4-07-0500 Filed 8/26/08

IN THE APPELLATE COURT

OF ILLINOIS

FOURTH DISTRICT

SPRINGFIELD SCHOOL DISTRICT NO. 186,

 Plaintiff-Appellant,

 v.

THE DEPARTMENT OF REVENUE OF THE STATE

OF ILLINOIS; BRIAN A. HAMER, Director

of the Department of Revenue; and THE

SANGAMON COUNTY BOARD OF REVIEW,

Defendants-Appellees.

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Appeal from

Circuit Court of

Sangamon County

No. 06MR546

Honorable

Patrick J. Londrigan, 

Judge Presiding.

_________________________________________________________________

JUSTICE KNECHT delivered the opinion of the court:

Plaintiff Springfield School District No. 186 (District), appeals the decision of the Illinois Department of

Revenue (Department) to deny its application for a property tax

exemption pursuant to sections 15-60, 15-135, and 15-35(e) of the

Illinois Property Tax Code (Code) (35 ILCS 200/15-60, 15-135, 15-

35(e) (West 2004)). Plaintiff sought administrative review and

the circuit court affirmed the Department. The District appeals, 

claiming the Department erred in the following respects: (1) it

found the lease between the District and Central Management

Services (CMS) was a lease with a view to profit; (2) it found

the section 15-60 exemption where a taxing district holds property for future expansion or development did not apply to school

districts; and (3) it found the requirement of section 15-35 that

property not be leased with a view to profit applied to section

15-35(e), exempting property owned by a school district. For the
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reasons that follow, we affirm the circuit court's decision

affirming the Department's decision.
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I. BACKGROUND

In February 2004, the District sought a property-tax

exemption from the Sangamon County Board of Review for a former

school building for tax year 2004. The District filed an application for nonhomestead property-tax exemption concerning the

property located at 400 West Lawrence in Springfield, Illinois. 

The District's original application sought an exemption based on

section 15-35(e) of the Code. The District later amended the

application to include sections 15-60 and 15-135 as additional

grounds for exemption. On August 3, 2004, the Sangamon County

Board of Review recommended full approval of the exemption

application. On August 26, 2004, the Department denied the

application, finding the property was not in exempt ownership and

not in exempt use. In October 2004, the District requested a

formal administrative hearing in response to the denial of the

property-tax exemption. The hearing was held January 26, 2006,

in front of an administrative law judge (ALJ), who recommended

denial of tax exemption. In August 2006, defendant, Brian A.

Hamer, Director of defendant Department (Director), denied the

exemption. In September 2006, the District filed for administrative review. The circuit court heard arguments and in May 2007

affirmed the Director's decision. 

 The District used the subject property as a school

until the mid 1990s. The building needed renovations and the
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District lacked resources to make the building handicap accessible. In early 1997, the District attempted to sell the property

through a sealed-bid auction but received no bids. The District

was approached by Public Assets Service Corporation (PASC) with a

sale-leaseback proposal. In 2001, the District again went

through the bid process and sold the building to PASC, a not-forprofit corporation, for $535,000 and leased it back for a 20-year

term. PASC sold certificates of participation (bonds) to finance

the renovation and engaged developer Hay Edwards Associated, LLC

(Hay Edwards), to perform the renovation. The District leased

the property from PASC and subleased it to CMS. CMS's rental

payments are made to a trustee, who then pays the bonds.

The agreement further provided Hay Edwards would

advance funds to the District to cover construction-delay costs

and changes in the scope of the renovation. Hay Edwards received

an unconditional first option to purchase the building for fair

market value upon the expiration of the lease-purchase agreement

and a right of first refusal should PASC and the District decide

to sell the building earlier. The District received a subordinate option to purchase the building at the expiration of the

lease-purchase agreement. 

At the administrative hearing, the District entered

into evidence a net-income analysis for the 20-year term of the

sublease. The District subleased the building to CMS for 10
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years beginning April 2003 for an annual rent of $1,033,950 with

a 2% annual increase. The lease provided CMS could renew for an

additional 10 years, or could terminate after 5 and 15 years with

180 days' notice. During the first 16 years of the lease, the

District would see no positive cash flow. If the District

received a positive cash flow during the remaining four years,

the money would be applied toward the District's operating

budget. 

