Appeal from the Appellate Court for the First District; heard
in that court on appeal from the Circuit Court of Cook County,
the Hon. Walter B. Bieschke, Judge, presiding.
JUSTICE SIMON DELIVERED THE OPINION OF THE COURT:
Rehearing denied April 8, 1983.
The question presented here is whether Cook County may assess and tax nine parcels of land owned by the plaintiff, the Illinois Central Gulf Railroad Company (ICG). The nine parcels, located in the downtown section of the city of Chicago, are in the general area bounded by the Chicago River, Lake Michigan, Randolph Street, and Michigan Avenue. In the 19th and early 20th centuries the Illinois Central Railroad Company (the ICG's predecessor in title) acquired the land in this area to provide a terminal on the Chicago River for its railroad operations.
The county defendants (the assessor of Cook County and the Cook County collector) concede that for many decades after acquisition by the railroad, all of the land in the terminal area was exempt from local property taxation under section 22 of the Illinois Central's charter (Ill. Rev. Stat. 1971, ch. 120, par. 374). In the 1950's, however, the Illinois Central's need for the terminal property for railroad purposes was sharply reduced. This encouraged the railroad to sell peripheral parcels in the terminal area to private developers. Changes in the terminal area began with the sale of property for the construction of the Prudential Building in the early 1950's and proceeded through the next two decades with the Outer Drive East Building (mid-1950's), One Illinois Center (mid-1960's), the Standard Oil Building (late-1960's), Chicago Hyatt Hotel (early 1970's), and Harbor Point Building (early 1970's). In each of these cases the parcels of land used for the developments lost their exemptions and went on the tax rolls upon the sale and conveyance of the parcels from the railroad to the private developers.
By the late 1960's, the continuous contraction in the use of the terminal property for railroad purposes made it feasible for the railroad to sponsor a comprehensive development plan for the central core of the terminal area. Consistent with this plan, the railroad in 1969 sold the remaining 83 acres of undeveloped land in the terminal area to two private developers. At the time of the sale, tracks and other railroad facilities were located on some of the 83 acres. The nine parcels of land involved in this case, however, were vacant as of January 1, 1971.
Under the sales contracts the railroad agreed to convey the parcels of land to the purchasers at indeterminate intervals over a 20-year period. Both contracts reserved use of each parcel for railroad purposes until it was finally conveyed. The contracts contain general limitations on when conveyances may occur. The purchasers can insist on conveyance at any time, but they must accept specific percentages of the parcels over stated intervals. The percentage requirements, however, are broadly linked to and limited by progress in the construction of the streets, utilities and public improvements that were necessary to make the terminal area suitable for private development. The railroad and the city of Chicago separately agreed to undertake and finance these public improvements, although under the sales contracts the purchasers would reimburse the railroad by paying a portion of the construction costs upon the conveyance of each parcel.
In 1971 the Cook County assessor initiated administrative proceedings before the Department of Local Government Affairs (Department) to determine whether the land subject to the executory sales contracts had lost its exemption from local taxation for the tax year 1971. The railroad maintained throughout these proceedings that the property was exempt from local taxation under the exemptions contained in section 22 of the Illinois Central charter. (Ill. Rev. Stat. 1971, ch. 120, par. 374). In addition, the railroad maintained that the property was "operating property" held for railroad purposes as defined in section 79(2) of the Revenue Act of 1939 (Ill. Rev. Stat. 1971, ch. 120, par. 560(2)) and that consequently it was assessable only by the Department and not by local authorities. The railroad also claims that the proceedings before the Department were unconstitutional and void because the act creating that department violated the prohibition against amendments by reference in the 1870 Illinois Constitution. Ill. Const. 1870, art. IV, sec. 13.
After lengthy proceedings, the Department held that for tax year 1971 none of the exemptions applied to the nine parcels which are the subject of this action, and that they were assessable and taxable by Cook County. The railroad filed an action in the circuit court of Cook County seeking a review of this administrative decision. During these proceedings, the railroad's pleadings were amended to include the tax years 1972 to 1978. The circuit court reversed the Department's holding with respect to 1971, declaring the property was not taxable or assessable in that year, and also holding that it was not taxable or assessable for the years 1972 through 1978.
