County of Hamilton v. Department of Revenue

• Decision Date: 04 April 1996
• Docket Number: No. 5-94-0570,5-94-0570
• Citation: 665 N.E.2d 567,216 Ill.Dec. 507,279 Ill.App.3d 639
• Parties: , 216 Ill.Dec. 507 The COUNTY OF HAMILTON, Plaintiff-Appellee, v. The DEPARTMENT OF REVENUE, Defendant-Appellant (The County of Jefferson, Plaintiff-Appellee, v. The Department of Revenue, Defendant-Appellant). . Rule 23 Filed
• Court: United States Appellate Court of Illinois

Page 567

665 N.E.2d 567

279 Ill.App.3d 639, 216 Ill.Dec. 507

The COUNTY OF HAMILTON, Plaintiff-Appellee, v. The DEPARTMENT OF REVENUE, Defendant-Appellant (The County of Jefferson, Plaintiff-Appellee, v. The Department of Revenue, Defendant-Appellant).

No. 5-94-0570.

Appellate Court of Illinois,

Fifth District.

Rule 23 Filed April 4, 1996.

Motion to Publish Granted May 16, 1996.

Opinion Filed May 16, 1996.

James E. Ryan, Attorney General, State of Illinois; Barbara A. Preiner, Solicitor General; Paul Racette, Assistant Attorney General; Chicago, for Appellant.

Wayne Morris, State's Attorney, McLeansboro, Gary Duncan, State's Attorney, Mt. Vernon, Norbert J. Goetten, Director; Stephen E. Norris, Deputy Director; Office of the State's Attorneys Appellate Prosecutor, Mt. Vernon, for Appellee.

Presiding Justice HOPKINS delivered the opinion of the court:

Defendant, the Illinois Department of Revenue (Department), appeals from the circuit courts' orders in two cases on administrative review, in which the circuit court reversed the Department's decisions that underground coal rights owned by two counties, plaintiffs Hamilton and Jefferson Counties, were not tax-exempt properties under section 19.6 of the Revenue Act of 1939. 35 ILCS 205/19.6 (West 1992) (now, as amended, 35 ILCS 200/15-60 (West 1994) (section 15-60 of the Property Tax Code)). On appeal, the Department raises two issues: (1) that the circuit court erred in applying the 1994 Property Tax Code to the instant actions, instead of the 1992 Revenue Act of 1939; and (2) that the circuit court's orders that the Department's findings and rulings that the counties are not entitled to property tax exemptions for underground coal reserves are against the manifest weight of the evidence are erroneous. We affirm for the reasons set forth below.

I. FACTS

On November 11, 1992, Hamilton County became the owner of approximately 7,000 acres of underground coal reserves pursuant to a quitclaim deed executed by Exxon Coal Resources USA, Inc. (Exxon). No surface rights were involved in the transaction. Hamilton County filed an application for property tax exemption to the county board of review. In its application, Hamilton County sought a tax exemption under section 19.6 of the Revenue Code of 1939 (35 ILCS 205/19.6 (West 1992)) and stated that the county was going to hold this property for future development. Ultimately, the Department denied Hamilton County's application for property tax exemption on the basis that the property was "not in exempt use."

Hamilton County filed for a formal hearing before the Department, and on April 29, 1993, this hearing was held. At the hearing, Mark Becker, supervisor of assessments and clerk of the board of review for Hamilton County, testified that he had discussions with Steve Humphreys and John Healing of Exxon prior to the Hamilton County Board's voting to acquire Exxon's 7,000 acres of underground coal reserves in Hamilton County. From these discussions, Becker learned that Exxon wanted to divest itself of the underground coal rights in Hamilton County, and that Exxon had contacted other coal companies and had advertised that the property was for sale in an effort to do so, to no avail. Exxon next approached Hamilton County to see if the county wished to purchase the coal rights. Becker talked to Steve Lueker, his counterpart in Jefferson County, about the proposed sale, to evaluate the problems, after which he discussed the proposed sale with Hamilton County Board members. Becker recommended to the Hamilton County Board that the county purchase the undeveloped coal rights. It was Becker's opinion that although the coal reserves were not worth money at that time, perhaps in the future the coal reserves could entice a coal mine to come into the county, and "we would have seven thousand acres that we could give to that coal company." Becker also testified that the county had not leased the coal rights and that there was no prospect of leasing the coal rights in the immediate foreseeable future. Further, the county did not intend to extract coal for profit in the future.