In August 2006, the Director denied the exemption,

finding the following: (1) the qualifying language "used with a

view to profit" applies to subsection 15-35(e) because allowing

property owned by a school district to be exempt even if used

with a view to profit would mitigate the effect of the exclusion

in the first paragraph and mitigate the effect of the exemption

provision in section 15-35; (2) the District failed to present

clear and convincing evidence the property is not used with a

view to profit as the $535,000 payment was not discussed, the

District included a property-tax loss as a deduction, the District derived an economic advantage from the lease of the building whether or not it produced income; and (3) the Code provides

no exemption for property used by the State, only property owned

by the State. 

As stated, the District sought administrative review,

and the circuit court affirmed. 
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II. ANALYSIS

The first issue raised by the District is whether the

property is eligible for exemption under sections 15-35(e) and

15-135 because it is not leased "with a view to profit." The

District argues the property qualifies for exemption under

section 15-35(e) as a transaction for the purpose of financing. 

Section 15-35 provides:

"Schools. All property donated by the

United States for school purposes, and all

property of schools, not sold or leased or

otherwise used with a view to profit, is

exempt, whether owned by a resident or nonresident of this State or by a corporation

incorporated in any state of the United

States. Also exempt is:

* * *

(e) property owned by a school

district. The exemption under this

subsection is not affected by any

transaction in which, for the purpose of obtaining financing, the

school district, directly or indirectly, leases or otherwise transfers the property to another for
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which or whom property is not exempt and immediately after the

lease or transfer enters into a

leaseback or other agreement that

directly or indirectly gives the

school district a right to use,

control, and possess the property. 

In the case of a conveyance of the

property, the school district must

retain an option to purchase the

property at a future date or,

within the limitations period for

reverters, the property must revert

back to the school district." 35

ILCS 200/15-35(e) (West 2004).

Section 15-135 provides: 

"School districts and community college

districts. All property of public school

districts or public community college districts not leased by those districts or otherwise used with a view to profit is exempt." 

35 ILCS 200/15-135 (West 2004).

The District notes the parties stipulated (1) the sale-leaseback

between the District and PASC was for the purpose of obtaining
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financing and (2) the District is the owner of the property. The

lease was part of a larger financing transaction to allow the

District to renovate the building. The entire transaction,

including the sublease, was part of a financing transaction

pursuant to Cole Hospital, Inc. v. Champaign County Board of

Review, 113 Ill. App. 3d 96, 101, 446 N.E.2d 562, 565 (1983). 

Although two leases were involved, the evidence showed both

leases constituted the entire transaction. The District contends

testimony at the departmental hearing showed (1) this transaction

was the only option to renovate the building, and (2) the District did not lease the building to CMS with a view to profit. 

The Department argues the property is not exempt under

section 15-35 as it is leased "with a view to profit" because (1)

the property is not continuing in a tax-exempt use after leasing

and (2) the District intends for the lease to generate revenue. 

Property used by the State is not tax exempt, only property owned

by the State. 35 ILCS 200/15-55 (West 2004); see Northern

Illinois University Foundation v. Sweet, 237 Ill. App. 3d 28, 36-

37, 603 N.E.2d 84, 90 (1992) (denying exemption for property

leased to State and not used primarily for educational purposes). 

CMS's sublease is not a tax-exempt use of the property. See

Village of Oak Park v. Rosewell, 115 Ill. App. 3d 497, 501, 450

N.E.2d 981, 984 (1983) (religious organization not entitled to

tax exemption on parking lot leased to municipality because
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municipal tax exemption is based on ownership, not use). Because

the use of the property is not tax exempt, the District bore the

burden of proving that the sublease was not made "with a view to

profit." While revenue was pledged to pay the bonds and later

the operating costs, the District's argument fails because under

DePaul University, Inc. v. Rosewell, 176 Ill. App. 3d 755, 757,

531 N.E.2d 884, 885 (1988), a school's use of its lease revenues

for school expenses does not make the leased property tax exempt.

