Appeal from the Circuit Court of Cook County Honorable Joanne L. Lanigan, Judge Presiding.
The opinion of the court was delivered by: Justice O'mara Frossard
Plaintiff, the Arts Club of Chicago (the Club), filed this administrative review action after defendant, the Department of Revenue (the Department), adopted the recommendation of an administrative law judge (ALJ) denying a 1995 property tax exemption for real property in Chicago owned by the Club. The circuit court affirmed the Department's decision, and the Club now appeals, contending that it is entitled to a charitable exemption.
The Club was organized in 1916 to bring modern and avant-garde art to Chicago and to provide a place where "art lovers could meet art makers." The purposes of the Club, as stated in its articles of incorporation amended on June 7, 1993, include "[t]o encourage, foster, promote and sponsor activities and presentations which would aim to increase public interest in the arts and related activities" and "[t]o expand the artistic horizons of a public interested in arts." The Club makes available to the public art and literary works not available at other museums. The Club focuses on presenting shows and exhibits that larger museums would not present, has showcased the work of many painters whose works have never been exhibited in Chicago, and actually hosted Pablo Picasso's first show in the United States. The Club has made the works of other artists and literary figures such as Alexander Calder, Carl Sandburg, and Constantin Brancusi available to the public. The Club promotes and sponsors all of the arts, including music and theater, and periodically presents concerts, lectures, and performances.
From the early 1950s until the mid 1990s, the Club leased and occupied space in a building at 109 East Ontario Street. In 1995, after learning this building was to be demolished, the Club purchased land at 201 East Ontario Street and began constructing a two-story building there. To fund the construction of the new building, which is approximately 19,400 square feet, the Club issued bonds. To fund the purchase of the land for the building, the Club sold the "Golden Bird," a sculpture by Brancusi, to the Art Institute for $12 million. The Club originally bought the "Golden Bird" with donated funds in 1927 for $1,200. The Club created an endowment fund with the proceeds from the sale of the "Golden Bird" which remained after it purchased the land for the new building and now uses the investment income generated by that fund to finance current operations. The new building opened in April 1997, and during its construction, which began in 1995, the Club operated out of a temporary location.
The first floor of the Club's building has two galleries, which are used for temporary exhibitions, an office, a library, restrooms, a small dining room, and a "green room," which is used by performing artists to get ready before their performances. A steel staircase designed by Mies van der Rohe and originally located in the building formerly used by the Club occupies the center of the building. The staircase is set in a travertine marble well or "box" and is accessible through glass double doors. The second floor of the building has a reception area, an auditorium that can accommodate approximately 200 people, a stage for musical events and lectures, a dining room, and a kitchen. The dining and kitchen areas comprise approximately 14% of the building's total area.
The Club has a permanent collection of approximately 100 pieces that has been acquired primarily through donations by collectors and artists. About 90% of the permanent collection is displayed in various areas of the Club, including the green room, the small dining room, the library, and the restrooms on the first floor, and the dining room, reception area, and auditorium on the second floor.
The Club is open to the public at no cost Monday through Friday, 11 a.m. to 6 p.m., and Saturday, 11 a.m. to 4 p.m. A sign on the front door states "Exhibition Open to the Public." The Club advertises that it is free of charge by issuing press releases to various local magazines and newspapers. The Club contacts schools in the area to encourage students to come and view its artwork free of charge. Each year the Club holds five two-month exhibitions in its two first-floor galleries. There is no charge to view these exhibitions, which include sculpture, painting, film, and video. Once every two years, the Club hosts an exhibit displaying the artwork of members.
In addition to these exhibits, the Club sponsors new music programming, lectures, performances, and discussions. These programs are held each year in the auditorium on the second floor. Notices in local newspapers, magazine advertisements, and press releases sent to over 100 organizations are used to promote the programs, which are open to the public and are usually held in the evening. Approximately half of the programs are free while there is a $10 admission fee for the other half. According to Kathy Cottong, the Club's director, the fee for these programs is routinely waived for students and others who tell the door attendant that they genuinely want to attend the program, but are unable to pay the admission fee.
The Club's dining room is open for lunch Monday through Friday, 12 p.m. to 2 p.m. Although only Club members and their guests are allowed to eat in the dining room, nonmembers may view the permanent collection located there during any time the building is open to the public. The Club charges for food, but it does not generate a profit through the operation of the dining room. Members may have private parties in the dining room and may sponsor a nonmember for a private party during hours when the Club is not open to the public. The rental fee charged by the Club for parties is used to cover the cost of security, utilities, and some of the staff's salary, and does not generate a profit for the Club.
The Club's attendance figures for the period of April 1997 through November 1999 show that there were 4,337 visitors in the "Walk In/Students" category and 68,063 visitors in the "Dining/Events/Parties" category. The former category includes student groups and the public who viewed the galleries and exhibitions. The latter category includes those who came to use the dining room, to attend a public event, or to attend a private party.
The Club has a 50-member board of directors and an executive committee consisting of 8 to 10 board members who are responsible for the financial aspects of the Club as well as membership. Both board members and members of the executive committee serve without compensation or reimbursement for expenses. The Club also has a chairman, vice-chairman, president, treasurer, and secretary, who together oversee the daily operations of the Club. These officers also serve without pay or reimbursement for expenses. In addition, the Club has salaried employees, including the Club's director Kathy Cottong and the Club's chef and sous chef.
During 1995 and 1996 Cottong served as the Club's artistic director and was responsible for exhibitions and artistic programming. Her 1995 salary was $55,000, and her 1996 salary was $57,000. Cottong's title subsequently changed to "director," and her responsibilities were expanded to include management and oversight of the dining facility and the Club's finances. In 1999, Cottong received a $10,000 bonus for working on the Club's accounting procedures and computer system, and in 2000 her salary was "a little bit higher" than it had been in 1996. In 1995, the salary of the Club's chef was approximately $53,000, and in 1999 the chef received a $10,000 bonus for "controlling costs and operations." The salaries of the Club's employees are paid out of the operating budget, the majority of which is derived from investment income.
In order to become a member, an applicant must be sponsored by a member and seconded by two members who know the applicant personally. In addition, the sponsor and one of the seconders must write letters of recommendation on behalf of the applicant. The membership committee then votes on the applicant; a single negative vote precludes the applicant from becoming a member.
In 1995, the Arts Club had approximately 849 members. Although the Club has several different classes of members, they all fall into two general categories: lay and professional. Lay members include arts supporters, advocates, and collectors; professional members include literary, visual, and performing artists. While lay members pay an $800 initiation fee and yearly dues of $800, professional members pay an initiation fee of between $250 and $400 and yearly dues of between $250 and $400. The Club's bylaws allow the membership committee to confer a "special membership" which waives membership fees in instances where it determines that "strict application of the rules would work a hardship or would not be feasible." Special memberships are not listed on the membership application and are subject to veto by the Club's president.
The Arts Club has no capital stock, no shareholders, and pays no dividends to any of its members and is exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code (26 U.S.C. §501(c)(3) (1994)). An exhibit introduced into evidence at the hearing before the ALJ indicates that for the year which ended on September 30, 1996, the Club derived its funds as follows: 25% from "Dues and Fees," 2% from "Food Service Revenue," and 73% from "Investment Income." ...