Dee-El Garage, Inc. v. Korzen

• Decision Date: 02 October 1972
• Docket Number: 44526,DEE--EL,Nos. 44455,s. 44455
• Citation: 53 Ill.2d 1,289 N.E.2d 431
• Court: Illinois Supreme Court
• Parties: GARAGE, INC., Plaintiff, v. Bernard J. KORZEN, County Treasurer, et al., Defendants. Louis LEADER, Appellee, v. Patrick J. CULLERTON et al., Appellants. CHICAGO TITLE & TRUST CO. et al., Appellees, v. Patrick J. CULLERTON et al., Appellants.

Page 431

289 N.E.2d 431

53 Ill.2d 1

DEE--EL GARAGE, INC., Plaintiff, v. Bernard J. KORZEN, County Treasurer, et al., Defendants.

Louis LEADER, Appellee, v. Patrick J. CULLERTON et al., Appellants.

CHICAGO TITLE & TRUST CO. et al., Appellees, v. Patrick J. CULLERTON et al., Appellants.

Nos. 44455, 44526.

Supreme Court of Illinois.

Oct. 2, 1972.

Rehearing Denied Nov. 29, 1972.

Edward V. Hanrahan, State's Atty., Chicago (Vincent Bentivenga, Jr., James A. Rooney, and Henry A. Hauser, Asst. State's Attys., of counsel), for appellants.

Price, Cushman, Keck & Mahin, Chicago (Robert S. Cushman and John M. Betts, Chicago, of counsel), for plaintiff Dee-El Garage, Inc.

Lowell Myers, Chicago, for appellee, Louis Leader.

D'Ancona, Pflaum, Wyatt & Riskind, Chicago (Maurice A. Riskind, Jacob M. Shapiro, and Merrill A. Freed, Chicago, of counsel), for Chicago Title and Trust Co., and others.

Arvey, Hodes & Mantynband, Chicago (Sidney R. Zatz and Herman Smith, Chicago, of counsel), for Monroe Properties Corp. and State & Madison Property Co., intervening additional parties plaintiff-appellees.

Schiff, Hardin, Waite, Dorschel & Britton, Chicago (James B. O'Shaughnessy and Aaron J. Kramer, Chicago, of counsel), for intervening-petitioner Pepsi Cola General Bottlers, Inc.

Jenner & Bloc, Chicago (Keith Bode and Robert C. Keck, Jr., Chicago, of counsel), for intervening-petitioners Pepsi Cola & Nabisco Co.

RYAN, Justice.

These consolidated cases involve the constitutionality of section 26 of the Revenue Act of 1939, as amended. (Ill.Rev.Stat.1969, ch. 120, par. 507.) Dee-El Garage, Inc., a lessee of improved real estate owned by Northwestern University, was granted leave to file an original action for declaratory judgment and injunction in this court challenging the constitutionality of section 26. Subsequent thereto, Pepsi-Cola General Bottlers, Inc., and Nabisco, Inc., also lessees of real estate owned by Northwestern University, were granted leave to intervene. The constitutionality of this section of the Act was also raised in the circuit court of Cook County in Chicago Title & Trust Co. v. Cullerton consolidated with Leader v. Cullerton. After we had granted leave to Dee-El Garage, Inc., to file its original action, the circuit court of Cook County declared section 26, as amended, unconstitutional. The State's Attorney of Cook County on behalf of the defendants in those two cases appealed to this court. The plaintiffs in those cases are lessees of real estate owned by the Chicago Board of Education and Garrett Biblical Institute. These cases have been consolidated in this court with the original action filed herein. It is stipulated that no question is raised as to the tax-exempt status of Northwestern University, Chicago Board of Education and Garrett Biblical Institute.

Prior to the amendment of section 26 in 1969 said section provided:

'When real estate which is exempt from taxation is leased to another whose property is not exempt, and the leasing of which does not make the real estate taxable, the leasehold estate and the appurtenances shall be listed as the property of the lessee thereof, or his assignee, as real estate.' (Ill.Rev.Stat.1967, ch. 120, par. 507.)

Although at common law a leasehold interest was considered to be a chattel and not real estate, this court has held that it is within the power of the legislature to declare a leasehold interest to be real estate for the purposes of taxation. (City of Chicago v. University of Chicago, 302 Ill. 455, 458, 134 N.E. 723.) The statutory authority to tax a leasehold interest in tax-exempt real estate has been sustained on numerous occasions. (People v. International Salt Co., 233 Ill. 223, 84 N.E. 278; City of Chicago v. University of Chicago, Supra; People ex rel. Paschen v. Hendrick-son-Pontiac, Inc., 9 Ill.2d 250, 137 N.E.2d 381; People ex rel. Korzen v. American Airlines, Inc., 39 Ill.2d 11, 233 N.E.2d 568; People ex rel. Kucharski v. TWA, Inc., 43 Ill.2d 174, 251 N.E.2d 225.) In American Airlines the method to be used in determining the assessed value of such a leasehold under section 26 as it then existed was defined. 39 Ill.2d at 18 and 19, 233 N.E.2d 568.

