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November 7, 1996


Appeal from Circuit Court of Coles County. No. 95MR8. Honorable Paul C. Komada, Judge Presiding.

Released for Publication November 7, 1996. As Corrected January 2, 1997.

Honorable John T. McCullough, J., Honorable Robert J. Steigmann, J. - Concur, Honorable Robert W. Cook, P.j. - Dissent. Justice McCULLOUGH delivered the opinion of the court.

The opinion of the court was delivered by: Mccullough

JUSTICE McCULLOUGH delivered the opinion of the court:

The Illinois Department of Revenue (Department) appeals from an order of the circuit court of Coles County reversing on administrative review a decision of the Department that a 1.465-acre parcel of real estate leased to Lincolnland Home Care Foundation, Inc. (Lincolnland), a not-for-profit corporation, by Coles-Cumberland Professional Development Corporation (Coles-Cumberland), a for-profit corporation, was not entitled to a real estate taxation charitable exemption for the 1991 assessment year. The issues are whether (1) real estate leased for profit by a for-profit corporation is not entitled to a charitable exemption and (2) improvements constructed on the subject real estate by a charitable organization are not exempt from real estate taxation. We reverse and reinstate the Department's decision.

It is undisputed that Lincolnland is a charitable organization. Lincolnland began construction on the premises in December 1990 and occupied the building on June 8, 1991. The building is part two-story, part one-story, encompasses about 8,994 square feet of internal space, and cost approximately $843,000 to construct. Most of the remainder of the parcel is used for parking. It is also undisputed that, during 1991, the property was in the actual process of development for exempt use or was actually used for charitable purposes, and that the parking lot was used exclusively for the charitable purpose of Lincolnland.

Although no evidence of the zoning ordinances of the City of Charleston, Illinois, was presented, it was represented to the Department by Lincolnland's attorney that the reason a 99-year lease was employed in this case, rather than the sale of a fee, was that the parcel was located within a planned unit development owned by Coles-Cumberland, transfer of a fee would subject the parcel to Charleston's subdivision ordinance, and said ordinance would not accommodate a professional building such as Lincolnland constructed. The lease required payment of $45,000 in rent, with an immediate payment of $30,000 and a one-time additional payment of $15,000. Coles-Cumberland had valued the property at $90,000 and considered the $45,000 balance a charitable donation, although the property had been valued for assessment purposes at the time between $55,000 and $60,000. Lincolnland was obligated to pay Coles-Cumberland a monthly maintenance fee of $375 for the upkeep of common areas. After two years, Coles-Cumberland could adjust the maintenance fee as required on a pro rata basis with other tenants occupying premises within the development. Lincolnland was also required to maintain the premises in good repair, purchase casualty and liability insurance, and pay all property taxes.

The lease granted Lincolnland the unrestricted right to build and own improvements on the land. Lincolnland was allowed to mortgage these improvements. Upon the termination or expiration of the lease, Lincolnland was permitted, but not required, to remove any improvements it had built. In the event the property was condemned by a public entity, Lincolnland and Coles-Cumberland were to be apportioned separate awards for their respective interests in the improvements and the land.

Lincolnland could not assign its leasehold without Coles-Cumberland's consent. Coles-Cumberland could sell, subject to the lease, the fee simple title at any time. Lincolnland had the right of first refusal to purchase the property, if Coles-Cumberland decided to sell. The agreed price would be $45,000, less rents paid, plus $1. Such a sale would occur when (1) Coles-Cumberland declared the property available for sale; (2) in the opinion of Coles-Cumberland's counsel, title could be conveyed without resulting in noncompliance with Charleston's zoning laws; or (3) Coles-Cumberland notified Lincolnland of an intent to sell its interest in the premises to another. Coles-Cumberland retained the right to encumber the fee simple interest, and an amendment to the lease provided that the provisions relating to mortgage of the fee and mortgage of the leasehold were not mutually exclusive.

In the event Lincolnland defaulted in its monthly maintenance payments, or in performing any of its other duties under the lease, or filed for bankruptcy, Coles-Cumberland could terminate the lease. If Lincolnland's improvements were damaged or destroyed, and Lincolnland elected not to repair them, then the lease would terminate.

The facts in this case are undisputed. However, we specifically note the absence of any testimony from a person related to Coles-Cumberland or concerning the nature of Coles-Cumberland's intentions as to this property.

"Where facts are undisputed, a determination of whether property is exempt from taxation is a question of law. ( Harrisburg-Raleigh Airport Authority v. Department of Revenue (1989), 126 Ill. 2d 326, 331, 533 N.E.2d 1072, 127 Ill. Dec. 944.) Thus, the decision as to whether property is exempt 'depends solely upon an application of the appropriate legal standard to the undisputed facts.' Illinois Central Gulf R.R. Co. v. Department of Local Government Affairs (1983), 95 Ill. 2d 111, 129, 447 N.E.2d 315, 69 Ill. Dec. 98.

'It is the well settled rule of law in the State of Illinois that all property is subject to taxation, unless exempt by statute, in conformity with the constitutional provisions relating thereto. Taxation is the rule--tax exemption is the exception.' ( Rogers Park Post No. 108 v. Brenza (1956), 8 Ill. 2d 286, 289-90, 134 N.E.2d 292.) 'Provisions granting tax exemptions are to be construed strictly and must come not only within the terms of the statute but also the authority given by the constitution.' ( Rogers Park Post, 8 Ill. 2d at 290.) Courts have no power to create exemption from taxation by judicial construction, and the burden of establishing statutory authority within the limitations of the constitution, for such an exemption rests upon the person asserting it. People ex rel. Cannon v. Southern Illinois Hospital Corp. (1949), 404 Ill. 66, 68, 88 N.E.2d 20, citing Oak Park Club v. Lindheimer (1938), 369 Ill. 462, 465-66, 17 N.E.2d 32.

Each individual claim must be determined from the facts presented. ( Coyne Electrical School v. Paschen (1957), 12 Ill. 2d 387, 394, 146 N.E.2d 73.) In determining whether property is included within the scope of a tax exemption all facts are to be construed and all debatable questions resolved in favor of taxation. Rogers Park Post, 8 Ill. 2d at 290." City of Chicago v. ...

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