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Lake Co. Bd of Rev. v. Prop. Tax Ap. Bd





Appeal from the Circuit Court of Lake County; the Hon. Lawrence D. Inglis, Judge, presiding.


This appeal concerns the real estate taxes for 1981 on property which comprises Marriott's Great America theme park in Gurnee. The Warren Township assessor originally determined that the real estate had a fair market value of $66,971,862 as of January 1, 1981, which resulted in an equalized assessed value of $22,301,630. Marriott Corporation (Marriott), the owner of the property, complained of the assessment to the Lake County Board of Review (LCBR) which, however, ordered no change in the assessment. Marriott then appealed to the Property Tax Appeal Board (PTAB), which conducted a de novo evidentiary hearing on the matter. Following that hearing, but prior to the PTAB's decision, numerous local tax levying units filed a petition to intervene in the proceedings. The PTAB denied that request and subsequently issued its decision which determined that the fair market value of the real estate was $44 million.

The LCBR filed an action for administrative review of the PTAB's decision in the circuit court of Lake County. The taxing districts were granted leave to intervene in that proceeding. The circuit court found that the PTAB had erred in calculating the percentage of the fair market value of the theme park which was attributable to personal property by failing to bind Marriott to certain of its personal property tax returns. The decision of the PTAB was upheld in all other respects, and the matter was remanded for a new assessment. On remand the PTAB, using a different figure for the percentage of fair market value attributable to personal property, determined that the fair market value of the real estate was $50 million. The circuit court then entered a final judgment order, affirming the decision of the PTAB on remand, and ordering a refund to the taxpayer in the amount of $380,064.24 with interest from the date of the order. The order also denied a request by the taxing districts for a "tax deficiency levy" to help them recoup revenues lost because of the refund. One of the taxing districts, the board of education of Warren Township High School District No. 121, has paid its share of the refund to Marriott. With respect to the other taxing districts, the circuit court's order was stayed pending appeal.

Marriott and the PTAB appeal the final judgment order. They contend that the PTAB's original calculation of the percentage of fair market value attributable to personal property was proper, and that the circuit court erred in setting a different figure and ordering a new assessment. The taxing districts cross-appeal. They contend that the PTAB erred by denying their petition to intervene, and that its findings on certain issues were against the manifest weight of the evidence. They argue that the circuit court erred by failing to order a "tax deficiency levy." The taxing districts contend also that the circuit court's final judgment order should be reversed under "the doctrine of Confession of Error." A review of the evidence presented to the PTAB is necessary for a proper resolution of these issues.

Marriott presented to the PTAB a rather lengthy appraisal of the real estate as of January 1, 1981, prepared by Price Associates, Inc. According to the appraisal, Marriott's Great America is a theme park constructed on approximately 312 acres of land. The park opened in May of 1976. The development consists of amusement park rides, game arcades, theaters, restaurants, retail facilities, and service-related structures such as maintenance sheds. At the time of the appraisal the park was divided into five different theme areas named Home Town Square, County Fair, Yukon Territory, Yankee Harbor, and Orlean's Place. The rides, restaurants, retail facilities, theaters, and game arcades in each section were associated with that section's theme. For example, the Yukon Territory included a ride called Loggers' Run and a retail facility called the Moosejaw Trading Company.

The appraisal used three different approaches to determine the fair market value of the real estate: the cost approach, the income approach, and the comparative market data approach. Under the cost approach, the appraisers first determined the value of the land exclusive of improvements. This determination was made by consideration of sales of other large sites in Lake County with commercial influence, as well as of prices asked by owners and offers made by prospective purchasers. A summary of four of the most comparable transactions taken into consideration was set forth, in which the price per acre varied from $12,604 to $15,120. The appraiser concluded that $13,000 per acre, or a total of approximately $4,060,000 was the fair market value of the land involved here. The cost of the improvements was determined by estimating their replacement cost and deducting accrued depreciation. The appraisers did not include the rides as realty improvements, although they did include their "foundations and support facilities that are permanently affixed to the land." Replacement costs were determined by taking the actual cost and applying a multiplier to reflect increased construction costs. The appraisers determined that the improvements should be depreciated a total of 50%, 20% for physical deterioration and 30% for economic obsolescence. The economic obsolescence was caused by such factors as the depressed economy in the Chicago area as of the tax date, the limited operating season of the park because of its northern location and climate, and the demands of the public for new and different attractions. The fair market value for the realty improvements calculated in this manner was $42,767,410. Addition of the land value resulted in an estimate of fair market value of the real estate of approximately $46,825,000.

