Title: Streeterville Corp. v. Dept. of Revenue

State: illinois

Issuer: Illinois Supreme Court

Document:

Docket No. 86138-Agenda 12-March 1999.
THE STREETERVILLE CORPORATION, Appellant, v. THE DEPARTMENT OF REVENUE OF THE STATE OF
ILLINOIS, Appellee.
Opinion filed July 1, 1999.
JUSTICE HEIPLE delivered the opinion of the court:
The issue in this case is whether the Streeterville Corporation (Streeterville) is entitled to a partial real estate tax exemption
for a parking garage which it owns and operates for the use of Northwestern Memorial Hospital. We hold that it is so
entitled.
BACKGROUND
The facts in this case are not in dispute. Both Streeterville and Northwestern Memorial Hospital are tax-exempt
corporations. One of the properties owned by Streeterville is a large parking garage located near the hospital in the
downtown Chicago area. During all times relevant herein, the garage, which contains 1,072 parking spaces, offered
discounts to Northwestern employees, but was also open to the general public. Although the garage did not designate any
area for exclusive parking by Northwestern personnel, the parties agree that 74% of the customers parking in the garage
received some form of Northwestern discount.
Streeterville applied for a partial real estate tax exemption for the 1993 tax year based upon section 19.16 of the Revenue
Act of 1939 (as then in effect), which exempted from tax:
After the Illinois Department of Revenue (Department) denied the application, Streeterville sought administrative review in
the circuit court of Cook County. The circuit court set aside the Department's decision, finding that Streeterville was
entitled to a partial exemption based upon the portion of the property used for exempt purposes. The Department appealed,
and a divided panel of the appellate court reversed, holding that Streeterville was not entitled to any exemption because it
could not identify any specific parking spaces which were used solely by hospital personnel. No. 1-97-2607 (unpublished
order under Supreme Court Rule 23). We granted Streeterville's petition for leave to appeal and now reverse.
ANALYSIS
In Illinois Institute of Technology v. Skinner, 49 Ill. 2d 59 (1971), this court identified two distinct situations in which
property may qualify for a tax exemption despite a partial, nonexempt use. First, property may be wholly exempt from tax if
any nonexempt use can be described as "merely incidental." Skinner, 49 Ill. 2d  at 66. Second, even where nonexempt use is
more than merely incidental, the property may nonetheless qualify for a partial exemption where an "identifiable portion" of
the property is used for exempt purposes. Skinner, 49 Ill. 2d  at 66.
In the instant case, Streeterville concedes that the 26% nonexempt use of the parking facility cannot qualify as merely
incidental. Thus, the dispositive question in this case is whether an "identifiable portion" of the parking structure is used for
exempt purposes. The Department contends that the answer is no. The Department concedes, however, that if Streeterville
had designated certain parking spaces for use solely by hospital personnel, then the parking structure would be partially
exempt. At oral argument, counsel for the Department suggested that Streeterville could get a partial exemption by
assigning the first 3 of its 10 floors to paying customers, and reserving the remaining seven floors for hospital personnel.
Nevertheless, the Department maintains that the fact that Streeterville allows its patrons to park wherever they choose
renders the entire parking structure taxable.
In support of its position, the Department makes two distinct arguments: first, that a taxpayer may never rely upon
statistical evidence concerning the use of its property in order to "identify" a portion of that property which is used for
exempt purposes; and second, that allowing a partial exemption under these circumstances would create serious
administrative difficulties for the Department. Neither argument is persuasive.
The Department cites Evangelical Hospitals Corp. v. Department of Revenue, 223 Ill. App. 3d 225 (1991), for the principle
that taxpayers may not use statistical evidence to identify an exempt portion of their property. In Evangelical Hospitals, the
appellate court considered whether a pharmacy was entitled to a partial real estate tax exemption based upon evidence that
the portion of the pharmacy's sales which constituted a nonexempt use accounted for only 15% to 20% of the pharmacy's
operating costs. The appellate court found such evidence insufficient to support a partial tax exemption, because "there was
no evidence establishing what portion [of the property] was used for sales to third parties at a markup and what portion was
used to sell to its own health care facilities." Evangelical Hospitals, 223 Ill. App. 3d at 231. The Department reads
Evangelical Hospitals as establishing a blanket rule prohibiting the use of statistical evidence to identify an exempt portion
of a taxpayer's property.
Assuming, for the sake of argument, that Evangelical Hospitals was correctly decided, we find its facts to be inapposite. In
Evangelical Hospitals, the pharmacy presented evidence regarding the percentage of its sales which constituted an exempt
use. Such evidence says nothing about the amount of space which was used for exempt purposes, and thus could not
demonstrate that an "identifiable portion" of the property was used for such purposes. In contrast, the instant case concerns
a claimed exemption for a parking garage based upon evidence concerning the use of space in the facility. By its very
nature, the product which Streeterville deals in is space. Accordingly, evidence that 74% of Streeterville's customers were
hospital personnel establishes that an "identifiable portion" of the facility was used for exempt purposes.
We are similarly unpersuaded by the Department's claim that recognizing the right to a partial exemption under these facts
would create administrative difficulties for the Department. In the first place, administrative difficulties are hardly a legal
justification for disregarding a tax exemption. Arguably, every tax exemption may cause administrative difficulties. It is the
responsibility of the Department of Revenue to accommodate such difficulties. Secondly, we note the Department's
predicted difficulties did not, in fact, surface in this case. The record before us discloses that Streeterville and the