A. Leased "With a View to Profit"

We note the parties disagree on the standard of review. 

The ALJ heard substantial testimony and considered documents and

stipulated facts, which for the most part were undisputed. Where

the fact finder determines the legal effect of a given set of

facts, it decides a mixed question of law and fact. See Elementary School District 159 v. Schiller, 221 Ill. 2d 130, 143, 849

N.E.2d 349, 358 (2006). "An agency's conclusion on a mixed

question of law and fact is reviewed for clear error." District

159, 221 Ill. 2d at 143, 849 N.E.2d at 358. The agency decision

will be found clearly erroneous only where we are left with the

definite and firm conviction a mistake was committed. Cinkus v.

Village of Stickney Municipal Officers Electoral Board, 228 Ill.

2d 200, 211, 886 N.E.2d 1011, 1018 (2008). "Such review is

significantly deferential to an agency's experience in construing

and applying the statutes that it administers." District 159,
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221 Ill. 2d at 143, 849 N.E.2d at 358; see also Board of Education of Glen Ellyn Community Consolidated School District No. 89

v. Department of Revenue, 356 Ill. App. 3d 165, 171, 825 N.E.2d

746, 752-53 (2005) (the Department determined whether the facts

indicated the property was used with a "view to profit"; District

employed clearly erroneous standard).

On this issue, we find no clear error in the Department's decision the property was ineligible for exemption because

it was leased "with a view to profit." The District's net-income

analysis showed the District would earn income of over $13

million and while it would apply $11,530,600 toward repaying its

financing obligation, $2 million in net profits would be realized

over the 20-year term. Under Village of Oak Park, it is irrelevant whether the lease actually results in a profit. Village of

Oak Park, 115 Ill. App. 3d at 500, 450 N.E.2d at 983-84.

B. Property Owned by a School District

The second issue raised by the District is the proper

construction of section 15-35(e) of the Code. Interpretation of a

statute is a question of law where the agency's interpretation is

considered relevant but not binding on the court. Branson v.

Department of Revenue, 168 Ill. 2d 247, 254, 659 N.E.2d 961, 965

(1995). Our review is de novo with deference to the Department's

interpretation. We note at the outset, "'It is the well settled

rule of law in the State of Illinois that all property is subject
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to taxation, unless exempt by statute, in conformity with the

constitutional provisions relating thereto. Taxation is the

rule--tax exemption is the exception.'" City of Chicago v.

Illinois Department of Revenue, 147 Ill. 2d 484, 491, 590 N.E.2d

478, 481 (1992), quoting Rogers Park Post No. 108 v. Brenza, 8

Ill. 2d 286, 289-90, 134 N.E.2d 292, 295 (1956).

The statutory question is whether property leased "with

a view to profit" is entitled to tax exemption under section 15-

35(e) of the Code. The District contends subsection (e) of

section 15-35 exempts "property owned by a school district"

without qualification that the property not be sold or leased or

used with a view to profit. If the legislature had intended for

the language of the opening paragraph, "not sold or leased or

otherwise used with a view to profit," to apply to each subsection, it need not have stated within subsections (a) the property

must be used on a not-for-profit basis and (d) the property must

not be used with a view to profit. 35 ILCS 200/15-35(a), (d)

(West 2004). The legislature's use of repetitive language in

subsections (a) and (d) becomes surplusage if the section is read

as the Department recommends with the phrase "not sold or leased

or otherwise used with a view to profit" applying to each subsection. The Illinois Supreme Court states that statutes should not

be read in a manner which makes certain terms or phrases mere

surplusage. See Land v. Board of Education of the City of
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Chicago, 202 Ill. 2d 414, 422, 781 N.E.2d 249, 255 (2002). The

District notes this interpretation is consistent with the Illinois Constitution, which makes a distinction between property

owned by a school district and property used for school purposes. 

See Eden Retirement Center, Inc. v. Department of Revenue, 213

Ill. 2d 273, 286, 821 N.E.2d 240, 248 (2004).

