The opinion of the court was delivered by: Justice Thomas
JUSTICE THOMAS delivered the judgment of the court, with opinion.
Chief Justice Kilbride and Justices Garman and Theis concurred in the judgment and opinion.
Justice Freeman dissented, with opinion.
Justice Burke dissented, with opinion, joined by Justices Freeman and Karmeier.
Plaintiff, Millennium Park Joint Venture, LLC, brought a declaratory judgment action in the circuit court of Cook County against defendants--Cook County Assessor James Houlihan and Cook County Treasurer Maria Pappas--seeking a declaration that defendants' tax assessment of plaintiff's contractual interest in real property owned by the Chicago Park District was not authorized by law. At issue in this case is (1) whether the circuit court has original subject matter jurisdiction over the declaratory judgment action challenging as "unauthorized by law" the assessor's assessment of plaintiff's property interest; and if so, (2) whether plaintiff's agreement with the Park District created an untaxable license as opposed to a taxable lease. The circuit and appellate courts answered both questions in the affirmative. See 393 Ill. App. 3d 13. For the reasons that follow, we affirm the judgment of the appellate court.
Millennium Park in Chicago is owned by one or more tax-exempt entities, including the Chicago Park District, and the entire park is considered "exempt" property under the Property Tax Code (35 ILCS 200/1--1 et seq. (West 2008)). Plaintiff entered into a "Concession Permit Agreement" with the Park District in February 2003, which allowed plaintiff to use certain portions of Millennium Park to operate a food concession service. The Property Tax Code authorizes the assessor to tax a lessee's leasehold interest in tax-exempt property in certain circumstances. 35 ILCS 200/9--195(a) (West 2008). The statutory scheme, however, does not authorize a tax or an assessment on exempt property that is merely licensed. See 35 ILCS 200/9--70 (West 2008); 35 ILCS 200/9--195 (West 2008); 35 ILCS 200/1--130 (West 2008); Jackson Park Yacht Club v. Department of Local Government Affairs, 93 Ill. App. 3d 542, 547 (1981); see also Kankakee County Board of Review v. Property Tax Appeal Board, 226 Ill. 2d 36, 55 (2007) ("Illinois case law is consistent in holding that government permits, ordinances, licenses, orders, or regulatory approvals do not create assessable entities.").
Plaintiff's agreement with the Park District was for a term of 20 years, with the possibility for extensions that would allow for a total term of 30 years. The agreement divided the property to be used by plaintiff into two portions. The first section was called the "premises" consisting of 11,000 square feet in the "building" and 15,000 square feet in the "tunnel." The premises contained a sit-down, casual restaurant known as the Park Grill, a bakery and ice cream parlor known as the Park Cafe, and a seasonal retail store known as the Park Store. Plaintiff was also provided with storage facilities located in the tunnel.
The second section of property was designated the "concession area," and it consisted of a large part of the park in which plaintiff was allowed to operate a seasonal mobile food and beverage concession, subject to the approval of the Park District. The agreement contained diagrams of the park showing the locations of the building and the tunnel, as well as the specific locations of the restaurant, retail store, concession area, and bakery and ice cream parlor.
The agreement required plaintiff to pay a minimum fee of $275,000 per year, with additional percentage fees based on the amount of sales and the number of years the agreement had run. For instance, in the first three years, the percentage fee was 3% of any sales between $3 million and $12 million, and 1% of any sales exceeding $12 million. By years 16 thru 20, the percentage increased to 5% of sales between $1 million and $14 million. Plaintiff was required to furnish the Park District with statements of its monthly gross sales for the calculation of the percentage fee. The Park District was also permitted to review plaintiff's financial records to determine gross sales. The minimum fee was to be abated initially until the earliest of certain specified events occurred. The Park District was to pay for all utilities.
The agreement was over 90 pages long and contained numerous requirements in which the Park District was to exercise control over plaintiff's operations. It set forth the minimum times and dates of operation and the permitted uses of the various areas, but provided that the Park District was not required to keep Millennium Park open for any minimum amount of hours. Plaintiff was required to adequately staff the facilities with well-trained personnel for efficient first class service and to provide adequate stock. The Park District had the right to approve all signs used by plaintiff and any name change. It also required that certain "Key Men" or "Alternate Key Men" continue to own or control the affairs of plaintiff's operation to insure its quality. Moreover, plaintiff was subject under the agreement to the Park District's extensive requirements regarding employee uniforms, cleanliness, pest control, signs, repair and maintenance, ice and snow removal and food and safety rules. Plaintiff was also required to carry minimum amounts of insurance.
