Oko, LLC v. Illinois Dep't of Revenue
| Decision Date | 20 June 2011 |
| Docket Number | No. 4–10–0500.,4–10–0500. |
| Citation | 959 N.E.2d 663,2011 IL App (4th) 100500,355 Ill.Dec. 249 |
| Parties | OKO, LLC, Plaintiff–Appellant, v. The ILLINOIS DEPARTMENT OF REVENUE, Defendant–Appellee. |
| Court | United States Appellate Court of Illinois |
2011 IL App (4th) 100500
355 Ill.Dec. 249
959 N.E.2d 663
OKO, LLC, Plaintiff–Appellant,
v.
The ILLINOIS DEPARTMENT OF REVENUE, Defendant–Appellee.
No. 4–10–0500.
Appellate Court of Illinois, Fourth District.
June 20, 2011.
[959 N.E.2d 665]
Christopher M. Ellis, Timothy J. Tighe, Jr. (argued), Bolen Robinson & Ellis, LLP, Decatur, for OKO, LLC.
Lisa Madigan, Attorney General, State of Illinois, Michael A. Scodro, Solicitor General, Eric Truett (argued), Assistant Attorney General, for Illinois Department of Revenue.
[355 Ill.Dec. 251] ¶ 1 In September 2009, plaintiff, OKO, LLC (OKO), filed a complaint for administrative review of the decision of defendant, the Illinois Department of Revenue (Department) denying OKO's application for a property-tax exemption for the tax year 2007 under section 15–65 of the Property Tax Code (Code) (35 ILCS 200/15–65 (West 2008)) because the property in question was not owned by a charitable organization. In May 2010, the circuit court affirmed the Department's decision.
¶ 2 OKO appeals, arguing the Department's denial was clearly erroneous where, under the terms of the sale-leaseback agreement, the previous owner, who is also the lessee, retained sufficient indicia of ownership to qualify for the exemption. We affirm.
¶ 5 This case arises from the sale of property located at 815 North Church Street in Decatur, Illinois (property), by Old Kings Orchard Community Center, Inc. (Center), to OKO. The Center is a tax-exempt, not-for-profit organization engaged in community-outreach activities such as after-school programs and meals for children. The parties stipulated the property was being used for charitable purposes. As a result, the issue of charitable use is not part of this appeal.
¶ 6 The Center was operating at a loss, and its mortgage was going to be foreclosed. Decatur businessman Thomas Kowa, president of the Huston–Patterson Corporation, created OKO as a limited-liability company (LLC) for the purpose of purchasing the property. Kowa testified he purchased the Center because he wanted to help the community. However, he explained the Center's chances of staying open were much greater if he paid off the note instead of just donating $100,000. According to Kowa, the Center had a history of encumbering its property with liens it could not pay.
¶ 8 On March 16, 2007, OKO entered into a purchase and sales agreement with the Center for $100,000, which was used to pay off the existing mortgage on the property. The agreement provided at closing the parties would execute a lease, the terms of which provided OKO would lease the property to the Center.
¶ 10 On March 30, 2007, the parties entered into the original lease agreement. [355 Ill.Dec. 252]
[959 N.E.2d 666]
Thereafter, the parties entered into two subsequent addenda dated March 25, 2008, and September 29, 2008.
¶ 12 The term of the original lease was for 15 years, with a March 30, 2007, effective date. According to the lease, the Center was to pay $1,000 rent per month. However, paragraph four of the lease stated, “So long as the Premises subject to this Lease retains its status as exempt from real estate taxes, which shall be based upon a final determination from the relevant governmental authority, then Lessor will waive its right to collect any rent * * *.”
¶ 13 Under the original lease the Center also agreed to pay all utility, maintenance, repair, and insurance costs on the property. However, the Center was not required to pay real-estate taxes. The Center also agreed not to assign or sublet the property without OKO's consent. The Center had the right to purchase the property at any time so long as it maintained its property-tax-exempt status. However, the Center would lose that right if the property lost its tax-exempt status. The original lease also gave the Center the right of first refusal in the event OKO received a bona fide offer on the property.
¶ 15 On March 25, 2008, the parties entered into an addendum to the original lease. The addendum had a March 1, 2008, effective date. The addendum modified paragraph four of the original lease to state OKO would waive its right to collect rent so long as the Center continued its not-for-profit activities as opposed to the original lease which stated the waiver applied if the property retained its tax-exempt status.
¶ 17 On September 29, 2008, the parties entered into another addendum to the original lease. This addendum had a March 30, 2007, effective date.