The Department argues the Director correctly denied the

exemption because the restriction against leasing (and by extension subleasing) with a view to profit in section 15-35 is applicable to section 15-35(e) under Swank v. Department of Revenue,

336 Ill. App. 3d 851, 858, 785 N.E.2d 204, 209-10 (2003). To

interpret the two provisions as the District suggests would mean

a school district cannot lease its property with a view to profit

without losing exemption, but could finance the same property

with a leaseback contract, and then sublease the property for

profit and be exempt under section 15-35(e). Nothing in the

language of section 15-35(e) suggests it was intended to allow

school districts to avoid the section 15-35 restriction on

leasing with a view to profit.

We agree with the Department. A statute should be

evaluated in its entirety, with each section construed in connection with every other provision. Swank, 336 Ill. App. 3d at 858,

785 N.E.2d at 209. Section 15-35(e) is the codification of Cole

Hospital, 113 Ill. App. 3d 96, 446 N.E.2d 562. In Cole, the
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hospital qualifying for tax exemption was a not-for-profit

organization which entered a sale leaseback agreement to finance

the construction of a new building. "[T]ax-exemption statutes in

Illinois are to be construed narrowly." Swank, 336 Ill. App. 3d

at 859, 785 N.E.2d at 210. Reading section 15-35(e) without the

"view-to-profit" language would substantially diminish section

15-35 and have the effect of mitigating a portion of the Cole

decision which has been law for 25 years. We determine the

"view-to-profit" language in section 15-35 applies to section 15-

35(e).

As earlier stated, the sale-leaseback agreement with a

sublease to CMS was "with a view to profit" and thus we find no

error in the Department's decision that the District was ineligible for property-tax exemption under section 15-35(e). 

C. Property Held for Future Expansion 

The third issue raised by the District is whether the

District could rely on section 15-60 for an exemption. The

District argues the property qualifies for an exemption as

property held by a taxing district for future expansion. Section

15-60 of the Code provides, "all property owned by a taxing

district that is being held for future expansion or development

[is exempt], except if leased by the taxing district to lessees

for use for other than public purposes." 35 ILCS 200/15-60 (West

2004). The District argues it is entitled to an exemption
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because the subleased property is (1) owned by a taxing district,

(2) being held for future expansion, and (3) not leased for use

for other than public purposes. 

The ALJ's decision found the District could not rely on

the more general exemptions for taxing districts of section 15-60

ahead of the specific provisions for schools in sections 15-35

and 15-135. The decision states:

"The 'undisputed rule is that specific

statutory provisions control as against general provisions on the same subject, appearing either in the same act or in other acts.' 

People ex rel. Oller v. Cairo & Theses R.

Co., 364 Ill. 329[, 333, 4 N.E.2d 482, 484]

(1936). Each section of a statute should be

construed with every other section to produce

a harmonious whole. [Land, 202 Ill. 2d at 422

781 N.E.2d at 254]. Words and phrases should

be interpreted in light of other relevant

portions of the statute so that no term is

rendered superfluous or meaningless. [Land,

202 Ill. 2d at 422, 781 N.E.2d at 255].

Section 15-135 applies to school districts, which is a specific type of taxing

district. In order to construe sections 15-
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60 and 15-135 harmoniously, the property of a

school district may not qualify for the exemption if it is leased or otherwise used

with a view to profit. Allowing an exemption

for property of a school district that is

used with a view to profit would render section 15-135 meaningless." 

On appeal, the District argues the ALJ erred in finding this

section does not apply to the District and the District meets the

requirements of section 15-60. Whether section 15-60 and sections 15-35 and 15-135 provide independent exemptions or must be

construed together is a question of law. Agency decisions on

questions of law are reviewed de novo. Exelon Corp. v. Department of Revenue, 376 Ill. App. 3d 918, 921, 876 N.E.2d 1081, 1083

(2007). 

The District contends under Illinois law, "where [the]

language [of the statute] is unambiguous, the statute must be

enforced as written." Krautsack v. Anderson, 223 Ill. 2d 541,

567, 861 N.E.2d 633, 651 (2006) (Karmeier, J., dissenting). When

the statute is unambiguous, the "court cannot depart from the

plain language of the statute by reading into it exceptions,

limitations, or conditions not expressed by the legislature."