Furthermore, the agreement did not permit plaintiff to "give, sell, license, sublet, permit, subcontract, sub-concession or otherwise transfer its interest" in the agreement without the prior written consent of the Park District. Such consent was within the sole discretion of the Park District for the first five years of the agreement, but thereafter, the Park District was not to unreasonably withhold its consent. Subject to certain conditions, plaintiff was allowed to enter into license agreements for up to 50% of the concession carts in the concession area. The agreement contained a disclaimer indicating that plaintiff was an independent contractor and that there was no principal-agent, partnership or joint venture relationship between the parties to the agreement.
Finally, the Park District had the right to terminate the agreement immediately with written notice to plaintiff upon the occurrence of certain specified conditions or violations of the agreement. Plaintiff successfully negotiated out of the agreement a provision that would have allowed the Park District to terminate the agreement at will upon written notice.
In March 2005, the assessor sent plaintiff a notice of assessment on the property in question in the amount of $502,550 for the 2004 tax year. Although the notice referred to a "proposed increase in valuation," there had never before been any assessed valuation to increase. Plaintiff challenged the assessment before the county assessor, but that challenge was denied. The assessment became final in April 2005. Plaintiff did not file an assessment complaint with the Board of Review. The Board of Review has the power on written complaint of any taxpayer that any property is "overassessed, underassessed, or exempt" to review the assessment and "confirm, revise, correct, alter, or modify the assessment, as appears to be just." 35 ILCS 200/16--95, 16--115 (West 2008).
Instead, plaintiff filed a three-count complaint for declaratory and injunctive relief in the circuit court in August 2005. Count I of the complaint sought a declaration that plaintiff had a nontaxable license or concession, rather than a lease of the Park District's property, and therefore the imposition of a tax on plaintiff's interest would be unauthorized by law. Count II sought a declaration that a tax on plaintiff's interest would violate the property tax uniformity clause of the Illinois Constitution (Ill. Const. 1970, art. IX, §4). In count III, plaintiff sought to enjoin the assessor from assessing plaintiff's interest and the treasurer from imposing or collecting any property tax for the tax year of 2004 and subsequent years.
Plaintiff alleged that its agreement with the Park District did not constitute a lease for a number of reasons. Specifically, it noted that the terms of the agreement did not grant plaintiff full enjoyment and exclusive possession of the areas in which it conducted its operations. The agreement did not use the term "lease," and it did not provide for the payment of rent or purport to grant plaintiff a leasehold interest. The agreement also contained a number of provisions that allowed the Park District to maintain control over the property and plaintiff's operation of its businesses. Moreover, any disputes between the parties were to be decided by the general superintendent of the Park District. The Park District's remedies were also different from those in a lease. The Park District could terminate the agreement immediately upon the occurrence of any one of several specified conditions, but the agreement did not contain any forcible entry and detainer provisions or other landlord-tenant remedies or tenant protections.
Plaintiff further alleged that during February 2005, certain newspaper articles were published that inaccurately suggested that plaintiff was being given special treatment in not being required to pay real estate taxes. Plaintiff also alleged numerous other vendors operate concessions on Park District property similar to plaintiff and are not being assessed or taxed. Nonetheless, shortly after the publication of the newspaper articles, the assessor issued the notice of assessment on plaintiff's interest in the Park District property. Based on the assessment, plaintiff believed that the treasurer would eventually impose a tax.
Defendants filed a motion to dismiss on the ground that the court lacked subject matter jurisdiction because plaintiff failed to exhaust administrative remedies. The circuit court denied the motion with respect to count I without prejudice to raising subject matter jurisdiction in the answer. However, the court granted defendants' motion with respect to count II in its entirety and with respect to count III to the extent that count III was based on the constitutional challenge in count II.
Thereafter, the parties filed cross-motions for summary judgment on count I. Defendants argued that the agreement entered into by plaintiff and the Park District was a taxable lease because it contained basic requirements for a lease such as duration, payments and a definite area. Defendants asserted that they were entitled to a judgment as a matter of law on the ground that the tax was proper and lawful as a tax on a leasehold of otherwise exempt property under section 9--195 of the Property Tax Code (35 ILCS 200/9--195 (West 2008)). Defendants stipulated, however, that it is the responsibility of the tax-exempt entity to notify the assessor and provide the assessor with a copy of the contract if the tax-exempt entity believes that a contract it has entered into creates a taxable leasehold interest under section 9--195. Defendants further stipulated that the assessor did not receive any such notice from the Park District about the agreement at issue in this case, nor did the assessor receive a copy of the agreement until the assessor requested it in February 2005.
