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12/28/88 Decatur Sports Foundation, v. the Department of Revenue

December 28, 1988





532 N.E.2d 576, 177 Ill. App. 3d 696, 126 Ill. Dec. 891 1988.IL.1900

Appeal from the Circuit Court of Macon County; the Hon. John L. Davis, Judge, presiding.


JUSTICE KNECHT delivered the opinion of the court. LUND and SPITZ, JJ., concur.


This appeal arises from an attempt by plaintiff, Decatur Sports Foundation (Foundation), to obtain a charitable tax exemption for the year 1985 for Borg-Warner Field (field), a 40-acre sports complex in Decatur. The Department of Revenue (Department) denied the exemption. On administrative review, the circuit court of Macon County reversed, ruling the Foundation met the requirements for charitable exemption set forth in section 19.7 of the Revenue Act of 1939 (Act) (Ill. Rev. Stat. 1985, ch. 120, par. 500.7). The Department appeals, arguing the Foundation is not a charitable organization and did not use the field for exclusively charitable purposes.

This appeal presents questions not reached in a previous appeal before this court involving the 1984 tax year. In Decatur Sports Foundation v. Department of Revenue (1987), 156 Ill. App. 3d 623, 509 N.E.2d 1103, (Decatur Sports Foundation I), a panel of this court ruled improvements made by the Foundation should not have been assessed separately from the underlying parcel, owned for most of 1984 by Borg-Warner Corporation. The court did not determine whether the Foundation was charitable or whether the property was exclusively used for charitable purposes under section 19.7.

The facts are undisputed. On December 13, 1985, the Foundation filed an application for a charitable tax exemption with the Macon County Board of Review (Board). The Board issued a notice recommending exemption December 23, 1985. The Department denied the application for exemption November 17, 1986, stating the property was neither in exempt ownership nor in exempt use. Following a formal hearing, the Department again denied the application, concluding that while the Foundation owned the property during 1985, the Foundation was not a charitable organization, and the primary use to which the property was put in 1985 was recreational, not charitable. Plaintiff filed its complaint for administrative review in Macon County circuit court July 15, 1987. The court determined the Foundation was a charitable organization and it used the field for charitable purposes by written order dated February 22, 1988. The Department filed its notice of appeal March 14, 1988.

The property in question was originally owned by the Marvel-Schebler/Tillotson Division of Borg-Warner Corporation (Borg-Warner) and intended for future expansion. Borg-Warner entered into a lease dated January 2, 1974, with Decatur Boys' Baseball (Boys' Baseball) for the purpose of developing facilities for youth baseball. Richard Lutovky, president of the Foundation, testified at the hearing that Boys' Baseball, an organization that conducts baseball games for boys and girls, sought to hold its games outside the park district fields, which were experiencing overcrowding. Boys' Baseball leased the field from Borg-Warner at a rent of $1 per year.

In January 1979 the Decatur Softball Booster Club, Inc. (Booster Club), which supported the local men's fast-pitch softball team (then the Decatur A's), successfully bid to hold the 1980 American Softball Association's national tournament at Borg-Warner Field. At that time, the field had inadequate facilities for such a tournament. On April 16, 1979, the Borg-Warner Decatur Sports Foundation was incorporated as a not-for-profit corporation to take over the management and improvement of the field. The name was changed to Decatur Sports Foundation the following year. The Foundation's articles of incorporation stated the organization's purposes:

"To operate exclusively for charitable and educational purposes; to provide facilities for education, training and participation of all youths and adults residing in the City of Decatur, Illinois and Macon County, Illinois, in baseball, softball, soccer and other sports; to provide instruction and training for all youths and adults residing in the City of Decatur, Illinois and Macon County, Illinois, in baseball, softball, soccer and other sports. To encourage and support the foregoing purposes this corporation shall organize and promote tournaments and competition in baseball, softball, soccer and other sports at the local and national levels, including the sale of food and beverage, alcoholic and non-alcoholic, at such tournaments, provided the proceeds of such sales be used exclusively for the charitable and educational purposes aforesaid."

The articles provided that in the event of the Foundation's dissolution, the assets were to be distributed to charitable or educational organizations which instruct and train youth in baseball and other sports.