Department had no difficulty agreeing upon the percentage of the parking facility which was used by hospital personnel.
Finally, the law is clear that burden of proving the right to an exemption rests upon the party seeking it. Willows v. Munson,
43 Ill. 2d 203, 207 (1969). The taxpayer seeking exemption must demonstrate by clear and convincing evidence that the
exemption applies. Evangelical Hospitals, 223 Ill. App. 3d at 231. Therefore, in those instances where the nature of the
property makes it impossible to determine an "identifiable portion" of the property which is used for exempt purposes, the
taxpayer will simply be unable to meet its burden of proof.
In conclusion, we hold that Streeterville is entitled to a partial tax exemption for that 74% portion of its parking facility
which, as agreed, is used by Northwestern Memorial Hospital personnel. Accordingly, we reverse the judgment of the
appellate court, affirm the judgment of the circuit court, and remand the cause to the Department for proceedings consistent
with this opinion.
Appellate court judgment reversed;
 circuit court judgment affirmed;
cause remanded.
JUSTICE HARRISON, dissenting:
Under Illinois law, all property is subject to taxation unless specifically exempted by statute in conformity with the
governing provisions of our constitution. Rogers Park Post No. 108 v. Brenza, 8 Ill. 2d 286, 289-90 (1956). Taxation is the
rule. Tax exemption is the exception. Chicago Bar Ass'n v. Department of Revenue, 163 Ill. 2d 290, 301 (1994); City of
Chicago v. Illinois Department of Revenue, 147 Ill. 2d 484, 491 (1992).
Consistent with these principles, statutes exempting property from taxation are to be strictly construed in favor of taxation.
Chicago Patrolmen's Ass'n v. Department of Revenue, 171 Ill. 2d 263, 271 (1996). If there is any doubt as to applicability
of an exemption, it must be resolved in favor of requiring that tax be paid. Van's Material Co. v. Department of Revenue,
131 Ill. 2d 196, 216 (1989). We presume that the exemption is inapplicable (Van's Material Co., 131 Ill. 2d at 216), and the
party seeking the exemption has the burden of proving otherwise by clear and convincing evidence (see Institute of Gas
Technology v. Department of Revenue, 289 Ill. App. 3d 779, 782 (1997)).
The Illinois Constitution of 1970 provides:
Pursuant to this grant of power, the legislature has enacted section 19.7 of the Revenue Act of 1939, which exempts from
taxation"[a]ll property of *** charitable organizations *** when such property is actually and exclusively used for such
charitable or beneficent purposes, and not leased or otherwise used with a view to profit." (Emphasis added.) 35 ILCS
205/19.7 (West 1992). Under section 19.16 of the Revenue Act, this exemption is extended to "[p]arking areas, not leased
or used for profit, when used as a part of a use for which an exemption is provided *** and owned by any *** non-profit
hospital." (Emphasis added.) 35 ILCS 205/19.16 (West 1992).
In the case before us today, the parking garage is owned and operated for the use of a nonprofit hospital and is used "as part
of a use for which an exemption is provided." There is no dispute, however, that the garage is not "exclusively used" for the
hospital's charitable purposes. Aside from the handicapped spots and some spots reserved for the employees of the
company that runs the garage, every parking space in the entire structure is available for use by the general public. No
affiliation with the hospital is required as a condition of admittance or use. Anyone can park there at any time for any
purpose.
In addition, no claim can be made that the parking areas are not "leased or used for profit" as the statute requires. The
hospital charges fees for use of the parking areas in order to make money, just as it leases a portion of the structure to a fast
food restaurant in order to make money. Market rates are charged to everyone except the hospital's doctors, employees and
patients, who are entitled to a discount. While it is true that the hospital's doctors, employees and patients constitute the
bulk of the garage's users, it is also true that there is nothing to prevent the facility, as presently operated, from being used
entirely and exclusively by members of the general public at market rates.
Under these circumstances, I fail to see how we can say that the taxpayer met its burden of proving that the hospital's
parking garage qualifies for an exemption under the terms of the Revenue Act or the authority given by the constitution.
Had the taxpayer reserved particular spaces for hospital personnel and patients, a partial exemption might be in order. But it
did not. We have, instead, a situation where "the property as a whole, or in unidentifiable portions, is used both for an
exempting purpose and a nonexempting purpose" and the nonexempting purpose is not "merely incidental." Illinois
Institute of Technology v. Skinner, 49 Ill. 2d 59, 66 (1971).
Because no physical portion of the parking garage can be identified as having an exclusively exempt use, the taxpayer's
claim for an exemption is untenable. It is not insignificant that the Department of Revenue shares this view. Although the
Department's interpretation of the law is not binding on us, we have often said that we should accord substantial weight and
deference to the interpretation of a statute by the agency charged with its administration and enforcement. See, e.g., Central
City Education Ass'n v. Illinois Educational Labor Relations Board, 149 Ill. 2d 496, 510 (1992); City of Decatur v.
American Federation of State, County & Municipal Employees, Local 268, 122 Ill. 2d 353, 361 (1988).
In reaching this conclusion, I cannot deny that the statistical approach proffered by the taxpayer and adopted by my
colleagues is not without its appeal. Had we the power to establish the system for granting tax exemptions, I might very
well endorse it. But we have no such power. As I have noted, exemptions must be expressly conferred by the legislature in
conformity with the constitution. The courts cannot create or extend exemptions from taxation by judicial construction.
Illinois Central Gulf R.R. Co. v. Department of Local Government Affairs, 95 Ill. 2d 111, 119 (1983).
For the foregoing reasons, I would hold that the appellate court was correct when it reversed the judgment of the circuit
court and reinstated the Department of Revenue's decision to deny the taxpayer an exemption. I therefore dissent.
JUSTICE McMORROW joins in this dissent.