Eden Retirement Center v. Dept. of Revenue

• Decision Date: 02 December 2004
• Docket Number: No. 97703.,97703.
• Citation: 213 Ill.2d 273,821 N.E.2d 240,290 Ill.Dec. 189
• Parties: EDEN RETIREMENT CENTER, INC., Appellee, v. The DEPARTMENT OF REVENUE et al., Appellants.
• Court: Illinois Supreme Court

821 N.E.2d 240

213 Ill.2d 273

290 Ill.Dec. 189

EDEN RETIREMENT CENTER, INC., Appellee, v. The DEPARTMENT OF REVENUE et al., Appellants.

No. 97703.

Supreme Court of Illinois.

December 2, 2004.

Lisa Madigan, Attorney General, Springfield (Gary Feinerman, Solicitor General, Timothy K. McPike, Assistant Attorney General, Chicago, of counsel), for appellant Department of Revenue.

Jack H. Humes, Jr., Ellen M. Edmonds, Edwardsville, for appellant Edwardsville Community Unit School District No. 7.

Ronald S. Motil, of Beatty, Motil & Foster, Edwardsville, for appellant Village of Glen Carbon.

Edward T. McCarthy, Edwardsville, for appellee.

Karen L. Kendall, Brent H. Gwillim, Craig L. Unrath, of Heyl, Royster, Voelker & Allen, Peoria, for amicus curiae Life Services Network of Illinois.

Justice FREEMAN delivered the opinion of the court:

Plaintiff, Eden Retirement Center, Inc., filed a complaint in the circuit court of Madison County seeking administrative review of a decision by the Illinois Department of Revenue (Department). The Department denied plaintiff's application for a charitable-use property tax exemption for the 1996 tax year. The circuit court set aside the Department's decision and granted the exemption, based solely on the court's interpretation of section 15-65 of the Property Tax Code (35 ILCS 200/15-65 (West 2000)). The appellate court affirmed. 346 Ill.App.3d 252, 281 Ill.Dec. 274, 803 N.E.2d 895.

Defendants, the Department, Edwardsville Community Unit School District No. 7, and the Village of Glen Carbon filed a joint petition for leave to appeal (177 Ill.2d R. 315(a)), which we allowed. We now reverse the judgments of the appellate and circuit courts, and confirm the decision of the Department.

BACKGROUND

The facts, as found by the Administrative Law Judge (ALJ), are not in dispute.

Plaintiff's Business

In 1976, plaintiff was organized as a not-for-profit corporation. Plaintiff's articles of incorporation included the following corporate purpose: "This corporation shall be organized and operated exclusively for charitable purposes in providing housing, nursing and other related care for the aged, and in connection therewith, to buy, sell, lease, mortgage and in all manner deal with real or personal property." Section 6 of plaintiff's bylaws provides:

"It is the express purpose of this corporation to be organized and operated exclusively for charitable purposes in providing housing, nursing care, financial security and other related care for the elderly. Recognizing that charitable purpose, it is the intent of the corporation to provide housing, nursing care and other related care by limiting the charges for such services. To that extent, charges shall be set at an amount sufficient to amortize indebtedness, maintain reserves adequate to provide life care for the residents, and to set aside amounts sufficient for expansion to meet the community's need. All reserves provided for herein shall be reasonable. It is expressly provided that it is the intention of the corporation to continue to provide for the maintenance of those residents who are financially unable to continue making payments due the corporation for care. In order to continue to provide such services to residents, the corporation shall be authorized, in maintaining reserves for the care of the residents, to provide a reserve especially for the care of those who may be unable to further care for themselves and to make the payments due the corporation. It is the established policy of the corporation to continue to maintain such persons as residents. To the extent that charges previously determined exceed amounts determined above, then charges shall be reduced so as to maintain charges equal to the aforesaid requirements."

Further, section 7 of the bylaws provides: "All entrance fees, monthly maintenance charges, routine service charges, nursing care charges, and non-rated charges may be waived in full, reduced in part, or liability for payment postponed based upon the individual's inability to pay and the Association's financial circumstances." Also, plaintiff is exempt from federal income tax pursuant to section 501(c)(3) of the United States Internal Revenue Code (26 U.S.C. § 501(c)(3) (1994)).

