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United Airlines, Inc v. Pappas

April 16, 2004

UNITED AIRLINES, INC PLAINTIFF-APPELLANT,
v.
MARIA PAPPAS, COOK COUNTY TREASURER AND EX OFFICIO COUNTY COLLECTOR, DEFENDANT-APPELLEE.
UNITED AIRLINES, INC., PLAINTIFF-APPELLEE,
v.
MARIA PAPPAS, COOK COUNTY TREASURER AND EX OFFICIO COUNTY COLLECTOR, DEFENDANT-APPELLANT.



Appeal from the Circuit Court of Cook County. Honorable Marsha D. Hayes, Judge Presiding.

The opinion of the court was delivered by: Justice Gallagher

This is a consolidated appeal relating to taxpayer United Airlines, Inc.'s, objection to the real estate tax assessment (assessment) pertaining to its leasehold interest in terminal space (leasehold interest) at O'Hare Airport, Chicago, Illinois, for the tax years 1994, 1995 and 1996.*fn1 The trial court granted taxpayer relief for the 1994 tax year and ordered a reduction in the 1994 assessment. The trial court denied relief for the 1995 and 1996 tax years.

Defendant Cook County treasurer and ex officio county collector (collector) appeals the trial court's judgment granting taxpayer relief from the real estate taxes levied against taxpayer's leasehold interest for the 1994 tax year. Collector first argues on appeal that the method used by taxpayer's appraiser failed to consider actual market rental transactions. Collector next argues on appeal that the appraiser's conclusion regarding market rent was impeached by objective market value evidence. Collector also argues that the appraiser's methodology used to calculate a depreciated value of the leasehold interest's exclusive-use space was legally incorrect. Collector's last argument is that the cost approach used by the appraiser failed to include the value of the land underlying the leasehold. For the reasons stated below, we reverse the trial court's judgment.

Plaintiff-taxpayer United Airlines, Inc., appeals the trial court's judgment denying relief from the real estate taxes levied against taxpayer's leasehold interest at O'Hare Airport for the tax years 1995 and 1996. In this appeal, taxpayer contends that the evidence presented at trial was legally sufficient to support its contention that the 1995 and 1996 assessments, not just the 1994 assessment, were incorrect or illegal. Taxpayer also contends that the limit on the assessing official's powers and the custom and practice of assessing officials further support the conclusion that the entire triennial assessment was incorrect. For the reasons stated below, we affirm the trial court's judgment.

I. BACKGROUND

The following facts are pertinent to this appeal. Taxpayer has a leasehold interest in terminal space located at O'Hare Airport. The leasehold interest relates to property consisting of approximately 891,666 square feet of exclusive-use space occupied by taxpayer in Terminal 1, Concourses B and C; Terminal 2, Concourses E and F; and the underground baggage facility. The City of Chicago owns the property, which is tax exempt. Taxpayer is responsible for paying the real estate taxes pursuant to section 9-195 of the Property Tax Code, which provides that a lessee of tax exempt property for purposes which are not tax exempt subjects the lessee to pay taxes on the property in the same manner as on property that is not tax exempt. 35 ILCS 200/9-195 (West 1996).

The property was subject to a general assessment by the Cook County assessor in 1994 and was scheduled for reassessment in three years. 35 ILCS 200/9-220 (West 1996). The property's assessed value was $29,965,249 in 1994 with an imputed fair market value of $78,855,918. The assessed value in 1995 rose slightly to $29,969,818 with an imputed fair market value of $78,867,942. In 1996, the assessed value rose by $1 to $29,969,819 with a $3 increase in the imputed fair market value to $78,867,945.

Taxpayer filed a request for a reduction of real estate taxes for each year of the 1994 triennial assessment with the Cook County Board of Review, which was denied. After exhausting available administrative remedies and paying the outstanding real estate taxes, taxpayer filed valuation objection complaints in the circuit court of Cook County, county division. 35 ILCS 200/23-15 (West 1996). On December 8, 1999, each valuation objection complaint for the 1994 triennial assessment was merged and proceeded as one case. This merged case was tried in a bench trial on October 15, 2001.

The parties stipulated to all matters relating to the statutory requirement of full payment of real estate taxes and exhaustion of administrative remedies. Robert Herman was the only witness to testify at trial.

Taxpayer called Robert Herman to testify at trial as an expert witness. Herman is employed as a tax consultant at Deloitte & Touche in Chicago, Illinois, and has over 16 years experience in the real estate appraisal profession. Herman was previously employed as a real estate appraiser for Real Estate Analysis Corporation. Herman obtained the designation of MAI, Member of the Appraisal Institute, in 1990, which is the highest designation in the appraisal profession and requires approximately five years of work and study. Herman is certified in Illinois and various other states as a real estate appraiser. Apart from his work on behalf of taxpayer, Herman has appraised approximately 12 airport properties. The trial court found Herman qualified as an expert in the field of real estate valuation.

At trial, Herman described the methodology he used to appraise the property. Herman indicated that he relies on the methodology set forth in People ex rel. Korzen v. American Airlines, Inc., 39 Ill. 2d 11, 233 N.E.2d 568 (1967), in appraising properties. According to American Airlines, an appraiser is to estimate the property's market rent and then apply a present value factor to calculate the current value of the future rents to be received by the lessor. In assessing the property, Herman examined appraisals previously prepared by Real Estate Analysis Corporation, the amended and restated airport use agreement and terminal facilities lease between the City of Chicago and United Airlines, and the assessor's record cards. Herman testified that taxpayer did not rent the entire terminal space. Based on the agreement with the City of Chicago, taxpayer only was responsible for the square footage that taxpayer used to conduct business. According to the agreement, taxpayer's space was exclusive-use premises and the remaining terminal space was public use premises.

Herman also stated that there are three established approaches to value property within the appraisal profession, which are the sales comparison approach, the income capitalization approach and the cost approach. The sales comparison or market approach focuses on sales of comparable property. Willow Hill Grain, Inc. v. Property Tax Appeal Board, 187 Ill. App. 3d 9, 14, 549 N.E.2d 591, 596 (1989). The income capitalization approach is used when the property is most valuable as rental property. Willow Hill Grain, Inc., 187 Ill. App. 3d at 14, 549 N.E.2d at 596. The cost or replacement cost method focuses on what it would cost to recreate the property with the same value. Willow Hill Grain, Inc., 187 Ill. App. 3d at 14, 549 N.E.2d at 596.

Herman indicated that he used the income capitalization approach to determine the leasehold's value. An element of the cost approach was used to estimate market rent. Herman stated that using the cost approach to value the leasehold was consistent with the principles set forth in American Airlines.

Herman concluded that the terminal space is special purpose property. Herman defined special purpose property as property that due to its design and use is so limited that the ...


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