Krautsack, 223 Ill. 2d at 567-68, 861 N.E.2d at 651 (Karmeier,

J., dissenting). The District argues section 15-60 is clear and
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unambiguous and should be applied according to its plain language

to provide an exemption to the District for the property. The

exemption of section 15-135 applies to property owned by a school

district not leased with a view to profit but does not address

property held by a school district for future expansion. Section

15-60 provides an additional exemption to property owned by a

taxing district held for future expansion and not leased for

other than public purpose. 

The Department argues when sections 15-60, 15-35, and

15-135 are applicable to the same property, they are presumed to

be governed by a single policy. Dundee Township v. Department of

Revenue, 325 Ill. App. 3d 218, 223, 757 N.E.2d 982, 985-86

(2001). The statutes must be construed together to determine the

legislative intent when the exemption statutes address the same

property and an interpretation that gives effect to both provisions must be adopted. Dundee Township, 325 Ill. App. 3d at 223,

757 N.E.2d at 985-86. In Dundee Township, section 15-60 of the

Code was construed together with section 115-115 of the Township

Code (60 ILCS 1/115-115 (West 1998)).

The Department argues by reading the sections together,

the underlying legislative intent is property that would otherwise be tax exempt due to its current use is exempt under section

15-60 for its future use. Section 15-60 removes only the requirement of current tax-district-specific exempt use to qualify
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for an exemption. The Department contends this is shown by the

legislature's retention of the requirement the leased property

must be used for public purposes. Section 15-60 should not be

interpreted as intending to remove restrictions on exemptions

other than current tax-district-specific use. 

"'Statutes which relate to the same thing or to the

same subject or object are in pari materia ***.'" People ex rel.

Daley v. Datacom Systems Corp., 146 Ill. 2d 1, 17-18, 585 N.E.2d

51, 58 (1991), quoting People v. Wallace, 291 Ill. 465, 470, 176

N.E. 175, 176 (1920). "A court presumes that the legislature

intended that two or more statutes which relate to the same

subject are to be operative and harmonious. A court must compare

statutes relating to the same subject and construe them with

reference to each other, so as to give effect to all of the

provisions of each if possible." Cinkus v. Village of Stickney,

228 Ill. 2d at 218, 886 N.E.2d at 1022-23. However, we cannot,

under the guise of statutory interpretation, remedy an apparent

legislative oversight by rewriting a statute in a way that is

inconsistent with its clear and unambiguous language. People v.

Pullen, 192 Ill. 2d 36, 42, 733 N.E.2d 1235, 1238 (2000).

In this case, the statute's language is clear and

unambiguous. "When the plain language of the statute is clear

and unambiguous, the legislative intent that is discernable from

this language must prevail, and no resort to other tools of
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statutory construction is necessary." Land, 202 Ill. 2d at 421-

22, 781 N.E.2d at 254. While a review of case law on section 15-

60 does not reveal application of the statute to school districts, neither does it restrict application to school districts. 

The statutory definition of a taxing district explicitly includes

school districts. Further, the District's statutory reading is

easily understood and applied, while the Department's interpretation is convoluted and appears to rewrite the statute. 

Thus, three elements must be met for the property to be

exempt under section 15-60: (1) the property must be owned by a

taxing district; (2) the property must be held for future expansion; and (3) the property must be not for use for other than a

public purpose. 

1. Element One: Is Property Owned by a Taxing District?

The District is a taxing district as defined by the

Code: "Any unit of local government, school district[,] or

community college district with the power to levy taxes." 35

ILCS 200/1-150 (West 2004). Under the School Code, the District

has the power to levy taxes. The "school board of any district

having a population of less than 500,000 inhabitants may levy a

tax annually *** upon all the taxable property of the district." 

105 ILCS 5/17-2 (West 2004). The Department does not present an

argument on the first element.

2. Element Two: Is Property Held for Future Expansion?
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The second element is the property must be held for

future expansion. One of the two stipulated facts is that the

District owns the property. Testimony and exhibits showed the

District will get possession of the property pursuant to its

reversionary interest in approximately 20 years subject to the

Hay Edwards' rights under the right-to-purchase agreement. The

District intends to use the property for administrative facilities because it is centrally located.

