...