People ex rel. Paschen v. Hendrickson-Pontiac, Inc.

• Decision Date: 25 September 1956
• Docket Number: No. 33936,HENDRICKSON-PONTIA,I,33936
• Citation: 9 Ill.2d 250,137 N.E.2d 381
• Parties: The PEOPLE ex rel. Herbert C. PASCHEN, County Collector, Appellee, v.nc., Appellant.
• Court: Illinois Supreme Court

Page 381

137 N.E.2d 381

9 Ill.2d 250

The PEOPLE ex rel. Herbert C. PASCHEN, County Collector, Appellee, v. HENDRICKSON-PONTIAC, Inc., Appellant.

No. 33936.

Supreme Court of Illinois.

Sept. 25, 1956.

Adelbert Brown, Chicago, for appellant.

John Gutknecht, State's Atty., Chicago (Gordon B. Nash, Charles D. Snewind, and Edward E. Plusdrak, Chicago, of counsel), for appellee.

DAILY, Justice.

Hendrickson-Pontiac, Inc., the appellant, filed objections in the county court of Cook County to the application of the county collector for judgment fixing the correct amount of 1949 real estate taxes paid under protest. This appeal is prosecuted from a judgment overruling such objections and denying appellant a refund of $3447.96.

The facts underlying the controversy show that the board of education of the city of Chicago holds the fee to two lots located on Laramie Avenue between Madison and Monroe streets. The said land is an unsold part of section 16, commonly referred to as school fund property, granted by the government of the United States to the State of Illinois for use of its inhabitants for schools, on the occasion of the latter's admission to Statehood. By a lease executed June 12, 1946, the two lots, then vacant and unimproved, were leased for commercial purposes to appellant, a nonexempt Illinois business corporation engaged in the operation of an automobile agency, for a term of 49 years commencing January 1, 1947. By the terms of the lease appellant agreed to pay a fixed annual rental of $5460 for the first ten years and thereafter an amount to be determined at ten-year intervals. In addition to the stipulated annual rental, appellant agreed to erect a commercial building costing not less than $100,000. Such a building was erected in 1949 and is used by appellant to conduct its automobile agency.

By paragraph 14 of the lease, which is captioned: 'Surrender Premises Upon Termination,' it was agreed that 'upon termination of the lease, by forfeiture, lapse of time or otherwise, the lessee will at once surrender and deliver up the above described premises, together with all improvements thereon, to said lessor, and that all buildings and all fixtures made a part of buildings and improvements thereunto belonging, upon said demised premises are a part of the premises and the property of the lessor.' Other provisions of the lease pertinent to this proceeding are paragraphs 4 and 5. By the former, appellant, as lessee, agreed to pay all taxes and assessments 'upon said demised premises or on any and all buildings and improvements thereon, or on the leasehold estate hereby created.' Paragraph 5, which authorizes appellant to 'contest taxes,' reads in part: 'It is understood that the land demised is School Fund Property, and as such is exempt at the present time from general and special assessment.'

The land so leased was not assessed for the years 1947 and 1948, but was, rather, marked 'exempt' in the collector's warrant books. In 1949, after appellant had erected the commercial building, the collector continued to show the land as exempt and also determined, under a formula wherein the value of a leasehold equity in exempt land is based solely on the value of the land, that appellant's leasehold equity had no taxable value. For the same year, however, the 'improvements on the land' were assessed against appellant at $76,434 under the formula normally employed in the county, viz., reproduction cost less depreciation. Thereafter taxes were levied on the basis of such valuation and were extended in an amount totalling $3447.96. Appellant paid the full amount under protest and by its subsequent objections to the application of the collector, alleged, in substance, that it was entitled to a refund: (1) because the improvement assessed is owned by the board of education; (2) because the improvement is section 16 school fund property and thus not taxable regardless of the use to which it is put; and (3) because appellant owns only a leasehold in the improvement, which has no taxable value. The county court, after hearing evidence, found that appellant had an interest which amounted to a property right in the real estate in question and overruled the objections.

Appellant's fundamental contention on this appeal is that the taxing officials were powerless to tax the improvement because it is exempt property. In support of such position it is first urged that although appellant erected and paid for the improvement, it was at all times the property of the board of education both under the terms of the lease and by operation of real property laws. Appellant reasons that its leasehold interest and the board's fee in the improvement are separate properties and, by drawing an analogy to People ex rel. Harding v. City of Chicago, 335 Ill. 450, 167 N.E. 79, and People ex rel. Carr v. City of Chicago, 323 Ill. 68, 153 N.E. 725, where it was held that privately owned land was not relieved of tax liability even though leased for long terms to exempt municipal corporations, asserts that the board-owned improvement is not subject to taxation. Even if it were to be conceded that the board has a clear claim to the improvement prior to the termination of appellant's lease, such a theory cannot be sustained either under the constitution or implementing statutes.

The subject of exemption from taxation is dealt with in section 3 of article IX of the constitution of 1870, S.H.A. which provides in part as follows: 'The property of the state, counties, and other municipal corporations, both real and personal, and such other property as may be used exclusively for agricultural and horticultural societies, for school, religious, cemetery and charitable purposes, may be exempted from taxation; but such exemption shall be only by general law.' In People ex rel. Gill v. Trustees of Schools, 364 Ill. 131, 4 N.E.2d 16, wherein it is stated that the framers of the constitution intended a strict construction of the provision to the end that all property should bear its just portion of taxation, this court held that although the property contemplated by the constitution must be owned by institutions, associations or corporations falling within the exempted classes named, ownership is not the sole test and that, to be exempt, such property must also be used exclusively for the purposes defined in the second clause of the section.

The constitutional provision is not self-executing but merely grants to the legislature, acting within the constitutional limitations imposed, the authority to enact legislation to exempt property from taxation. People ex rel. Olmsted v. University of Illinois, 328 Ill. 377, 159 N.E. 811; Glen Oak Cemetery Co. v. Board of Appeals, 358 Ill. 48, 192 N.E. 673. Pursuant to such authority the legislature has enacted section 14-11 of the School Code (Ill.Rev.Stat.1947, chap. 122, par. 14-11) which exempts school real estate from taxation in the following terms: 'All lands donated by the United States for school purposes, not sold or leased; all property of schools, including the real estate on which the schools are located and any other real estate used by such schools exclusively for school purposes, not leased by such schools or otherwise used with a view to profit; and all lands, moneys or other property heretofore or hereafter donated, granted, received or used for public school, college, seminary, university, or other public educational purposes, and the proceeds thereof whether held in trust or absolutely shall be exempt from taxation.' See also paragraphs (1) and (2) of section 19 of the Revenue Act of 1939, as amended. Ill.Rev.Stat.1947, chap. 120, par. 500.

Admittedly the school property involved in this proceeding has been leased and is being used for other than exclusive school purposes. Thus whether measured by the constitutional provision or the implementing statute, the mere fact that the...