Under the income approach the appraisers stabilized revenues and expenses, other than real estate taxes, based on the actual operating history of the park. Consideration was also given to the current health of the theme park industry and the prospects for growth. This process resulted in a net operating income estimate of $14,013,000. The appraisers then calculated the percentage of income attributable to personal property and deducted that amount from the net operating income estimate. The percentage of income attributable to personal property was calculated by comparing the actual cost of the personal property adjusted for inflation with the sum of the actual cost of the realty improvements adjusted for inflation and the value of the unimproved land. This calculation resulted in a figure of 25% for the amount of income attributable to personal property. The appraisal stated that consultation with industry analysts indicated that investment in personal property normally ranged from 25% to 40% of the total investment in a theme park. Deducting the 25% of the net operating income estimate attributable to personal property resulted in an estimate of the net operating income attributable to real property of $10,509,750. This income was then capitalized at a rate of 24.4%, which included a 12% "safe rate," a 10% capital recovery rate which reflected the risk associated with the venture and provided for a return of investment, and a 2.4% real estate tax load factor. The resulting estimate of the fair market value of the real estate using the income method was approximately $43,075,000.

Under the comparative market data approach, sales of other theme parks were considered. The appraisal indicated that there were only about 20 theme parks of size and quality comparable to Great America, these being primarily operated by six market participants. This resulted in a very inactive market, although occasional sales had occurred. Each sale considered was analyzed to determine the net operating income multipliers, i.e., that number which, when multiplied by the net operating income of the theme park, resulted in the purchase price. The sales considered resulted in net operating income multipliers of 2.16, 3.25, 5.07 and 5.35. The appraisers estimated that 4.0 was an appropriate figure for Great America. This multiplier was applied to the net operating income estimate set forth above less estimated real estate taxes, resulting in an estimate of the fair market value of the entire development of $50,208,600. That figure was reduced by 25%, representing the value of personal property, for an estimate of the fair market value of the real estate of approximately $37,655,000.

The three estimates described above were correlated by the appraisers, resulting in an estimate of the fair market value of the real estate of $44 million.

At the hearing before the PTAB Mariott introduced its 1976, 1977, and 1978 ad valorem personal property tax returns which had been accepted by the Warren Township Assessor. The ad valorem personal property tax was abolished in 1979. (See Client Follow-Up Co. v. Hynes (1979), 75 Ill.2d 208, 390 N.E.2d 847.) On the 1976 return, under the heading "Machinery and Equipment," Marriott listed "Rides, etc." at a value of $6,795,320. The total value of all personal property was listed at $7,698,755. Rides were also included in the 1977 and 1978 personal property tax returns.

Marriott called Alfred Taylor, director of park services, as a witness. He testified that in 1977, the second year the park was open, two rides were removed and five new ones were added. In 1978 two new rides were added. In 1980 two new rides were added. In 1981 one new ride was added to the park. Taylor stated that at the time of the hearing three rides were being removed, and one was being relocated to a different area of the park to make room for two additional rides which Marriott planned to install in 1983 and 1984. Taylor stated that the rides in the park were all easily detachable and easily dismantled. Ninety percent of the rides were bolted to a foundation, but some "flat" rides simply rested on the ground.

Taylor testified that there was a very active market for resale of rides throughout the theme park industry. Marriott had sold the rides it removed in 1977 and planned to sell the three it was removing at the time of the hearing. Taylor indicated that none of the rides were designed as a permanent improvement for the park. He explained that repeat visitation was critical for the business, and that Marriott found it necessary to add and change attractions to draw repeat customers. Finally, Taylor testified that no particular ride was essential to the operation of the park, but that rides, in general, were indispensable.

Marriott also called Howard Zimmerman and Calvin Denison, the authors of the appraisal, who testified in support of their conclusions. During cross-examination of Zimmerman, counsel for the LCBR pointed out that in the calculations of the percent of income attributable to personal property, the appraisal listed the original cost of personal property placed in the park from 1974 through 1976 as $17,936,355. He then asked Zimmerman if he could reconcile that figure with the lower figures reported as the value of the personal property on Marriott's ad valorem personal property tax returns, and Zimmerman replied that such a reconciliation was not in the purview of his assignment.

Marriott also called Bruce Brenner, who had previously appraised the Old Chicago theme park in Bolingbrook for the Illinois Central Gulf Railroad. He had also previously appraised property in the area of Great America. Brenner testified that he had reviewed the appraisal prepared by Zimmerman and Denison and had visited the park. He gave his opinion that the value of $13,000 per acre assigned to the land in the appraisal was a "generous valuation" for "that size of a parcel of land at that particular point in time." He testified that the theme park industry was a high risk business, that the 24.4% capitalization rate was "a conservative number," and that he probably would have used something higher ...

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