On cross-examination, Becker stated that he was told by Exxon that the coal reserves were of diminished value since the coal has a high sulfur content and is not marketable to utility companies, the coal reserves were not a solid block, and the coal was about 1,000 feet below the surface. The tax assessment of the coal rights at that time was $151,820.

Wayne Morris, State's Attorney for Hamilton County, testified to essentially the same facts as Becker. He, too, was involved in the discussions with Exxon, and the representations made to Becker were the same as were made to him. He also testified that Hamilton County is an economically depressed county, in that it has an unemployment rate of 25%, and the overall business climate in the county is poor.

Eleven applications for property tax exemption under section 19.6 submitted by the City of Mt. Vernon in Jefferson County, Illinois, were admitted as exhibits for both Hamilton and Jefferson County. These applications were for property obtained by the city by court order for foreclosure on demolition liens. The 11 lots were small lots located randomly over primarily the south side of the city. In the city's applications for the tax exemption of these lots, the city stated that it was holding the properties for "future development." The Department granted the city the tax exemptions for these properties.

The administrative law judge for the Department who conducted the hearing recommended that Hamilton County's property tax exemption be denied. In his recommendation he stated in pertinent part as follows:

"The extraction of coal is not a governmental function. If and when this coal is extracted, Applicant will have to lease it to a lessee for use for other than public purposes. The eleven lots owned by Mt. Vernon and held for future expansion and development may well be used for municipal or governmental purposes. Consequently, the Department of Revenue correctly exempted them. However in this case, Applicant has failed to suggest how these coal reserves can ever be used for public purposes. In fact, if they are developed they will undoubtedly be developed by a private coal mining company, for profit. Applicant's attorney argues that this is no different than the Mt. Vernon city lots, but that is simply not correct since any development of these coal rights would have to be for a non-public purpose, while the Mt. Vernon city lots may be used for a public purpose. Consequently, I conclude the fee interest in these coal reserves are held by Applicant and may only be leased to lessees for other than public purposes."

On July 14, 1993, the Department formally denied Hamilton County's property tax exemption application, and Hamilton County timely filed for administrative review of the Department's decision in the circuit court. On July 25, 1994, the trial court reversed the Department's denial of the property tax exemption, finding that the Department's decision was against the manifest weight of the evidence. The Department appeals this decision in case number 93-MR-10.

The facts presented in the administrative review case brought in Jefferson County are almost identical to those presented in the Hamilton County case. On June 29, 1992, a quitclaim deed was executed by Exxon to Jefferson County for approximately 5,041 acres of underground undeveloped coal reserves located in Jefferson County. Jefferson County filed an application for property tax exemption to the county board of review and stated it was holding this property for future development. The Department denied Jefferson County's application, and Jefferson County filed for a formal hearing. Jefferson County's formal hearing was held the same day as Hamilton County's formal hearing, and essentially the same evidence was presented by Jefferson County as in the Hamilton County hearing. The administrative law judge's findings in this hearing paralleled those in the Hamilton County case. The Department formally denied Jefferson County's property tax exemption, and Jefferson County filed for administrative review of this decision in the circuit court. On August 10, 1994, the circuit court entered an order reversing the Department's denial of Jefferson County's property tax exemption, finding that the decision was against the manifest weight of the evidence.

The Department appeals the Jefferson County circuit court order in cause number 93-MR-32. Subsequently, on motion to this court, the Hamilton County case and the Jefferson County case were consolidated on appeal, as the issues presented are the same in each case.

II. ANALYSIS

Generally, if the facts are undisputed, whether property is exempt from taxation is a question of law. City of Chicago v. Illinois Department of Revenue, 147 Ill.2d 484, 168 Ill.Dec. 841, 590 N.E.2d 478 (1992). A decision of exemption or taxation is determined by applying the appropriate legal standard. City of Chicago, 147 Ill.2d 484, 168 Ill.Dec. 841, 590 N.E.2d 478. Here, the facts are not disputed, so our analysis is one of law.

The Department contends that the trial court erroneously applied the 1994 statute, section 15-60 of the Property Tax Code, instead of applying the statute which applied to the 1992 tax year, section 19.6 of the Revenue Act of 1939. In 1992, the Revenue Act of 1939 exempted from taxation:

"all property owned by a county * * * that is being held for future expansion or development, except property that has been leased or may be leased by a county * * * to lessees for use for other than public purposes * * *." (Emphasis added.) 35 ILCS 205/19.6 (West 1992).

Subsequently, effective January 1, 1994, the Property Tax Code amended that section to read:

"All property belonging to any county * * * used exclusively for the maintenance of the poor is exempt, as is all property owned by a taxing...