Appeal from the Circuit Court of Will County; the Hon. Michael
A. Orenic, Judge, presiding.
JUSTICE STOUDER DELIVERED THE OPINION OF THE COURT:
Rehearing denied June 14, 1984.
This appeal arises over the 1979 personal property taxes assessed against Commonwealth Edison (Edison) for personal property including operating equipment at two plants in Will County, Illinois. In 1979 the Will County Board of Review levied an across the board 10% increase in the assessed values on all personal property in Will County allegedly to avoid the imposition of a multiplier by the Department of Revenue to equalize Will County assessed values with other assessed values in other counties throughout the State. Edison protested the 10% increase and filed a complaint with the board of review. The board of review then informed Edison that it would not change Edison's assessed valuation as so increased and therefore upheld the 10% increase.
Edison then appealed to the Property Tax Appeal Board (PTAB), claiming that their personal and real property were overvalued at both the Will County generating stations. The valuations used by Edison on its 1978 personal property tax return were values arrived at by agreement between Edison and the Will County taxing authorities. The gist of the agreement was that the utility's property would be debased 60% so that the assessed value would remain constant. This type of arrangement allegedly prevented an erosion of the utility's tax base and facilitated ratemaking which is dependent largely upon the value of a utility's property. The PTAB removed the 10% increase levied by the board of review but upheld the valuations which Edison had used on its 1978 property tax return over Edison's protest that these values were inaccurate and were overvaluations because they were arrived at pursuant to an agreement which the board had breached by its imposition of the 10% increase. The PTAB also refused to reduce Edison's fair market values by a 15% depreciation factor. Edison had alleged a depreciation factor existed with respect to the market value of its property because of Edison's failure to earn the rate of return allowed by the ICC which Edison's expert attributed in part to what he called "regulatory lag." The PTAB also refused to apply the assessment level which Edison sought to establish by use of an expert in the field of mathematics and statistics. The assessment level is a means by which the county can regulate assessed values within the county in the interest of uniformity much like the multiplier applied by the department to equalize assessed values throughout the State. The method which Edison sought to establish was based upon quarterly calculations of the sale price of property within the county rather than calculations based upon the whole year — the method employed by the PTAB and regularly used in protest cases.
Edison appealed the decision of the PTAB to the circuit court of Will County for review. The trial court reversed the PTAB decision and found that Edison had presented convincing evidence as to the proper assessed valuation of its operating equipment and other personal property and that the PTAB erred in not accepting Edison's valuations presented at the hearing rather than Edison's valuations reflected on its 1978 tax return (the agreed valuations). The trial court also found that Edison should be allowed to reduce its fair market value by the 15% depreciation factor and that the method used by Edison to calculate the assessment level was correct and the county's method of calculation was against the manifest weight of the evidence. The trial court then found that the fair market value of the operating equipment at the Joliet Generating Station was $88,070,600 and $64,223,100 at the Will County Generating Station and also ordered that the fair market value of Edison's miscellaneous personal property be established at Edison's figures.
The appellants raise four basic issues for review. First, whether the trial court erred in reversing the decision of the PTAB as to the value of Edison's operating equipment and other personal property; second, whether the circuit court erred in allowing the 15% reduction in the fair market value of Edison's assets due to economic depreciation; third, whether it was error to apply the assessment level of 24.41% arrived at by Edison's expert in lieu of the 26.69% assessment level established by the PTAB and as a fourth issue the intervenor, the Valley View Community Unit School District No. 365U, raised the issue for the first time in the circuit court that Edison's operating equipment was improperly classified as personal property. The circuit court declined to treat this issue because it was not raised before the administrative agency.
• 1 Recently the Illinois Supreme Court in People v. International Business Machines Corp. (1982), 89 Ill.2d 287, 432 N.E.2d 867, has again enunciated the standard of review of a property assessment for tax purposes. It is well settled in Illinois that a court will not review a property assessment for tax purposes unless there is a showing of fraud or constructive fraud. The taxpayer must present clear and convincing evidence that fraud was committed in the valuation of his property. The Illinois Supreme court set out the following guidelines for establishing constructive fraud.