In 1969 the General Assembly amended section 26 of the Revenue Act of 1939, following which amendment said section read as follows:

'When any real property which for any reason is exempt from taxation or is for any other reason not taxed under the provisions of this Act is leased, loaned, or otherwise made available to and Used by a private individual, association or corporation for a Use which is not otherwise exempt under the provisions of Section 19, That use is subject to taxation to be paid by the lessee or occupant thereof in the same manner and to the same extent As though the lessee or occupant were the owner of the property. The taxes shall be assessed to the lessees or occupants of that property and collected in the same manner as herein provided, excepting, however, that such taxes do not become a lien against the exempt real property. When due, the taxes under this Section constitute an actionable debt and upon collection the proceeds shall be distributed as provided in Section 280.' (Ill.Rev.Stat.1969, ch. 120, par. 507, effective September 16, 1969.) (Emphasis added.)

After the effective date of the amendment to section 26, the leasehold interests of the lessees involved in the cases under consideration were assessed to the lessees at the fair market value of the real estate. It is urged that section 26 as amended is invalid.

The validity of the 1969 amendment must be determined under the 1870 constitution and not under the provisions of the 1970 constitution which became effective July 1, 1971. (People ex rel. Cairo and St. Louis R.R. Co. v. Trustees of Schools, 78 Ill. 136.) Under the 1870 constitution we find the authority to tax conferred upon the General Assembly by section 1 of article IX, which provided:

'The general assembly shall provide such revenue as may be needful by levying a tax, by valuation, so that every person and corporation shall pay a tax in proportion to the value of his, her or its property * * *; but the general assembly shall have power to tax (certain named occupations) and persons or corporations owning or using franchises and privileges, in such manner as it shall from time to time direct by general law, uniform as to the class upon which it operates.'

The General Assembly was thereby given authority to tax three types of taxable interests: (1) Property on an Ad valorem basis; (2) certain occupations, and (3) ownership and use of franchises and privileges. The lessees in these consolidated cases have leveled a two-pronged attack on the constitutionality of amended section 26. They contend that the tax provided for thereunder is, under the provisions of section 1 of article IX, either a property tax, or a use tax (tax on the ownership or use of franchises and privileges). If it is a property tax, they contend that it violates the provision of section 1 of article IX which requires that a property tax be levied 'so that every person and corporation shall pay a tax in proportion to the value of his, her or its property.' This violation they find in the provision of amended section 26 italicized above which provides that the use of property be taxed to the same extent 'as though the lessee or occupant were the owner of the property.'

If the tax is considered a use tax, they contend that amended section 26 violates section 13 of article IV of the constitution of 1870 which provides: 'No act hereafter passed shall embrace more than one subject, and that shall be expressed in the title.' The lessee's specific objections in this regard will be discussed later.

It is the position of the State's Attorney representing the Cook County officials that the tax is not a use tax but is a property tax, and he addresses his efforts to sustaining the constitutional challenge to the amendment as a property tax. We need not be concerned with the validity of the tax as a property tax because it is clearly a use tax.

First, the clear language of the amendment declares that a use tax is being imposed. The italicized part of the amended section 26 set out above states: 'that use is subject to taxation.' Nowhere does the amendment state that the tax is on a leasehold estate or a property interest, whereas section 26 before the amendment plainly indicated that it was the leasehold estate that was the subject of the tax. Ill.Rev.Stat.1967, ch. 120, par. 507.

Second, this amendment is strikingly similar to the language of a Michigan statute (6 Mich.Stat.Ann., 1950 (Supp.1957), sec. 7.7(5) and (6) M.C.L.A. §§ 211.181, 211.182) which the Michigan Supreme Court in United States v. City of Detroit, 345 Mich. 601, 77 N.W.2d 79, held not to be a tax on property but a tax on the lessee's privilege of using the property. The United States Supreme Court affirmed this decision in 355 U.S. 466, 78 S.Ct. 474, 2 L.Ed.2d 424, holding the tax to be a tax on the beneficial use of property or a use tax as distinguished from a tax on the property itself. As stated above, the language of our statute is strikingly similar to the Michigan statute. However, the General Assembly inserted in our statute 'that use is subject to taxation.' These words were not in the Michigan statute which both the Michigan and the United States Supreme Courts construed to impose a use tax. With the addition of these words to those in the Michigan statute there can be no doubt that the amendment so section 26 imposed a tax on the use of the property by lessee.

This brings us back to the lessees' contention that as a use tax amended section 26 violates section 13 of article IV of the constitution of 1870, which contention we find to have merit.

That portion of section 13 of article IV set out above imposes two related but distinct requirements upon legislative enactments: (1) the subject of an act must be...