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03/25/87 Fairview Haven, v. the Department of Revenue

March 25, 1987





506 N.E.2d 341, 153 Ill. App. 3d 763, 106 Ill. Dec. 634 1987.IL.369

Appeal from the Circuit Court of Livingston County; the Hon. William T. Caisley, Judge, presiding.


Justice McCullough delivered the opinion of the court. Knecht, J., concurs. Justice Lund, Concurring in part, and Dissenting in part.


The Illinois Department of Revenue (Department) denied Fairview Haven's (Fairview) real estate tax exemption request for the 1982 tax year. Fairview filed a petition for administrative review. The circuit court reversed, finding the Department's determination was contrary to the manifest weight of the evidence. The Department appeals, arguing the circuit court erred in reversing because its determination as to the noncharitable and non-religious use of the property was supported by the evidence, no first amendment rights are infringed upon, and the circuit court erred in determining Fairview exempt for all subsequent years.

We affirm in part, reverse in part, and remand.

Fairview is a not-for-profit corporation, organized and supported by four Apostolic Christian Church of America congregations. The amended articles of incorporation state that the purpose for which the corporation is organized is religious, charitable, and the care and keeping of elderly people. The corporation's purposes also note that nonpay and part-pay residents will be accepted to the extent that the financial ability of the corporation is not jeopardized. Board members and corporate officers are members of the founding congregations. They are elected by those congregations during regular church elections. Fairview has no capital, capital stock or shareholders, and does not profit from its operation. The board of directors reports to the founding churches, and indirectly to the national church. It opened in 1962. Until the 1982 tax year, Fairview had been ruled tax exempt.

The facility is a single-story building containing 38,000 square feet. Approximately 16,500 square feet of the facility contain 16 independent-living units, which are apartment-like units. Residents in the units must be self-sufficient. The remainder of the building contains a State-licensed intermediate-care facility. In 1982, Fairview had 49 residents in its intermediate-care facility. This facility contained 38 rooms, 9 of which were semiprivate rooms. A monthly fee of $1,060 was charged for a single room. Persons occupying double rooms paid $880 per month. If a resident could not afford the rate, he paid less. Rates were adjusted to the resident's ability to pay. Public aid recipients resided in the intermediate-care portion of Fairview. These residents were not necessarily placed in double rooms.

The admission contract between Fairview and its intermediate-care patients required applicants to pay a $300 nonrefundable fee in 1982. The contract also contained a guarantee-of-payment clause and a provision that residents could be discharged for failure to pay. No one had been discharged for this reason. Wayne Drayer, Fairview's administrator, thought this provision was required by law. The board of directors (board) would only consider discharging a person if he had sufficient funds and refused to pay.

Drayer testified that the rates for intermediate care are determined by how much money is needed to cover the cost of care. Any extra money is used to enlarge services. If money is needed for capital expenses, the churches raise and contribute it. The churches contributed the funds to add a laundry room and build the independent-living units. The churches also subsidize residents who cannot meet monthly fees. Monthly fees are due on the first of the month. They vary according to whether the rooms are private or semiprivate.

Drayer further testified that the board had decided to delete the discharge-for-failure-to-pay clause from its contract with its residents. The board had also decided to delete the guarantee clause. The $300 application fee had been eliminated, residents had been notified of its deletion, and the fee had been returned to those who had paid it in 1982. Drayer stated that the fee, when charged, had been waived when necessary. The first year that Fairview admitted applicants who were already receiving public aid was in 1983. There were three public aid recipients in Fairview in 1982. All had started receiving public aid after admission.

Fairview's policies do not require it to accept or reject public aid recipients. However, Fairview accepts applicants who need care regardless of their ability to pay. It accepts public aid recipients in its intermediate-care facility.

The wing containing the 16 independent-living units is connected to the main building by a hallway. Five of the apartments are leased to the residents on a rental basis. The other 11 units are occupied on a purchase basis. This payment is split between a life-lease and a no-interest loan. The loan is returned to the resident's estate or the resident upon termination of occupancy. The life-lease is prorated over five years. The portion of the lump-sum payment allocated between the loan and the lease is dependent upon the resident's life expectancy. The loan money is pooled for greater financial earning capacity.

The monthly rent on the five rental independent-living units was $225 in 1982. All residents paid the full amount. The 11 newer units cost $34,500 for a single bedroom and $42,500 for a double bedroom. The entire purchase amount must be paid prior to occupancy. All 11 units were in use during the final six months of 1982. The monthly fees were calculated to cover costs. Space in the independent-living units is limited to members of the Apostolic Christian faith and friends, 65 years old or older, who were able to pay the admission fees.

On two occasions, applicants did not have sufficient funds to pay the full entrance fee to the independent-living units. Members of the founding congregations contributed the needed funds. Residents in the independent-living units have priority access to the intermediate-care facility and are guaranteed lifetime care. The units have a call button which rings at the nurses' station for emergencies. Residents may also have their blood pressure checked at the nursing facility. However, residents of the independent-living units employ their own physicians. Laundry facilities are made available to them, and they can purchase meals. The units all have individual entrances and are set up on an apartment-like basis. Drayer stated that the independent-living units comprise approximately 25% of the total area occupied by Fairview.

Several witnesses testified about the relationship of Fairview to the Apostolic Christian Church of America. Stephen Rinkenberger, a church elder, testified that the Fairbury, Forrest Park, Cissna Park, and Bradley congregations of the Apostolic Christian Church of America founded Fairview. There was a need in the community to care for the elderly in a non-warehouse fashion and be a source of Christian atmosphere. One of the basic tenets of the church is that salvation is accomplished through faith and Christian witness. Therefore, everyone has a duty to preach the gospel and do Christian service works. The church tries to create avenues through which members can show their faith by accomplishing Christian service works. Fairview exists to meet the above goal, and the motivating factor behind Fairview's operation is to provide an opportunity to help the elderly and fulfill the tenets of the Apostolic Christian Church. Fairview is listed as an outreach ministry of the national church.

Ruben Huber, a member of Fairview's board, testified that church members raised the funds to construct Fairview and many volunteers worked on the construction of the building. Many volunteers from the local congregations worked at Fairview. Only church members may be on Fairview's board. All policies, rules, and regulations of Fairview must subscribe to the beliefs of the church and be reflected in the operation of the nursing home. Fairview is situated on property adjacent to the Fairbury Apostolic Christian Church. Religious services are piped into residents' rooms, and the background music consists of religious themes. The Internal Revenue Service lists Fairview as exempt. Huber further stated that Fairview was an integral part of the church, governed by the church, and maintained by it. It proclaimed the good news, so served a religious purpose.

Drayer stated Fairview implements the church's ministry by tying preaching to action. Sixty percent of the residents are members of the church. Approximately 40% of the employees are members of the church. Nonmembers may work at Fairview, but they must abide by the doctrines of the faith. Elders are available to counsel residents and their families, the maintenance man is a lay minister, prayers are conducted before meals, Bible study is available, payroll checks contain religious messages, and residents, family members, ...

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