LENA COM. TRUST FUND, INC. v. Dept. of Revenue

• Citation: 322 Ill. App.3d 884,750 N.E.2d 1261,255 Ill.Dec. 876
• Decision Date: 13 June 2001
• Docket Number: No. 2-00-0487.,2-00-0487.
• Parties: LENA COMMUNITY TRUST FUND, INC., Plaintiff-Appellee, v. The DEPARTMENT OF REVENUE and Glen L. Bower, Director, Defendants-Appellants (The Board of Review of Stephenson County and Stephenson County, Defendants).
• Court: United States Appellate Court of Illinois

750 N.E.2d 1261

322 Ill. App.3d 884

255 Ill.Dec. 876

LENA COMMUNITY TRUST FUND, INC., Plaintiff-Appellee, v. The DEPARTMENT OF REVENUE and Glen L. Bower, Director, Defendants-Appellants (The Board of Review of Stephenson County and Stephenson County, Defendants).

No. 2-00-0487.

Appellate Court of Illinois, Second District.

June 13, 2001.

James E. Ryan, Attorney General, State of Illinois, Joel D. Bertocchi, Solicitor General, Brian F. Barov, Assistant Attorney General, Chicago, for Glen L. Bower, Director, Department of Revenue, State of Illinois.

Robert E. Eden, Freeport, for Lena Community Trust Fund, Inc. Justice GEIGER delivered the opinion of the court:

The plaintiff, Lena Community Trust Fund, Inc. (the Trust), filed this administrative review action after defendants the Department of Revenue and Director Glen L. Bower (collectively, the Department) adopted the recommendation of an administrative law judge (ALJ) denying a 1995 property tax exemption for certain real property owned and operated by the Trust. The circuit court reversed the Department's decision, from which the Department appeals, arguing that the Trust is not entitled to a charitable exemption.

The ALJ's findings of fact, adopted by the Department, are not in dispute. The Trust was incorporated in Illinois in 1991 under the General Not For Profit Corporation Act of 1986 (805 ILCS 105/101.01 et seq. (West 1998)). The articles of incorporation provided that the Trust was organized to collect and distribute money for charitable purposes, to assist charitable organizations in the local community, and to manage a community center used for public purposes. The bylaws provided that the trustees shall consist of members of certain organizations from Lena, Illinois. The Trust had no capital, capital stock, or shareholders. The Trust was exempt from federal income taxes under section 501(c)(3) of the Internal Revenue Code (26 U.S.C. § 501(c)(3) (1994)).

In March 1993, the Trust was gifted 2.69 acres of land in rural Lena, population approximately 3,000. Thereafter, the Trust built a two-story building on the property to be used as a community center. The lower level consisted of a large meeting hall and five small meeting rooms. The upper level consisted of a large main hall and a kitchen. In 1995, the Trust opened the property as a community center and offered space to community organizations for meetings and functions. The Trust charged various fees for the space, ranging from $5 per day for the use of the small, lower-level meeting rooms by nonprofit groups to $350 per day for the use of the upper-level main hall and kitchen.

In addition to organizational meetings for the Trust, in 1995, the community center was used by the following groups: Viking Insurance, Illinois Department of Transportation, Lena Special Housing, Jaycees, an investment club, a sorority, Stephenson County Highway Department, Stephenson County Bar Association, Lena Business and Professional Association, Lions Club, and the Citizens State Bank. In addition to these meetings, Bible studies were held, as were the local high school prom and fire department dance. The center was also used for the "turkey chasers," which were not explained in the record, and by private families for anniversaries and weddings.

In 1995, the Trust collected 81% of its revenues from donations and 19% from rental fees. The Trust policy was to waive rental fees for individuals and organizations unable to pay, although no one had made such a request. In addition, no one requesting to use the center in 1995 was denied.

The Trust applied for a charitable exemption from real estate taxes for 1995. The ALJ found that the Trust did not qualify as an institution of public charity because the Trust charged fees for the use of the community center. The ALJ also found that the Trust failed to establish that the property was used exclusively for charitable purposes. The ALJ concluded that the evidence suggested that the community center had been used primarily for business meetings and private social events. The Department adopted the ALJ's recommendation that the property be denied a charitable exemption. The Trust appealed the Department's decision to the circuit court of Stephenson County, which reversed the Department's decision and declared that the property was exempt from real estate taxes for 1995. We affirm the circuit court's decision.

At the outset, we must determine the appropriate standard of review. Both parties acknowledge that our supreme court has held that the "clearly erroneous" standard, falling between the de novo and manifest weight standards, is often applied in administrative review cases on appeal where the facts are undisputed. City of Belvidere v. Illinois State Labor Relations Board, 181 Ill.2d 191, 205, 229 Ill.Dec. 522, 692 N.E.2d 295 (1998). Under the "clearly erroneous" standard, which involves a mixed question of law and fact, we must accept the administrative agency's findings unless we are firmly convinced that a mistake has been made. Friends of Israel Defense Forces v. Department of Revenue, 315 Ill.App.3d 298, 303, 248 Ill.Dec. 114, 733 N.E.2d 789 (2000).