On appeal by the Department and the county defendants, the appellate court affirmed the decision of the circuit court with minor modifications. (101 Ill. App.3d 414.) The appellate court held that the nine parcels of land in the terminal area were exempt from local property taxation for tax years 1971 and 1972 under section 22 of the Illinois Central charter (Ill. Rev. Stat. 1971, ch. 120, par, 374). The appellate court also held that for tax years 1973 to 1978 the parcels were "operating property" and for that reason they were not assessable by local authorities. Ill. Rev. Stat. 1971, ch. 120, pars. 498, 560(2), 561, 562.
Our conclusion is that the Department's administrative decision was correct, that the nine parcels in the terminal area are subject to assessment and taxation by Cook County for the tax years 1971 through 1978, and that the act creating the Department of Local Government Affairs was constitutional.
THE PARCELS ARE NOT EXEMPT UNDER SECTION 22 OF THE ILLINOIS CENTRAL CHARTER FOR TAX YEARS 1971 AND 1972.
Section 22 of the Illinois Central charter provides in relevant part:
"The lands selected under the act of congress entitled `An Act granting the right of way, and making a grant of land to the states of Illinois, Mississippi and Alabama, in aid of the construction of a railroad from Chicago to Mobile', passed September 20, 1850, and authorized by this Act to be conveyed shall be exempt from all taxation under the laws of this state, until sold and conveyed by the Illinois Central Railroad Company or the trustees designated in this Act. The stock, property and assets belonging to the company shall be listed by the president, secretary or other officer, with the Department of Revenue and an annual tax for state purposes shall be assessed, upon all the property and assets of every name, kind and description belonging to that company. Whenever the taxes levied for state purposes shall exceed 3/4 of 1% per year, such excess shall be deducted from the gross proceeds or income required to be paid by the company to the state, and the company is hereby exempted from all taxation of every kind, except as herein provided for." (Emphasis added.) (Ill. Rev. Stat. 1971, ch. 120, par. 374.)
Section 22 thus contains two distinct exemptions from taxation: a "lands exemption" which is contained in the first sentence quoted above, and a "general exemption" which is contained in the last sentence quoted above.
The ICG may claim the tax exemptions contained in section 22 only for tax years prior to and including 1972. On August 10, 1972, the ICG acquired the assets of the Illinois Central Railroad Company under a reorganization plan. In Snow v. Dixon (1977), 66 Ill.2d 443, 463, cert. denied (1977), 434 U.S. 939, 54 L.Ed.2d 298, 98 S.Ct. 429, this court held that the 1972 reorganization did not transfer the tax exemptions set forth in section 22 to the ICG. The ICG, therefore, may only claim the charter exemptions for tax years prior to the reorganization, in this case 1971 and 1972.
A. The "General Exemption"
The "general exemption" in section 22 provides that except for a 5% gross receipts tax and a limited State property tax, the railroad "is * * * exempted from all taxation of every kind." (Ill. Rev. Stat. 1971, ch. 120, par. 374.) This court has never literally applied the language of the "general exemption"; if it did, the Illinois Central would be immune from any other taxation even when engaged in business activities with only a tenuous relationship to its railroad activities. Such an expansive interpretation of the "general exemption" would violate the principle that "[s]tatutes exempting property from taxation must be strictly construed and cannot be extended by judicial interpretation." Rotary International v. Paschen (1958), 14 Ill.2d 480, 486; see also Methodist Old Peoples Home v. Korzen (1968), 39 Ill.2d 149, 155; Kiwanis International v. Lorenz (1961), 23 Ill.2d 141, 145.
To limit the expansive language of the "general exemption" this court has always interpreted it in light of the legislature's purpose in chartering the Illinois Central Railroad Company:
"The object of creating [the Illinois Central Railroad Company] was, to construct and operate a great railroad through the central part of the State. * * * Every section of the act relates to the accomplishment of this purpose and none other. It was to aid in it that the munificent donation of lands was made by the State, and the exemption granted by the 22d section.