During 1996, plaintiff owned and operated a 122-bed, skilled-care nursing facility, and an apartment building containing 78 apartments for independent living. Plaintiff also owned 11 single-story, duplex buildings containing 22 independent living units, with each unit containing one or two bedrooms. For example, building 407 contains units 407A and 407B. Plaintiff sought a charitable-use property tax exemption for 1996 on a parcel of property with five of the duplex buildings.

The residents of the duplexes at issue here lived in their units since at least 1996. The residents of most of the units signed a "Resident Agreement" with plaintiff, while the residents of one unit signed what is alternatively designated a "Rental Agreement" or "Rental Lease." The resident agreement required up-front entrance fees ranging from $65,000 to $76,900. The lease required a security deposit of $5,000. Both the resident agreement and the lease require the prospective resident to provide plaintiff with a detailed financial report as part of the resident's application.

Paragraph 10 of the resident agreement provides as follows. If a resident fails to make any of the required payments for a period of 90 days, the board of directors may, in its discretion, cancel the agreement. The paragraph declares the intent of the board of directors that once a resident has been accepted, the resident may not be terminated solely for inability to pay. The board of directors may either allow the delinquent charges to accrue as credits to the remaining returnable balance of the entrance fee, or even waive the payments "if such can be done without endangering the sound financial structure of the organization."

The lease includes the following provisions. Paragraph Five provides for a security deposit. Paragraph Three provides that if rent is not paid within 10 days after the due date, the resident shall pay an additional 10% of the overdue rent as a late payment penalty. Also, overdue rent shall accrue interest at the rate of 1 1/2% per month. Pursuant to paragraph 16, failure to pay rent constitutes a default, upon which plaintiff's remedies include the right to terminate the lease, take possession of the unit, and distrain for rent due. Paragraph 25 is a confession of judgment, pursuant to which plaintiff may seek possession of the unit and a judgment for rent due from the resident at the resident's expense.

The ALJ noted from the administrative record an example of a maintenance fee reduction. During 1996, a husband and wife occupied, pursuant to a residential agreement, one of plaintiff's duplex units not at issue in this case. Because of high medical expenses, they were having trouble paying the monthly maintenance fee. The husband asked plaintiff to reduce their payment. It was agreed for that year their maintenance fee would be reduced $80 per month. In 1997, due to hardship, their maintenance fee was reduced an additional $50 per month. In 1998, they were able to pay the full monthly maintenance fee. In 1999, upon their request, they were granted a reduction of $70 per month. Initially, plaintiff reimbursed itself for this maintenance fee reduction out of the refundable portion of their entrance fee. Eventually the fund was exhausted and plaintiff carried the cost of the maintenance fee reduction. This was the only occurrence of a maintenance fee reduction in the last 15 years among plaintiff's 78 independent living apartments and 22 independent living duplex units.

While plaintiff has allowed prospective residents to delay payment of the entrance fee, plaintiff has never waived or reduced the entrance fee. Also, no resident has ever been evicted from the apartments or the duplexes because of inability to pay.

During the 1996 calendar year, plaintiff's nursing facility income was $3,464,277. Approximately 35% of plaintiff's nursing facility residents received Illinois public aid. For that year, plaintiff's average cost of providing care to a nursing facility resident was $82.63 per day. The public aid reimbursement per recipient was $68.06 per day. Thus, during 1996, plaintiff was spending an average of $14.57 more per day on a public aid recipient in its nursing facility than it was receiving.

Also during 1996, plaintiff's independent living income was $989,610. That same year, plaintiff received charitable contributions of $12,552.

Proceedings

In December 1996, plaintiff applied to the Madison County board of review (board) for the property tax exemption. Having been notified of plaintiff's application, Edwardsville Community School District No. 7 and the Village of Glen Carbon petitioned to intervene as taxing districts with tax revenue interests in the subject property. In March 1997, the board determined that the 1996 tax assessment of the subject property was $151,460 and recommended to the Department that the exemption be denied. In February 1999, the Department initially rejected the board's recommendation and granted the exemption, except for one building. See generally 35 ILCS 200/16-70 (West 2000).

In November 2000, upon the request of the school district and the village, the Department held an administrative hearing on plaintiff's application for property tax exemption. See generally 35 ILCS 200/8-35 (West 2000). In his recommended findings, the ALJ took administrative notice that on December 22, 1989, the Department exempted the skilled-care nursing facility, the independent living apartments, and a different parcel of property with six duplexes containing 12 independent living units.

At the close of the hearing, the ALJ recommended that the Department deny plaintiff's application. The ALJ found that plaintiff did not meet the...