APPEAL from the Circuit Court of Winnebago County; the Hon.
JOHN S. GHENT, JR., Judge, presiding.
MR. JUSTICE RYAN DELIVERED THE OPINION OF THE COURT:
This is an appeal from a decree of the circuit court of Winnebago County permanently restraining the collection of taxes assessed against real estate owned by the School Sisters of St. Francis (Sisters), a religious corporation, and leased to the Childrens Development Center (Center), a not-for-profit corporation.
For several years Sisters had owned and maintained a convent in Rockford. Prior to 1969 the convent had not been assessed for real estate taxes. In August of that year Sisters entered into a lease whereby a part of the convent was leased to Center for a period of one year and the lease was subsequently renewed. Sisters is composed of a group of Roman Catholic nuns whose primary function is to teach in the parochial school system in Illinois. Center is a not-for-profit corporation which provides programs for educationally handicapped children. It has out-patient treatment, physical therapy, speech therapy, occupational and family therapy, and serves 200 to 250 children. The income of Center is derived from the State of Illinois Department of Mental Health, the United Fund and from tuition and fees for outpatient services. Few of the people who use the services are able to pay for the cost thereof. No person is refused service because of the inability to pay and no person derives any profit from the organization. The original lease involved 3,800 square feet at a rental of $9,070 for one year. The new lease involves 5,904 square feet at an annual rental of $14,051. The total area of the convent covers 67,500 square feet plus the chapel and the garage area. Following the execution of the lease an attempt was made to assess for taxation purposes that portion of the convent leased to Center.
Section 3 of article IX of the constitution of 1870 provides:
"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 exempt from taxation; but such exemption shall be only by general law."
Section 6 of article IX of the constitution of 1970 provides:
"The General Assembly by law may exempt from taxation only the property of the State, units of local government and school districts and property used exclusively for agricultural and horticultural societies, and for school, religious, cemetery and charitable purposes. * * *"
Section 19.2 of the Revenue Act of 1939 (Ill. Rev. Stat. 1969, ch. 120, par. 500.2) exempts from taxation: "All property used exclusively for religious purposes, or used exclusively for school and religious purposes, or for orphanages and not leased or otherwise used with a view to profit * * *." (Emphasis added.) Section 19.7 (par. 500.7) exempts from taxation: "All property of institutions of public charity, all property of beneficent and charitable organizations * * * when such property is actually and exclusively used for such charitable or beneficent purposes, and not leased or otherwise used with a view to profit * * *."
It is not questioned that the activities conducted by Center are charitable and that if the property were owned by Center and these activities conducted thereon, it would be tax exempt. Also if Sisters were to conduct a similar operation on the property instead of Center, it appears that the property would be tax exempt. It is defendants' contention that the leasing of the property for a return by Sisters to Center destroyed the tax-exempt status of that portion of the convent covered by the lease. Plaintiffs contend that it is not the mere leasing of the property that destroys a tax-exempt status but that the leasing must be done "with a view to profit." It is their position that the lease in this situation did not provide a profit to Sisters.
Defendants, relying on City of Mattoon v. Graham, 386 Ill. 180, The Oak Park Club v. Lindheimer, 369 Ill. 462, Turnverein "Lincoln" v. Board of Appeals, 358 Ill. 135, and People ex rel. Baldwin v. Withers Home, 312 Ill. 136, contend that if property is let for a return, it is used for profit and so far as its liability to the burden of taxation is concerned, it is immaterial whether the owner actually makes a profit or sustains a loss.
Plaintiffs relying on People ex rel. Goodman v. University of Illinois Foundation, 388 Ill. 363, and People ex rel. Hesterman v. North Central College, 336 Ill. 263, contend that the property must be leased "with a view to profit" and that the "mere fact that a part of the enterprise yields an income incidental profit is but of little importance." 388 Ill. at 374.
The positions of both parties are sustained by the authorities cited. The apparent conflict in the two positions, however, is reconciled when consideration is given to the primary use to which the leased property was devoted in the cases cited. In Graham, Turnverein and Withers Home the leased property was used primarily for the production of income profit. Whereas, in University of Illinois Foundation and North Central College the primary use of the leased property, while yielding incidental income, was to serve a function connected with the tax-exempt purpose of the institution. We need go no further than the drawing of this distinction for the decision of this case. It is unnecessary through accounting procedures to ascertain whether Sisters actually made a profit from the leasing. That is not the test. This court has often held that it is the primary use of the property and not the ownership that determines its taxable status. Illinois Institute of Technology v. Skinner, 49 Ill.2d 59; International College of Surgeons v. Brenza, 8 Ill.2d 141; People ex rel. Graff v. Passavant Memorial Hospital, 342 Ill. 193.
We likewise consider that it is the primary use to which the property is devoted after the leasing which determines whether the tax-exempt status continues. If the primary use is for the production of income, that is, "with a view to profit," the tax-exempt status is destroyed. Conversely, if the primary use is not for the production of income but to serve a tax-exempt purpose the tax-exempt status of the property continues though the use may involve an incidental production of income. Following the leasing the primary use to which the property was devoted was serving the tax-exempt charitable purpose of Center. This did not destroy the tax-exempt status of the leased property although the letting produced a return to Sisters.
The defendants point out that the status of real property for tax purposes is fixed as of January 1 of the year for which taxes are assessed. Since the lease from the Sisters to Center was not executed until August, 1969, defendants insist that Sisters has not proved the tax-exempt status of the property for 1969. Though the record does not extensively cover this issue, the evidence does show that as of January 1, 1969, the portion of the property in question was occupied by Rock Valley College under a lease with Sisters. The use of this property for school purposes supports the trial court's ...