Plaintiff argued that the agreement was a license rather than a lease because it did not satisfy the most important criteria for creating a lease, namely, the Park District did not relinquish possession and control over the property to plaintiff through the agreement. Plaintiff noted that in order for the Park District to give a private commercial entity a leasehold estate in park property, the Park District would have had to give up control and possession of the property. But there is a serious question as to whether the Park District would have the authority to enter into a lease, thereby relinquishing control and possession, given that public parks are owned by park districts, which are charged by statute with the responsibility of managing and controlling all property within their jurisdictions. See 70 ILCS 1505/1 (West 2008). Against this statutory backdrop, the Park District operated under the belief that it lacked the authority to lease property to concession vendors. As a strict rule, it therefore refused to enter into such leases, even going so far as to employ uniform procedures to avoid them.
In support of its argument, plaintiff relied upon the affidavits of Judith J. Jacobs and James Horan. Jacobs' affidavit stated that she became vice president of Urban Retail Properties Company in 1996 and was responsible for negotiating all Park District contracts between 1996 and 2005 with concessioners that operated on Park District property. At the beginning of her company's relationship with the Park District and at various times thereafter, Park District personnel instructed her that the Park District did not lease park property to private concession vendors because the Park District did not have the right to enter into such leases. She therefore understood that she was negotiating a "permit" and not a "lease." Jacobs was principally responsible for negotiating on behalf of the Park District with respect to the agreement it entered into with plaintiff. She used a standard "permit agreement" in those negotiations.
Horan stated in his affidavit that he was the managing member of plaintiff's business operations and was authorized to negotiate contracts on behalf of plaintiff at all relevant times. He negotiated the agreement involved in this case with Jacobs, who was negotiating on behalf of the Park District. During those negotiations, Jacobs informed him that all concession businesses were required to use the "concession permit agreement" form. She explained to him that the permit was in lieu of a lease and that the Park District would not grant plaintiff a lease.
Horan further stated that under the terms of the agreement, plaintiff shared parts of the premises and concession area with other entities. For example, during the winter months, plaintiff was not entitled to use the retail premises or the area west of the restaurant, which was operated as an ice rink. During that time, these areas were managed by a different vendor, Westrec. Westrec and the Park District also used certain areas of the tunnel for storage, and the Park District additionally used the tunnel for access to and from Millennium Park.
As further evidence that the parties intended a license and not a lease, plaintiff noted that the Park District did not notify the assessor when it entered the agreement. Plaintiff also cited internal documents from the assessor's office, which indicated that it was only after the February 2005 newspaper articles raised the question of why plaintiff's interest was not being taxed that the assessor considered assessing plaintiff's interest. Those documents also indicated that there were formidable obstacles to imposing a tax on plaintiff: several different entities, including the Park District, the City of Chicago, and Metra, claimed ownership of portions of the park; taxation would require division of the property to isolate plaintiff's contractual interest; the assessor was more than 15 months past the deadline to apply for a division for 2004; there was no parcel identification number (PIN) for a substantial part of the park, including the portion where plaintiff operated; it would be unprecedented for the assessor to create a PIN where none existed; plaintiff would be left with less than the minimum 20 days required by law to appeal; and the assessor was aware of several other private companies operating under similar agreements with the Park District that were not being assessed. Despite these obstacles, within one month of the February 2005 articles, the assessor had created a new PIN to identify plaintiff's "leasehold and improvements," and sent plaintiff a notice of assessment. The assessor's office chose to issue the assessment, according to its own documents, because it "would rather have a tax bill that is cancelled than for the restaurant to go another year without a bill."
Following a hearing, the circuit court denied defendants' motion for summary judgment and granted plaintiff's motion for summary judgment on counts I and III, except as to those portions of count III previously dismissed by the court. In so doing, the court concluded that the terms of the permit agreement in question supported plaintiff's position that "the Park District's interest in not giving up exclusive possession and control over property in the Park is evident and overriding." The court further noted that the permit did not transfer to plaintiff an exclusive possessory interest coupled with the control necessary to create a leasehold estate in favor of plaintiff. Moreover, the uncontradicted evidentiary submissions and inferences demonstrated that the parties to the permit agreement did not intend to enter a lease. The court also found that the permit lacked the necessary specificity of the extent and bounds of the property, particularly in referring to the concession area, to meet all the requirements of a lease.
The appellate court, with one justice dissenting, affirmed the judgment of the circuit court. 393 Ill. App. 3d at 30. The appellate court held that plaintiff's suit "challenged the assessor's authority to tax the concession permit and therefore raised an 'unauthorized by law' challenge to the assessment." 393 Ill. App. 3d at 24. Under those circumstances, the appellate court concluded, plaintiff was not required to exhaust its remedies under the Property Tax Code and the circuit court had subject matter jurisdiction to rule on the merits. 393 Ill. App. 3d at 24. With respect to the merits, the appellate court examined the provisions of the agreement juxtaposed with the relevant case law and unanimously determined that the agreement clearly conveyed only a nontaxable license to use Park District property and not a leasehold estate. 393 Ill. App. 3d at 26-30; see also ...