¶ 18 The addendum replaced paragraphs 4, 10, 11, and 13 of the original lease. Paragraph 4 retained the changes made in the prior addendum. Where paragraph 10 of the original lease provided the Center could purchase the property so long as the property maintained its tax-exempt status, the addendum conditioned the purchase ability on the Center continuing its not-for-profit activities. Paragraph 11 of the original lease gave the Center the right of first refusal. Pursuant to the addendum, OKO agreed not to sell or transfer the property as long as the Center continued its not-for-profit activities. Under paragraph 13 of the original lease, the Center could not terminate the lease or surrender the property in the event of casualty. However, the addendum gave the Center the option to terminate the lease and surrender the property in the event of casualty.
¶ 20 On November 20, 2007, OKO filed an application for a property-tax exemption with the Macon county board. On December 14, 2007, the board recommended the denial of OKO's application because the property was not owned by a charitable organization. On January 17, 2008, the Department denied OKO's exemption, finding the property was not in exempt ownership or exempt use. On March 4, 2008, OKO filed a request for a formal administrative hearing to challenge the Department's conclusions.
¶ 22 In the June 2008 pretrial order, the administrative law judge (ALJ) identified the following issues:
[959 N.E.2d 667]
[355 Ill.Dec. 253] “(1) whether the lessee has the indicia of ownership for property tax purposes pursuant to the lease that was in effect during 2007; (2) if no, whether the modifications that were made in 2008 revert back to the year 2007; (3) if yes, whether the lessee has the indicia of ownership for property tax purposes pursuant to the modifications that were made during 2008. The issue of whether the property is for charitable purposes is not disputed by the Department.”
¶ 23 In August 2009, the ALJ recommended the denial of OKO's application. The ALJ found the evidence did not support a finding the Center had sufficient indicia of ownership to remain the owner of the property for tax purposes.
¶ 25 In November 2009, OKO filed a complaint for administrative review, arguing the ALJ and the Department erred. According to OKO, even though it held legal title to the property, the Center owned the property for property-tax purposes under the parties' lease-back arrangement.
¶ 26 On May 25, 2010, the circuit court affirmed the Department's decision.
¶ 27 This appeal followed.
¶ 29 On appeal, OKO argues the Department erred in denying it an exemption because the sale-leaseback arrangement between OKO and the Center did not divest the Center of ownership for property-tax purposes. Specifically, OKO contends the property is still owned by the Center for property-tax purposes even though OKO holds title to it. However, while OKO argues the property is still owned by the Center for property-tax purposes, OKO, not the Center, applied for the exemption and is the party appealing before this court.
¶ 31 We initially note the appellate court's role is to review the Department's administrative decision, not the circuit court's. JB4 Air, LLC v. Department of Revenue, 388 Ill.App.3d 970, 972, 328 Ill.Dec. 776, 905 N.E.2d 310, 312 (2009). The appropriate standard of review concerning administrative decisions is contingent upon whether the question being reviewed is one of fact, law, or both. Express Valet, Inc. v. City of Chicago, 373 Ill.App.3d 838, 847, 311 Ill.Dec. 951, 869 N.E.2d 964, 972 (2007). “An administrative agency's decision on questions of fact are entitled to deference and are reversed only if against the manifest weight of the evidence.” Friends of Israel Defense Forces v. Department of Revenue, 315 Ill.App.3d 298, 302, 248 Ill.Dec. 114, 733 N.E.2d 789, 792–93 (2000). An administrative agency's decisions on questions of law are not afforded deference and thus are reviewed de novo. Friends of Israel, 315 Ill.App.3d at 302, 248 Ill.Dec. 114, 733 N.E.2d at 793.
¶ 32 However, when a case “involves an examination of the legal effect of a given set of facts, it involves a mixed question of fact and law.” City of Belvidere v. Illinois State Labor Relations Board, 181 Ill.2d 191, 205, 229 Ill.Dec. 522, 692 N.E.2d 295, 302 (1998). In such cases, we review the agency's decision under the clearly erroneous standard. City of Belvidere, 181 Ill.2d at 205, 229 Ill.Dec. 522, 692 N.E.2d at 302; see also Board of Trustees of the University of Illinois v. Illinois Labor Relations Board, 224 Ill.2d 88, 97, 308 Ill.Dec. 741, 862 N.E.2d 944, 950 (2007) ( “clearly erroneous standard of review is proper when reviewing a decision of [an administrative agency] because the decision[355 Ill.Dec. 254]
[959 N.E.2d 668]
represents a mixed question of fact and law”).
¶ 33 Under this standard, the agency's decision will not be deemed clearly erroneous unless the reviewing court is left with the definite and firm conviction a mistake has been committed. Daley v. Lakeview Billiard Café,...
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