"Assessments that are disproportionately higher than those for similar property or assessments that are based on the assessor's own private opinion showing a lack of knowledge or lack of honest judgment * * * overvaluation may be so excessive, under some circumstances, as to justify the conclusion that it was not honestly made." (89 Ill.2d 287, 293.)
Whether constructive fraud is established is largely dependent upon the facts and circumstances, and in this case we find that Edison presented clear and convincing evidence that the assessor used an arbitrary method of valuation for Edison's property by agreeing to debase all property by 60%. There is nothing in the statute which allows assessors to enter into agreements with taxpayers as to assessments. Such agreements destroy uniformity and contravene article IX of the Illinois Constitution which provides for uniform valuation of property unless specifically excepted by statute. The assessment upheld by the PTAB was based upon valuations which appeared on Edison's 1978 personal property tax return. These valuations were undisputedly reached by agreement of the parties and were not based upon any recognized method of valuation, i.e., market value, income or market data approach. Therefore, we find that Edison presented clear and convincing evidence that the assessments were arbitrarily reached because the assessor did not follow recognized methods in arriving at these valuations. We find the reasonable approach when valuing property of a regulated utility to be one based on historic cost rather than fair market value because utility properties are specialized and are not commonly bought or sold on the market. This is the method agreed upon by all of the experts who testified. See Commonwealth Edison Co., Property Tax Appeal Board Docket Nos. 79-2354-I-2 and 79-2355-I-2 (April 6, 1983).
• 2 The circuit court was correct in reversing the PTAB as to the propriety of the property tax assessments established by the PTAB decision. However, the circuit court cannot determine the proper assessments. That is the sole function of the PTAB and is not within the scope of judicial review. Consolidation Coal Co. v. Property Tax Appeal Board (1975), 29 Ill. App.3d 465, 331 N.E.2d 122.
• 3 Because we have determined that the property assessments were improper we theoretically need not consider the other issues raised on appeal. However, the use of the 15% economic depreciation factor and the 24.41% assessment level are both issues that are likely to arise in a subsequent proceeding. Therefore, we will consider the finding of the trial court that the PTAB decision not to use the 15% economic depreciation factor or the 24.41% assessment level, both of which were proposed by Edison's experts, was against the manifest weight of the evidence. We are persuaded that Edison's evidence of economic obsolescence was not so overwhelming as to make the PTAB's decision not to use such a factor clearly erroneous. To the contrary, as the PTAB points out there are many possible explanations for the "regulatory lag" which have nothing to do with property valuations. Also, Edison has not relied upon the 15% factor even in the proceeding before the ICC. Therefore, the circuit court erred in finding the PTAB decision not to reduce the fair market value of Edison's property by a 15% depreciation factor against the manifest weight of the evidence.
• 4 We also do not find that the use of a 26.69% assessment level by the PTAB was against the manifest weight of the evidence as found by the circuit court. The statute authorizes the PTAB to "establish by rules an informal procedure for the determination of the correct assessment * * * which is the subject of [the] appeal." (Ill. Rev. Stat. 1979, ch. 120, par. 592.2.) The PTAB promulgated Rule 4D, which requires that the taxpayer present evidence of the full market value of the subject property as a prerequisite to the use of the median assessment level by a county. This court held in Will County Board of Review v. Property Tax Appeal Board (1981), 100 Ill. App.3d 506, 426 N.E.2d 1238, that it was permissible under Rule 4D for the PTAB to use a one-year sales ratio figure rather than a three-year sales ratio figure in arriving at an equitable result in determining the fair market value of taxpayer's property. This however is not what Edison is contending. Edison contests the method used by the PTAB to calculate the one-year sales ratio. The gist of Edison's claim is that the PTAB should have calculated the ratio quarterly rather than yearly. As the supreme court stated in People ex rel. Wenzel v. Chicago North Western Ry. Co. (1963), 28 Ill.2d 205, 216, 190 N.E.2d 780:
"Our statute requires only that the Department use such means as it deems `proper and reasonable' to make its studies on assessed valuations, and a mere difference in opinion as to what is the best or most reasonable method is not sufficient to bring the matter within the range of judicial review."
We, therefore, decline to review the method by which the PTAB calculated the one-year sales ratio and find the ...