Commonwealth Edison Co. v. Property Tax Appeal Bd.

• Decision Date: 17 September 1991
• Docket Number: Nos. 2-90-0716,s. 2-90-0716
• Citation: 579 N.E.2d 1082,219 Ill.App.3d 550
• Parties: , 162 Ill.Dec. 268 COMMONWEALTH EDISON COMPANY, Plaintiff-Appellant, v. The PROPERTY TAX APPEAL BOARD et al., Defendants-Appellees. to 2-90-0720.
• Court: United States Appellate Court of Illinois

Page 1082

579 N.E.2d 1082

219 Ill.App.3d 550, 162 Ill.Dec. 268

COMMONWEALTH EDISON COMPANY, Plaintiff-Appellant, v. The PROPERTY TAX APPEAL BOARD et al., Defendants-Appellees.

Nos. 2-90-0716 to 2-90-0720.

Appellate Court of Illinois Second District.

Sept. 17, 1991.

Rehearing Denied Nov. 1, 1991.

Robert A. Creamer, John S. Vishneski, III, Minard E. Hulse, Jr. (argued), Keck, Mahin & Cate, Chicago, for Commonwealth Edison Co.

Michael J. Waller, Lake County State's Atty., Helen S. Rozenberg, Chief, Civil Div., Waukegan, Neil F. Hartigan, Atty. Gen., Charles B. Hughes, Deborah L. Ahlstrand, Asst. Attys. Gen., Chicago, for Property Tax Appeal Bd.

Frederic S. Lane (argued), William T. Barker, Jacqueline S. Glassman, Sonnenschein, Carlin, Nath & Rosenthal, George W. Foster, Chicago, for Zion Public School Dist. 6, Zion Park Dist., City of Zion, Zion Tp., Zion-Benton Public Library and Zion-Benton Tp., Hi Steven Burgeman, Asst. State's Attorney Lake Co., Waukegan.

Martha A. Churchill, Mid-America Legal Foundation, Chicago, for amicus curiae.

Justice WOODWARD delivered the opinion of the court:

Plaintiff, Commonwealth Edison Company, appeals from a judgment of the circuit court of Lake County which, on administrative review, confirmed a decision of the Property Tax Appeal Board (PTAB). Said decision found that plaintiff's power generating machinery and equipment (machinery) located in its Zion power plant was properly assessed as real property for the 1978 tax year. Plaintiff raises one general issue, namely, whether said machinery is to be assessed as personal property or as real estate for the 1978 tax year. This general argument is broken down into three specific arguments: (1) the Zion assessor's 1978 classification of Edison Power generating equipment constitutes an unconstitutional tax on personal property; (2) the 1978 classification of plaintiff's power generator equipment as real estate violates the pertinent uniformity provision of the Illinois Constitution; and (3) the exclusion of plaintiff's evidence classifying power generating equipment as personal property was error.

Plaintiff appealed the subject property's 1978 real estate tax assessment to the Lake County board of review which found that the disputed machinery was properly assessed as real property. Plaintiff argued that it was entitled to a personal property deduction of $417,555,717 from its 1978 Zion real estate assessment, rather than the $9,813,106 personal property deduction it was allowed. Plaintiff then appealed this decision to the PTAB for review, naming the board of review as a party defendant. Thereupon, defendants Zion Benton Township Public School District No. 126, Zion Public School District No. 6, Zion Park District, the City of Zion, Zion Township and Zion-Benton Public Library District (collectively Zion) were granted leave to intervene as parties of record before the PTAB. After extensive proceedings, the PTAB found for defendants. Specifically, it held that evidence showed that (1) the subject machinery was sufficiently affixed to the real property to be considered part of same; (2) the subject machinery was applied to the use and purpose to which the real estate is devoted; and (3) plaintiff intended to make the subject machinery a permanent accession to the property. On administrative review, the circuit court affirmed the PTAB's decision, and this appeal followed.

We initially note that essentially the same principles, as well as the same attorneys, have been before this court in Commonwealth Edison Co. v. Property Tax Appeal Board (1983), 115 Ill.App.3d 371, 71 Ill.Dec. 92, 450 N.E.2d 780, which was appealed to our supreme court in Commonwealth Edison Co. v. Property Tax Appeal Board (1984), 102 Ill.2d 443, 82 Ill.Dec. 294, 468 N.E.2d 948. The issues in that cause, dealing with the 1975 and 1976 real estate assessments of the very same power plant, are not relevant here. However, it is demonstrative what plaintiff did not argue in said appeal. Despite the fact that as of January 1, 1979, the ad valorem personal property tax was terminated by the Illinois Constitution of 1970, plaintiff did not argue that the subject power generating machine should be assessed as personal property, even though said machinery had been assessed as real property since the power plant's opening in 1973. Now plaintiff comes before us, arguing that the 1978 assessment, issued a mere two years after the subject assessments of the prior appeal, as well as being the final assessment before personal property taxes were abolished, erred in classifying said machinery as real property, rather than personal property.

