Appeal from the Circuit Court of Lake County. No. 09-MR-1830 Honorable Margaret J. Mullen, Judge, Presiding.
The opinion of the court was delivered by: Justice Zenoff
JUSTICE ZENOFF delivered the judgment of the court, with opinion. Justices McLaren and Birkett concurred in the judgment and opinion.
¶ 1 Franciscan Communities, Inc. (FC), appeals from an order of the circuit court of Lake County affirming the decision of the Director of the Illinois Department of Revenue (DOR) to deny FC's application for a property tax exemption, except for the chapel, based on claimed religious and charitable uses of its property in Lindenhurst, Illinois. For the reasons that follow, we affirm.
¶ 3 FC owns a continuing care retirement community (CCRC) called the Village at Victory Lakes (VL), which is located in Lindenhurst, Illinois. FC is a not-for-profit corporation of the Franciscan Sisters of Chicago Service Corporation, Inc. (FSCSC), which is owned by the Franciscan Sisters of Chicago (Sisters), a pontifical institute of religious women that is part of the Roman Catholic Church and reports to the Pope.
¶ 4 FC filed an application seeking exemption from 2007 real estate taxes for VL. The Lake County board of review (BOR) recommended that the exemption be denied, and the DOR accepted the BOR's recommendation. FC appealed the DOR's denial, and the Board of Education of Lake Villa Community Consolidated School District No. 41 (school district) was given leave to intervene upon a showing that its revenues would be adversely affected if FC received a property tax exemption. Following an extensive evidentiary hearing, the administrative law judge (ALJ) recommended that the DOR's denial be affirmed, with the exception of allowing exemption for the property's chapel. The Director of the DOR accepted the ALJ's recommendation, and FC filed a complaint seeking administrative review in the circuit court of Lake County, which affirmed the Director's decision. FC filed this timely appeal.
¶ 5 The record includes the following relevant evidence that was adduced at the hearing before the ALJ. In 2007, VL provided several tiers of services to seniors: independent living apartments and garden homes; assisted living units; and a skilled nursing center, which included an Alzheimer's unit, rehabilitation facilities, a Medicare program, and general long-term care. The concept of the CCRC was that healthy, active seniors would enter the community at the independent living level and avail themselves of the other tiers as their health declined. Amenities, such as a beauty salon and country store, were located on VL's premises.
¶ 6 VL required a 90% refundable entrance fee plus a monthly service package for the independent living garden homes. Depending on the home's style and square footage, the entrance fees in 2007 ranged from a low of $244,186 with a monthly service package of $1,248, to a high of $332,608 with a monthly service package of $1,771. The amount of the monthly service package increased if a second person were to inhabit the home. The 90% refundable entrance fees for independent living apartments ranged from a low of $127,596 (472 square feet) with a monthly service package of $1,630, increasing, based on square footage, to a high of $252,525 (951 square feet) with a monthly service package of $2,445. An individual garage was an additional $88 per month, and the service package for a second person was $667. Monthly fees for the assisted living units began at $3,881.36 and increased to $4,741.16, depending upon the style of unit. A second person paid an additional $648.72 per month. Prior to admission, one month's fee was due in advance as well as a second month's fee to cover a security deposit. In 2007, the basic daily fee was $167 for intermediate care and $197 for skilled, Alzheimer's, and respite care. VL charged an additional daily fee for a private room. There were ancillary charges for things like activities, physical therapy, speech therapy, occupational therapy, nursing services and supplies, and beauty shop, escort, and dietary services.
¶ 7 Residency agreements for the independent living units provided for termination of residency under certain conditions, for instance, if a resident filed for bankruptcy protection or failed to pay the monthly service fee or other amounts owed to VL when due, unless other mutually satisfactory arrangements were made. In 2007, VL's gross revenue from its residents was $17.4 million. Net revenue from residents was $15.6 million. Operating earnings before income tax, depreciation, and amortization were $1.5 million.