On July 27, 1979, Boys' Baseball assigned to the Foundation its interest in the lease with Borg-Warner and conveyed ownership of improvements made to the field. At that time five diamonds existed on the property. The agreement specified the Foundation desired to construct a softball stadium to be used for the 1980 national tournament. In exchange for its assignment of interest, Boys' Baseball was given unrestricted use of the four existing unlighted baseball diamonds at the field. In addition, it received unrestricted use of the lighted diamond daily until 6 p.m. and at least three evenings per week after 6 p.m. The agreement also stated: "If more than one (1) baseball diamond is in the future artificially lighted, Boys' Baseball will have use of such additional artificially lighted diamond or diamonds after 6 p.m. for three (3) evenings per week."

The Foundation leased the field from Borg-Warner for an annual rent of $1. The lease term ran from February 1, 1980, through January 31, 1990, with two five-year options. The Foundation subsequently raised $40,000 and borrowed $170,000 for purposes of constructing a press box, lights, scoreboard, fences, and dugouts. The Foundation also improved the field and parking areas, and purchased and installed bleachers. Some materials and all labor were donated. The lighted diamond was referred to as diamond No. 1. After 1980, the Foundation added restaurant and storage areas, extra bleachers, a new scoreboard, fences, and improvements to the locker room, roadway, and parking lot.

In 1980, Archer-Daniels-Midland Company assumed sponsorship of the men's fast-pitch team, now called Decatur ADM. On March 19, 1981, the Foundation and ADM entered into an agreement with respect to use of diamond No. 1 from 1981 through 1985. The agreement required ADM to submit its schedule of games by February 28 each year. It prohibited ADM's season from conflicting with that of Boys' Baseball. ADM was to receive 100% of the ticket proceeds, but the division of concession proceeds was subject to yearly renegotiation. ADM was also to buy and install 2,000 aluminum seats.

ADM agreed to guarantee the Foundation's $170,000 note with Millikin National Bank, which waived interest payments upon obtaining the guarantor. Although the agreement is not in the record, the Foundation's 1984-85 financial statement shows that in consideration, the Foundation agreed to use its net proceeds, including gifts, to reduce the debt. It agreed to ADM's use of the No. 1 diamond for all dates requested by February 28 annually through the year 2000. The financial statement indicates in 1984 the debt totaled $170,000, and was reduced to $113,333 during 1985.

In addition to ADM and Boys' Baseball, the Foundation entered into agreements with three other organizations. On April 7, 1981, it entered into an agreement with Decatur BMX Club, Inc. , a not-for-profit corporation involved with bicycle racing, governing BMX' use of part of the field from 1981 through 1985. BMX' use of the field was subject to the provisions of the agreements between the Foundation and Boys' Baseball plus the Foundation's lease with Borg-Warner. BMX was required to pay its own utilities plus $1 a year for a "license" to use part of the field. The agreement did not require BMX to make improvements. BMX agreed to maintain a parking area on adjacent park district property and also to install and maintain a gravel road linking the baseball parking lot with the BMX parking lot.

On November 11, 1981, the Foundation and the Decatur YMCA Soccer Club (Soccer Club) entered into a similar agreement. For an annual fee of $1, the Foundation granted the Soccer Club a license to use part of the field. The Soccer Club agreed to make certain "capital improvements" at its own expense. The Soccer Club was required to submit its schedule of events by February 28 of each year. The Soccer Club's use of the field was subject to the Foundation's agreements with Borg-Warner and Boys' Baseball. Although testimony indicated another portion of the field was used by a radio-controlled race car club, no agreement with that group appears in the record on appeal.

The Foundation was classified as a charitable organization for purposes of exemption from Federal income tax, Illinois use tax, service use tax, and State and local retailers' occupation and service occupation taxes. On December 5, 1984, Borg-Warner executed a quit-claim deed in the Foundation's favor pursuant to an "Agreement for Gift" entered into by the parties. The agreement provided that in the event the Foundation was dissolved, the property would be distributed only to charitable or educational organizations having training of youth in baseball among their purposes.

The Foundation's 1984-85 financial statement shows that during 1985, the Foundation's primary sources of receipts were contributions, concession receipts, and billboard rental. Contributions in 1985 totaled $76,117. Lutovky testified that contributions came from ADM, Borg-Warner, and A.E. Staley. ADM donated $55,000 to repay the loan with Millikin National Bank. Lutovky provided no other breakdown for the remaining sum. The second largest source of revenue for the Foundation during 1985 was concession receipts, which netted $11,314. The Foundation operates its concession ...

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