The taxes, then, from the payment of which the legislature intended to relieve [the Illinois Central], could have been only the taxes which it, as a railroad corporation, would be otherwise liable to pay upon its property acquired in the prosecution of its business in constructing and operating these lines of road. None other could have been contemplated, for the plain reason that it was not intended that any other business should be engaged in." (Illinois Central R.R. Co. v. Irvin (1874), 72 Ill. 452, 454-55.)
To ensure that only the railroad operations of the Illinois Central would benefit from the exemption, this court held in Irvin that only property "which was necessary and indispensable to the construction and use of the road was within the exemption." 72 Ill. 452, 456.
Two cases illustrate the application of the "necessary and indispensable" standard. In Irvin, the railroad was operating a steamboat that it argued promoted its railroad business by ferrying passengers and freight from the southern terminus of the Illinois Central at Cairo, Illinois, to the northern terminus of the Mobile & Ohio Railroad at Columbus, Kentucky. The court held that this peripheral promotion of the company's railroad business was not sufficient to bring the steamboat within the "general exemption."
In re Swigert (1886), 119 Ill. 83, dealt with a grain elevator that the railroad had erected alongside its right-of-way and leased to a private party. Although the elevator did tend to promote the railroad's haulage of grain, this court held that the elevator was not covered by the "general exemption," both because it was not "necessary" to obtain the grain business for the railroad and because it was also used for nonrailroad purposes. 119 Ill. 83, 90-91; see also Illinois Central R.R. Co. v. People ex rel. Hodges (1886), 119 Ill. 137.
The railroad contends that the "necessary and indispensable" standard does not apply to the circumstances of the sale of its property in the Chicago terminal area. It points out that Irvin and Swigert both involved the question of whether certain property had acquired exempt status conferred by the charter, while the present case involves a different question whether property which unquestionably was exempt at one time has now forfeited its exemption. In the case of forfeiture, the railroad maintains that the local taxing authorities must establish that the railroad has "permanently abandoned" the property for any railroad use. Both the circuit court and the appellate court agreed with the railroad's contention and applied a "permanently abandoned" test in establishing the status of the nine parcels in the terminal area under the "general exemption." (See 101 Ill. App.3d 414, 418-20.) We do not agree that the "permanently abandoned" standard applied by the circuit and appellate courts is the proper one.
The railroad argues that this court has often applied standards similar to the "permanently abandoned" standard in determining whether a railroad has forfeited its right-of-way. (See, e.g., Abens v. Chicago, Burlington & Quincy R.R. Co. (1944), 388 Ill. 261, 270; Golconda Northern Ry. v. Gulf Lines Connecting Railroad (1914), 265 Ill. 194, 206.) In that context, however, the application of the stringent abandonment standard reflects this court's traditional concern for avoiding accidental and unintended forfeitures of legal interests in land. Thus, this court has often relied upon presumptions and legal standards that require a substantial showing of intent to abandon before such interests are declared forfeit.
In determining whether tax exemptions apply, this court has adopted the opposite approach; in such cases all doubts are resolved against the applicability of the tax exemption. In Swigert this court observed:
"It is obvious that all laws exempting property from taxation are not only restrictions or limitations on the taxing power, but they necessarily result in an unequal distribution of the burdens of government. The effect is not only to relieve the property exempted, from the payment of its due proportion of taxes, but that which it ought to pay, and would pay, under an equal and fair apportionment of them, must also be collected from the property not exempted. These considerations have very properly induced courts to adopt what is known as a strict construction, in giving effect to such laws, hence nothing will be held to come within the exemption which does not clearly appear to be so, and all reasonable intendments will be indulged in favor of the State." 119 Ill. 83, 86-87.)
Applying a "permanently abandoned" standard for determining whether a taxpayer has lost a tax exemption is inconsistent with the rule which resolves all doubts concerning the ...