¶ 8 FC provided "Gift of Care" assistance for new and existing residents if their other resources had been exhausted. The considerations for a "Gift of Care" were the availability of financial assistance funds; the resident's total assets; the resident's ability to obtain third-party reimbursement; the resident's seniority; and the date of the "Gift of Care" application. In 2007, not every application for "Gift of Care" assistance was approved. Funds advanced under a "Gift of Care" were recoverable by VL from the resident's 90% refundable fees (or the resident's estate).
¶ 9 It was undisputed that the Roman Catholic Church (Church) and the Sisters were religious organizations. The Sisters participate in the religious life of the Church. Their specific "charism" (the spirit that impels their particular apostolate*fn1 ) is to give service to the elderly. They carry this out by operating (through their corporations) CCRCs. Stewardship is one of their values, meaning that they must operate their CCRCs as businesses so that they can continue and expand their service to the aged and infirm. In 2007, none of the Sisters lived at VL, which they purchased from a secular entity in 2006. The Sisters maintained a presence at VL through its vice-president and its director of mission integration and pastoral care. Through these persons, religious ceremonies, and occasional visits by some of the Sisters, the Sisters' spirit and values were transmitted to VL's employees, who were not all Catholics. Neither were all of the residents Catholics, nor were they required to be believers. For this reason, the Sisters did not place religious icons or art in the residents' homes, apartments, and units, although religious symbols were placed in public areas. When the Sisters purchased VL, the chapel was being used for parties and book fairs. The Sisters instructed that those uses cease, and they required that the chapel be used exclusively for reflection and worship, having installed a tabernacle and Eucharist. Mass was said in the chapel. Hymn singing, Bible studies, and the Rosary were held in other parts of the premises.
¶ 11 We review the administrative agency's decision rather than the trial court's decision. Armenian Church of Lake Bluff v. Department of Revenue, 2011 IL App (1st) 102249, ¶ 2. Where resolution of the case requires determining the legal effect of a given set of facts, the agency's decision should be affirmed unless it is clearly erroneous. Three Angels Broadcasting Network, Inc. v. Department of Revenue, 381 Ill. App. 3d 679, 693 (2008). Here, our inquiry is whether the facts satisfy a statutory standard for tax exemption; hence, we apply the clearly erroneous standard of review. Three Angels, 381 Ill. App. 3d at 693. In reviewing the agency's determination on a mixed question of law and fact for clear error, we give significant deference to the agency's experience in construing and applying the statutes that it administers. Three Angels, 381 Ill. App. 3d at 693. An agency's decision is clearly erroneous only where the reviewing court, on the entire record, is left with the definite and firm conviction that a mistake has been committed. Three Angels, 381 Ill. App. 3d at 693.
¶ 12 Under Illinois law, taxation is the rule, and tax exemption is the exception. Provena Covenant Medical Center v. Department of Revenue, 236 Ill. 2d 368, 388 (2010) (plurality op.) (Provena II). All property is subject to taxation unless it is exempt by statute, and statutes granting exemptions must be strictly construed in favor of taxation. Provena II, 236 Ill. 2d at 388. The party claiming an exemption must prove by clear and convincing evidence that the subject property falls within both the constitutional authorization and the terms of the statute under which the exemption is claimed. Provena II, 236 Ill. 2d at 388. A basis for exemption cannot be inferred where none has been demonstrated. Provena II, 236 Ill. 2d at 388. All facts are construed, and all debatable questions resolved, in favor of taxation. Provena II, 236 Ill. 2d at 388. Every presumption is against the intention of the state to exempt property from taxation. Provena II, 236 Ill. 2d at 388.
¶ 13 Article IX of the Illinois Constitution provides that the General Assembly may exempt all property used exclusively for religious and charitable purposes. Ill. Const. 1970, art. IX, § 6; Fairview Haven v. Department of Revenue, 153 Ill. App. 3d 763, 770 (1987). Section 15-40(a)(1) of the Illinois Property Tax Code (Code) (35 ILCS 200/15-40(a)(1) (West 2006)) provides, "Property used exclusively for *** religious purposes *** qualifies for exemption as long as it is not used with a view to profit." Pursuant to section 15-65 of the Code, in order to qualify for a charitable exemption, the subject property must be "actually and exclusively" used for "charitable or beneficent purposes, and not leased or otherwise used with a view to profit." 35 ILCS 200/15-65 (West 2006). Property satisfies the exclusive-use requirement of the property tax exemption statutes if it is used primarily for the exempted purpose. McKenzie v. Johnson, 98 Ill. 2d 87, 98 (1983). Where property is used for two purposes, one of which is exempt and one of which is not, a tax should be imposed against the part of the property that does not qualify for exemption. Fairview, 153 Ill. App. 3d at 771.
