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Small v. Pangle





Appeal from the Appellate Court for the Third District; heard in that court on appeal from the Circuit Court of Kankakee County; the Hon. Victor N. Cardosi, Judge, presiding.


Rehearing denied May 29, 1975.

The plaintiffs brought this action in the circuit court of Kankakee County to enjoin the county officials from levying, assessing and collecting real estate taxes on certain property used in the operation of an old people's home. The trial court granted summary judgment to the plaintiffs. The appellate court affirmed, holding that the real estate in question was exempt from taxation. (Small v. Nelson (1974), 17 Ill. App.3d 1082.) We granted leave to appeal.

The basic issue presented is whether the property is exempt from taxation under section 6 of article IX of the 1970 Illinois Constitution and under the provisions of section 19.7 of the Revenue Act of 1939, as amended, which implements the constitutional provision. Ill. Rev. Stat. 1971, ch. 120, par. 500.7.

The plaintiffs are trustees of a charitable trust. The trust owns and operates an old people's home called the Heritage House, which was constructed in 1970. Its value was set at about $1,155,000. Initial furnishing costs totaled approximately $100,000. Roughly $850,000 of the initial construction and furnishing costs were provided from the trust fund. The balance of the funds came from a first mortgage in the amount of $400,000. Since then additional junior mortgages, totaling $160,000 have been taken out, and a total of approximately $40,000 has been paid off against all of the mortgages.

As of the end of 1972, the trust for the operation of the Heritage House had $57,000 in current assets and $1,342,000 in property and equipment, after depreciation. Liabilities totaled $631,000. The operating income for the year 1972 totaled $465,000 and the operating expenses were $432,000.

There are 68 rooms in the Heritage House. Fifty-two rooms are provided for "residents" who are retired persons. Sixteen rooms are provided for "nursing residents," who require nursing care.

During 1972 the charges to "residents" ranged from $325 per month for an unfurnished semi-private one-room apartment to $615 per month for a furnished two-room private apartment. The charges to "nursing residents" varied from $560 per month to $975 per month. These charges included meals but excluded medication, certain nursing supplies, and other personal items. The average charge to an ambulatory resident totaled $425.36 per month, and the average charge to a nursing resident totaled $680.31.

The Heritage House is self-sustaining. There is an admissions committee, but the requirements of admission are not disclosed by the records. It appears, however, that the residents must meet health requirements, and they must be able to make the monthly payment requirements. None of the patients is a public charge or in any special category of old-age or nursing assistance insofar as government funding is concerned. The situation has never arisen where a person who has applied for admission has been unable to make the monthly payments. Two families did move out because of the rate.

The agreement for residency is entered into between the trustees of the trust, the applicant, and a "responsible party." The latter may be either the applicant or a third party who agrees to pay the monthly and other charges imposed. At the inception of the agreement, such party must pay the first month's payment in advance and a deposit equal to two months' charges. The agreement provides that admission to the Heritage House will be on a nonsectarian basis, without distinction because of race, color or creed. It also provides that the management has the right to refuse admission or to discharge a resident without giving any reason or cause.

Section 19.7 of the Revenue Act of 1939, as amended, provides, in part:

"All property of institutions of public charity, all property of beneficent and charitable organizations, whether incorporated in this or any other state of the United States, and all property of old people's homes, 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; and all free public libraries. The words `old peoples homes' as used in this section shall include any old peoples home licensed by the State of Illinois and owned by a not-for-profit corporation or organization and operated not for profit under the auspices of a religious, fraternal, charitable or other non-profit organization which old peoples' home provides housing, meals, laundry and infirmary services to aged persons and which is financed wholly or in part by charges made to its residents or wholly or in part by endowment, gifts or bequests or by a combination of the foregoing. This definition shall be construed as declaratory of the existing law and not as a new enactment. No hospital, however, which has been adjudicated by a court of competent jurisdiction to have denied admission to any person because of race, color or creed shall be exempt from taxation." Ill. Rev. Stat. 1971, ch. 120, par. 500.7.

The right of the legislature to exempt real property from taxation arises under section 6 of article IX of the Illinois Constitution of 1970. This 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. The ...

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