First, plaintiff argues that the PTAB erred in finding that the subject machine was properly determined to be real property.

The machinery in dispute consists of piping systems, pumps, turbine generators, a nuclear reactor vessel, control rods and the fuel handling system. The evidence clearly indicates that same was installed in the Zion power plant with the intention that it would remain there permanently. To remove same, while a possibility, would require extensive alteration of the premises, including removal of reinforced concrete walls. The evidence further demonstrated that, since the Zion plant opened, the subject machinery has been assessed as real property.

Illinois' system of taxing personal and real property is based upon the Revenue Act of 1939 (Act) as amended. (Ill.Rev.Stat.1977, ch. 120, sec. 482 et seq.; Commonwealth Edison Co. v. Property Tax Appeal Board (1983), 115 Ill.App.3d 371, 71 Ill.Dec. 92, 450 N.E.2d 780.) The Act defines "real property" in pertinent part thusly:

"Real Property--Real Estate--Land--Tract--Lot-Not only the land itself, whether laid out in town or city lots, or otherwise, with all things contained therein, but also all buildings, structures and improvements, and other permanent fixtures, of whatsoever kind, thereon." (Emphasis added.) (Ill.Rev.Stat.1977, ch. 120, sec. 482(13).)

The definition's language pertinent to this case was derived from section 13 of the Revenue Act of 1898, as amended. Ill.Rev.Stat.1929, ch. 120, sec. 292.

Of relevance is the following excerpt from the Illinois Constitution, which states:

"On or before January 1, 1979, the General Assembly by law shall abolish all ad valorem personal property taxes and concurrently therewith and thereafter shall replace all revenue lost by units of local government and school districts as a result of the abolition of ad valorem personal property taxes subsequent to January 1, 1979." Ill. Const.1970, art. IX, § 5(c).

As mandated by the Constitution of 1970 (Ill. Const.1970, art. IX, § 5(c)), the General Assembly enacted the Illinois Replacement Tax Act (Ill.Rev.Stat.1979, ch. 120, par. 499.1) to replace the revenues lost by the abolition of the personal property tax. Section 18.1 of that act includes the following provision:

"No property lawfully assessed and taxed as personal property under this Act prior to January 1, 1979, shall be classified as real property subject to assessment and taxation under this Act after January 1, 1979. No property lawfully assessed and taxed as real property under this Act prior to January 1, 1979, shall be classified as personal property subject to assessment and taxation after January 1, 1979." Ill.Rev.Stat.1979, ch. 120, par. 499.1.

With this background, we now review the relevant case law. In essence, plaintiff argues that the "continuous connected physical properties" doctrine as espoused in Shelbyville Water Co. v. People ex rel. Craddick (1892), 140 Ill. 545, 30 N.E. 678, controlled the Illinois assessment process in 1978. Said doctrine, arising out of the Revenue Act of 1872 (Ill.Rev.Stat.1929, ch. 120, sec. 25), defines as personal property all elements physically connected to the manufacturing process. Plaintiff maintains that the disputed machinery is used in the process which generates the product (electricity) created within the power plant; therefore, under Shelbyville, it constitutes personal property. Accordingly, Commonwealth Edison argues that personal property in the amount of $417.5 million should be deducted from the subject property's 1978 assessment.

In contrast, defendants contend that the subject machinery must be classified as real property. Defendant first cites Joyner v. Mitchell (1932), 267 Ill.App. 427, wherein the court considered whether certain items of machinery were subject to foreclosure under a real estate mortgage. The machinery consisted of three lathes ranging in weight from 400 to 6,000 pounds, a milling machine weighing approximately 5,000 pounds and a drill press weighing 2,500 pounds. In concluding that these items were permanent fixtures and therefore a part of the realty, the Joyner court stated:

"If machinery is intended for permanent use in carrying on the business for which the building was erected or is used, as a permanent accession to the realty, it becomes a part of the realty on being installed thereon, and if such was the intention, it is immaterial that the machines may be removed and used elsewhere, and that they may be removed without injury to the building. This rule has special application to heavy machinery intended for the building and not intended to be moved from place to place, though resting in position by its own weight, and to machinery which is a constituent part of the factory or shop and indispensable thereto, though not actually fastened." Joyner, 267 Ill.App. at 429-30.

The Joyner holding was adopted in the taxation case of Ayrshire Coal Co. v. Property Tax Appeal Board (1974), 19 Ill.App.3d 41, 310 N.E.2d 667, in which the court reviewed a circuit court decision rejecting the PTAB's classification of certain heavy machinery and equipment as real estate. The equipment in question included a 250-ton hopper, various conveyor belts and sizing and cleaning equipment used in coal preparation.

The Ayrshire cou...