¶ 14 1. FC's Religious Exemption Claim
¶ 15 FC contends that the DOR's conclusion that VL was not used in 2007 primarily for religious purposes was clearly erroneous. FC reasons that, since FC's religious purpose is to provide care and housing to seniors, the law requires the conclusion that FC operates VL exclusively for religious purposes. FC further contends that constitutionally the DOR cannot deny the religious exemption on the ground that VL is operated with a view to profit, because canon law requires the Sisters to be good stewards of their property and, following canon law, stewardship, which dictates a businesslike operation, is one of the Sisters' religious values. FC additionally argues that the ALJ's finding that the Sisters could accomplish their religious purpose through other means unconstitutionally infringed on their free-exercise right, because serving and housing the aged is their religious charism. In essence, FC claims that constitutionally the courts cannot inquire into either FC's stated religious purpose in operating VL or its stated use of the property as primarily religious.
¶ 16 The first amendment to the United States Constitution (U.S. Const., amend. I) and article I of the Illinois Constitution (Ill. Const. 1970, art. I, § 3) provide that government may not inhibit the free exercise of religion or act to foster any particular belief. Fairview, 153 Ill. App. 3d at 772. Consequently, governmental bodies are precluded from resolving disputes based on religious doctrine and must respect the autonomy of religious organizations. Fairview, 153 Ill. App. 3d at 772. "In the tax context, the first amendment requires the court to accept the entity's characterization of its activities and beliefs as religious as long as the characterization is in good faith." Fairview, 153 Ill. App. 3d at 773. Neither a court nor an administrative agency may go behind the entity's declared content of its religious beliefs or examine the validity of those beliefs. Fairview, 153 Ill. App. 3d at 773. Here, FC spent hours and days proving what no one disputed: that the Roman Catholic Church is a religious organization, that the Sisters are a religious organization within the Roman Catholic Church, and that the Sisters' charism is to serve the elderly. It is similarly undisputed that the Sisters purchased VL because there was no Catholic CCRC in Lake County. Therefore, it is undisputed that VL is a means for the Church and the Sisters to carry out the mission of Christ's healing. Neither the ALJ nor the DOR either examined or rejected FC's characterization of the beliefs of the Church or the Sisters. The ALJ found that those beliefs were sincere.
Accordingly, the DOR did not unconstitutionally inquire into the content or validity of FC's beliefs or stated purpose in operating VL.*fn2
¶ 17 FC maintains that, by inquiring into FC's actual operation of VL to determine whether the property was used exclusively for religious purposes, the DOR violated the first amendment, because it questioned canon law and the Archbishop of Chicago's decrees with respect to how the property was used. It is FC's position that civil authorities must accept not only a religious organization's characterization of its beliefs but also the entity's characterization of its use of the subject property. Under this theory, no property taxes could ever be imposed on any property a religious organization declared was used exclusively for religious purposes, regardless of the true facts. This is contrary to established law. Courts are permitted to determine whether property is in fact used exclusively for religious purposes. Fairview, 153 Ill. App. 3d at 773. "A court must *** take into account the facts and circumstances regarding how the property is actually used." Provena II, 236 Ill. 2d at 409.
¶ 18 We digress to discuss the import of Provena II. The parties dispute its precedential value. Provena II is a plurality opinion by Justice Karmeier, Chief Justice Fitzgerald, and Justice Thomas. Justices Kilbride and Garman did not participate in the decision. Justices Burke and Freeman joined in that part of the plurality opinion that held that the taxpayer failed to demonstrate that it was entitled to a religious-use exemption. Provena II, 236 Ill. 2d at 411 (Burke, J., joined by Freeman, J., concurring in part and dissenting in part). Justices Burke and Freeman also joined in the plurality opinion's conclusion that the taxpayer ...