The Department argues the plain meaning of the statute

includes at a minimum that the tax-exempt owner presently intends

to own and use the property for a tax-exempt purpose in the

future. Future tax-exempt ownership and use are required for a

present tax exemption under section 15-60 because the legislature

can only exempt those categories of property authorized for

exemption by article IX, section 6, of the Illinois Constitution. 

A statutory property-tax exemption cannot be broader than the

constitutional provisions. Chicago Bar Ass'n v. Department of

Revenue, 163 Ill. 2d 290, 297, 644 N.E.2d 1166, 1170 (1994). The

party seeking an exemption must show the property qualifies under

both the statute and the Constitution. Chicago Bar Ass'n, 163

Ill. 2d at 300-01, 644 N.E.2d at 1171. The legislature could not

grant and an owner could not seek a present tax exemption on

property under section 15-60 based on holding that property for

future expansion unless the future use and ownership were tax
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exempt under article IX, section 6. The tax-exempt owner must

demonstrate a present intent to own and use the property for a

tax-exempt purpose in the future to qualify for an exemption

under section 15-60.

The Department argues the District's grant of an

unconditional option to Hay Edwards is direct evidence contradicting the District's asserted intention to own and use property

for a tax-exempt purpose in the future. "[T]he right to choose

when and if property may be transferred is the single most

significant incident of real estate ownership." Henderson County

Retirement Center, Inc. v. Department of Revenue, 237 Ill. App.

3d 522, 527, 604 N.E.2d 1003, 1006 (1992) (amending a lease to

grant the lessee an unconditional option to purchase upon expiration of the leasehold changed the incidents of ownership and

rendered the leasehold tax-exempt). The District does not

clearly and convincingly establish that it intends to own the

property in the future where it has granted a third party the

right to transfer ownership. The Department contends the District fails to sustain its burden of proof and should be denied

relief. 

3. Element Three: Is Property Used for Public Purposes?

The third element is whether CMS's use of the property

is for public purposes and no other purposes. The District

states the State of Illinois uses the office space and such use
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is a public purpose. No profit-making activities are conducted

by CMS on the premises. The Department makes no argument on the

third element.

4. Standard of Review

"[W]hen an agency is required to interpret a statute's

meaning and determine whether the facts of the case fit within

that definition, the case" presents a mixed question of fact and

law "which should be affirmed unless clearly erroneous." Illinois Beta House Fund Corp. v. Illinois Department of Revenue, 382

Ill. App. 3d 426, 429, 887 N.E.2d 847, 849-50 (2008). The

clearly erroneous standard gives some deference to the agency's

expertise and experience with the Code. We accept the agency's

findings unless we have a definite conviction a mistake was made. 

"[W]e may affirm the agency's decision on any basis appearing in

the record." Illinois Beta House, 382 Ill. App. 3d at 429, 887

N.E.2d at 850. 

At issue is whether the District clearly established

the second element of section 15-60. In the disposition, the ALJ

made a finding of fact stating, "The applicant currently has

inadequate administrative facilities that are at different

locations. The renovated buildings are centrally located within

the school district and may provide a site to consolidate the

administrative facilities in the future." Evidence shows the

District hopes to use the renovated buildings after the 20-year
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sale and leaseback agreement concludes, but Hay Edwards' first

option to purchase the property for fair market value at the

conclusion of the 20-year agreement imparts too great a doubt on

future holding of the property by the District. "[T]he party

claiming the benefit of an exemption bears the burden of proving

clearly and conclusively that it is entitled to the exemption,

and all facts and all debatable questions are resolved in favor

of taxation." Illinois Beta House Fund Corp., 382 Ill. App. 3d

at 429, 887 N.E.2d at 850. We are not left with the definite and

firm conviction the decision of the Director, affirmed by the

circuit court, was in error. 

III. CONCLUSION

For the reasons stated, we affirm the circuit court's

decision affirming the Department's decision.

Affirmed.

McCULLOUGH and STEIGMANN, JJ., concur.