In a recent administrative review case, the Appellate Court, First District, noted a conflict in recent appellate decisions regarding the standard of review where the only question is the legal conclusion to be drawn from the facts. Friends of Israel, 315 Ill.App.3d at 302, 248 Ill.Dec. 114, 733 N.E.2d 789. The First District noted that, in XL Disposal Corp. v. Zehnder, 304 Ill. App.3d 202, 207, 237 Ill.Dec. 307, 709 N.E.2d 293 (1999), the Appellate Court, Fourth District, followed the holding in Belvidere and applied the "clearly erroneous" standard to an administrative review case.

Although the Friends of Israel court noted that our supreme court recently held that the issue of whether property is exempt from taxation was a question of law (Chicago Patrolmen's Ass'n v. Department of Revenue, 171 Ill.2d 263, 271, 215 Ill.Dec. 655, 664 N.E.2d 52 (1996)), the court nevertheless applied the "clearly erroneous" standard to a question concerning an exemption from use taxation. Friends of Israel, 315 Ill.App.3d at 303, 248 Ill.Dec. 114, 733 N.E.2d 789. The Friends of Israel court also noted that our court held in Richard's Tire Co. v. Zehnder, 295 Ill. App.3d 48, 57, 229 Ill.Dec. 587, 692 N.E.2d 360 (1998), that de novo review is appropriate where the only question is the legal conclusion to be drawn from the facts.

We reject the analysis set forth in Friends of Israel and choose to follow our supreme court's holding in Chicago Patrolmen's Ass'n. Although our supreme court discussed in Belvidere how the "clearly erroneous" standard might apply in administrative review cases generally, it did not specifically discuss the application of the "clearly erroneous" standard to property tax exemption cases. The question of the standard of review for property tax exemption cases was clearly decided by our supreme court in Chicago Patrolmen's Ass'n, which has not been overruled. As such, it is still good law, notwithstanding the decisions in Friends of Israel and XL Disposal. Therefore, consistent with Chicago Patrolmen's Ass'n and Richard's Tire, we will apply the de novo standard of review to this case.

Charitable ownership and charitable use together entitle a parcel to exemption. Institute of Gas Technology v. Department of Revenue, 289 Ill.App.3d 779, 783, 225 Ill.Dec. 316, 683 N.E.2d 484 (1997). Section 15-65 of the Property Tax Code provides as follows:

"All property of the following is exempt when actually and exclusively used for charitable or beneficent purposes, and not leased or otherwise used with a view to profit:

(a) Institutions of public charity." 35 ILCS 200/15-65 (West 1998).

The party claiming a tax exemption must prove clearly and convincingly that the property falls within the terms of the exception. Evangelical Hospitals Corp. v. Department of Revenue, 223 Ill.App.3d 225, 231, 165 Ill.Dec. 570, 584 N.E.2d 1004 (1991). All facts are to be construed in favor of taxation. Evangelical Hospitals Corp.,223 Ill.App.3d at 231,165 Ill.Dec. 570,584 N.E.2d 1004.

In applying section 15-65 of the Property Tax Code to the present case, three questions emerge: (1) was the Trust an institution of public charity? (2) was the community center used for charitable or beneficent purposes? and (3) if the community center was used for charitable or beneficent purposes, was it used exclusively for those purposes? On appeal, the Department has disputed all three components.

Our supreme court in Methodist Old Peoples Home v. Korzen, 39 Ill.2d 149, 157, 233 N.E.2d 537 (1968), set forth general guidelines for determining when a party is deemed an institution of public charity: (1) the institution has no capital, capital stock, or shareholders; (2) the institution earns no profits or dividends and derives its funds mainly from public and private charity and holds them in trust for the purposes expressed in its charter; and (3) the institution dispenses charity to all who need and apply for it and does not place obstacles in the way of those who would avail themselves of the charitable benefits. The Korzen factors are not rigid, and the court must balance the guidelines by examining the facts of each case and focusing on whether the institution serves the public and lessens the State's burden. Randolph Street Gallery v. Zehnder, 315 Ill.App.3d 1060, 1065, 248 Ill.Dec. 780, 735 N.E.2d 100 (2000).

The ALJ found, and the Department argues on appeal, that the Trust did not meet the definition of public charity because the Trust placed obstacles in the way of those seeking to use the community center by charging fees for the space. The ALJ found, however, that the Trust met several of the Korzen criteria, namely, the following: the Trust had no capital stock or shareholders, the Trust earned no profits or dividends, the Trust's...