APPEAL from the Circuit Court of Cook County; the Hon. RICHARD
L. CURRY, Judge, presiding.
MR. JUSTICE DOWNING DELIVERED THE OPINION OF THE COURT:
Commonwealth Edison Company (Edison) appeals from an order of the circuit court of Cook County which affirmed a tax assessment made by the Department of Local Government Affairs (the Department) of Edison's pollution control facilities located in Cook County, Illinois.
On appeal, Edison contends that (1) the Department's assessment of the pollution control facilities did not comport with statutory provisions governing such assessments; and (2) the Department's valuation of the facilities denied Edison the right to uniform tax treatment and equal protection of the law.
Edison owns and operates 12 certified pollution control facilities in Cook County. Pursuant to section 21a-4 of the Revenue Act of 1939 (Ill. Rev. Stat. 1977, ch. 120, par. 502a-4), the Department of Local Government Affairs of the State of Illinois is empowered to assess certified pollution control facilities for tax purposes. Section 21a-1 of the Act (Ill. Rev. Stat. 1977, ch. 120, par. 502a-1) declares it to be the policy of this State that pollution control facilities be valued for property tax purposes "* * * in relation to 33 1/3% of the fair cash value of their economic productivity to their owners." Section 21a-3 (Ill. Rev. Stat. 1977, ch. 120, par. 502a-3) sets forth the method by which the Department is to assess these facilities as follows:
"For the purpose of determining 33 1/3% of the fair cash value of any certified pollution control facilities in assessing said facilities under the real and personal property tax laws of this State, the Department shall take into consideration the actual or probable net earnings attributable to the facilities in question, capitalized on the basis of their productive earning value to their owner; the probable net value which could be realized by their owner if the facilities were removed and sold at a fair, voluntary sale, giving due account to the expense of removal and condition of the particular facilities in question; and such other information as the Department may consider as bearing on 33 1/3% of the fair cash value, to their owner, of the pollution control facilities in question, consistent with the principles set forth herein."
In 1977, Edison filed separate annual tax returns with the Department for each of its 12 facilities. These returns contained information regarding the original and the present fair cash value of each facility. On the return the following question was asked: "Does the control facility have any enhancement to the manufactured product or is there a by-product derived from the control facility?" Edison answered "No" to this question for each of its facilities. The Department assessed Edison's facilities at 33 1/3% of their present fair cash value.
Edison applied to the Department for a review of the assessment, contending that the Department assessed the facilities ignoring the information provided by Edison on the Department's tax form which indicated that the pollution control facilities did not have any productive earning value to Edison and the Department's assessment did not comply with section 21a-3 of the Revenue Act of 1939.
At the hearing before the Department on this matter, Edison presented evidence indicating that their pollution control facilities were assessed at 33 1/3% of their present fair cash value, while the facilities owned by industries other than public utilities were assessed at rates between one-half of 1% to 3% of the facility's present fair cash value. There was testimony that Edison's facilities did not aid in the production of electricity but in fact reduced operating efficiencies. Edison's witness, Dr. Langum, an economic consultant, defined "economic productivity" of property as the contribution by that property to the goods or services produced by that property and sold to customers. His understanding of the term "productive earning value" of property was the capitalized value to the owner of net earnings derived from the sale of goods or services produced by that property and sold to customers. He stated that pollution control facilities of an electric utility have no economic productivity because they make no contribution to the kilowatt hours of electricity produced and sold by the utility. He also stated that generally these facilities have no economic productivity to industrial firms either and in this respect there was no difference between pollution control facilities of a public utility and the facilities of an industrial firm.
Ralph Olsen, a staff auditor for the Illinois Commerce Commission, stated that Edison's pollution control facilities are included in its rate base on exactly the same basis as any other plant equipment and whatever is included in the rate base earns exactly the same rate of return.
Ron Deloney, an assessor for the Department, testified to the Department's understanding of the assessment guidelines set forth in section 21a-3. He stated that this section provided two methods of assessment, the cost approach, meaning the net salvage value of the equipment and the income approach, meaning capitalized earnings. He stated that non-regulated industries for the most part were assessed by the cost approach, whereas public utilities were assesssed on an income approach. He explained the difference on the basis that public utilities such as Edison include their pollution control facilities in their rate base, enabling them to recover the cost of the capital invesment in the facilities, and that because a rate of return valued in income was received, an income approach was used to value their pollution control facilities.
The Department confirmed its original assessment of Edison's facilities finding that Edison, in filing a request for a rate increase, uses the value of the pollution control facilities in the same fashion as the investment in the rest of the facility; that Edison is unique in that it is a monopoly and receives through rate increases additional revenues for the investment in pollution control facilities; that this guaranteed increase is not present with other industries and may not be possible in some cases; and that Edison's facilities produce an extra price increment on the electricity sold.
Edison then filed a complaint for administrative review in the circuit court. After examining the entire record of proceedings before the Department, the briefs and oral arguments of counsel, the circuit court affirmed the Department's assessment. The court found that the statutory provisions were intended to exempt from taxation those pollution control facilities which did not produce anything of value to the owner, but that if the facility did produce a byproduct of value to the owner, that byproduct should be taxed. The court stated:
"In this case the by-product produced by reason of the pollution control facility is a certain and ascertainable increase in Edison's rate of return. The economic productivity to Edison here is cash which can and should be assessed and taxed."
Edison filed a timely notice of appeal from the circuit court's judgment. By order of this court, taxing bodies of Zion and the County of Lake were allowed to file a ...