Opinion ID: 2219928
Heading Depth: 1
Heading Rank: 3

Heading: analysis

Text: Before this court, petitioner characterizes the main issue of this case as the proper interpretation of section 1-130 of the Code, which holds that taxable real estate includes all rights and privileges belonging or pertaining thereto. 35 ILCS 200/1-130 (West 2004). As this is an issue of statutory interpretation, petitioner contends de novo review is proper. Petitioner also contends that the appropriate property tax assessment methodology is at issue as well, and that this too should be reviewed de novo. Respondents argue that this case involves a mixed question of law and fact. Respondents admit that the PTAB was required not only to construe the meaning of section 1-130 of the Code, which is a question of law to be reviewed de novo. However, respondents claim that the PTAB also had to make factual findings as to whether there was some basis for each appraiser's valuations. Respondents then contend that the PTAB had to apply these facts to determine whether the right to store gas in the reservoirs was a right attributable to the subject property. According to respondents, this law-to-fact application should be reviewed under the clearly erroneous standard. We initially note that we are not charged with the responsibility of determining the market value of the subject property. Rather, the central question before us is whether the PTAB's decision to reduce petitioner's tax assessments for the 2000 and 2001 tax years was correct. The determination turns on whether petitioner employed a proper valuation method in assessing the subject property. More particularly, it turns on whether the easements, governmental permits, and rights to utilize the reservoirs for gas storage should be considered rights and privileges belonging or pertaining to the subject property. Accordingly, our first determination is one of statutory construction, which is reviewed de novo. Fisher v. Waldrop, 221 Ill.2d 102, 112, 302 Ill.Dec. 542, 849 N.E.2d 334 (2006). Following that, we must determine whether the PTAB considered appraisals that utilized the proper methodology for the valuation of the subject property. This, too, is a legal question to be reviewed de novo. Kankakee County Board of Review v. Property Tax Appeal Board, 131 Ill.2d 1, 14, 136 Ill.Dec. 76, 544 N.E.2d 762 (1989). See also United Airlines, Inc. v. Pappas, 348 Ill.App.3d 563, 569, 284 Ill.Dec. 169, 809 N.E.2d 735 (2004) (This appeal requires us to examine the appropriateness of the valuation methodology used by taxpayer's expert in valuing the leasehold interest to support its objection to the leasehold's assessed value.    Therefore, our standard of review relating to the question of law at issue in this appeal is de novo ); Board of Review v. Property Tax Appeal Board, 304 Ill.App.3d 535, 538, 238 Ill.Dec. 118, 710 N.E.2d 915 (1999) (Where the propriety of the method of valuation is challenged    the issue is one of law).
Section 1-130 of the Code defines taxable property as [t]he land itself, with all things contained therein, and also all buildings, structures and improvements, and other permanent fixtures thereon,    and all rights and privileges belonging or pertaining thereto, except where otherwise specified by this Code. 35 ILCS 200/1-130 (West 2004). Petitioner contends that, by choosing to include the words belonging or pertaining in the definition, the General Assembly intended another property right short of fee simple ownership. In construing a statute, we must give effect to the intention of the legislature so that each word, clause, or sentence is given reasonable meaning and not deemed superfluous or void. Quad Cities Open, Inc. v. City of Silvis, 208 Ill.2d 498, 508, 281 Ill.Dec. 534, 804 N.E.2d 499 (2004). A tax statute must be strictly construed against the government and in favor of the taxpayer. Van's Material Co. v. Department of Revenue, 131 Ill.2d 196, 202, 137 Ill.Dec. 42, 545 N.E.2d 695 (1989); Gem Electronics of Monmouth, Inc. v. Department of Revenue, 183 Ill.2d 470, 475, 234 Ill.Dec. 189, 702 N.E.2d 529 (1998). `The primary meaning, and also the common and ordinary meaning, of the word belong, is to be the property of.' In re Estate of Ostrowski, 3 Ill.App.2d 431, 435, 122 N.E.2d 596 (1954). See also Black's Law Dictionary 164 (8th ed.2004) (defining belong as [t]o be the property of a person or thing). Petitioner maintains that, if belonging connotes ownership of rights or privileges, the disjunctive reference to pertaining in section 1-130 of the Code must indicate something different and broader than mere ownership of said rights and privileges. Pertain is defined as [t]o relate to; to concern. Black's Law Dictionary 1181 (8th ed.2004). There is no dispute by either party that the reservoirs at issue belong, proportionately, to those who own the surface land directly above them. See Jilek v. Chicago, Wilmington & Franklin Coal Co., 382 Ill. 241, 248, 47 N.E.2d 96 (1943) (The owner in fee owns to the center of the earth). Petitioner argues, however, that the easements and governmental permits that allow taxpayer to utilize the portions of the reservoirs not under the subject property make up a bundle of rights that pertains to the subject property, thus enhancing its value beyond that of the neighboring industrial or farming property. According to respondents, all of petitioners' arguments contain the same fundamental flaw: incorrectly assuming that the gas storage rights that taxpayer obtained and exercised benefitted the subject property, and not taxpayer's business. We agree with respondents and find that, while pertain, for purposes of section 1-130 of the Code, might imply a less rigid connection than belong, there still must be some direct relationship between the rights and the property at issue. For the following reasons, we find that petitioner has not established such a relationship.
The first components of the bundle of rights which petitioner contends pertain to the subject property are the easements that allow taxpayer to operate its pipes and wells on the 15,600 acres of property owned by others that surrounds Compressor Station 201. Petitioner concedes that these easements are easements in gross that name taxpayer, and not the subject property, as their beneficiary, but maintains that the classification of the easements is irrelevant because the easements provide only part of the basis for taxpayer's exclusive storage rights. Petitioner argues that, because the easements are only part of the bundle of rights, their classification is not determinative. Further, according to petitioner, there is no legal authority to support the contention that easements in gross may not be considered as rights and privileges of a particular property. An easement appurtenant is created to benefit another tract of land, the use of easement being incident to the ownership of that other tract. Black's Law Dictionary 549 (8th ed.2004). An easement appurtenant runs with the land and may be transferred. Traylor v. Parkinson, 355 Ill. 476, 479, 189 N.E. 307 (1934). An easement in gross is defined as [a]n easement benefiting a particular person and not a particular piece of land. Black's Law Dictionary 549 (8th ed.2004). See also Traylor, 355 Ill. at 479, 189 N.E. 307 (easement in gross is personal and nontransferable). The Dickman easement, found to be representative, reads, This instrument made this [date] by record owner [name of the fee landowner], herein referred to as Grantors, is in favor of Natural Gas Storage Company of Illinois, a Delaware corporation, herein referred to as Grantee. Such wording clearly indicates that these easements are in gross, and benefit taxpayer rather than the subject property, as petitioner concedes. We find, contrary to petitioner's unsupported argument, that the classification of the easements in question is relevant here. Were the easements at issue here appurtenant, naming the subject property as the beneficiary of the right to place wells and pipes on the land of others, then such right would be attributed to the subject property and assessable by petitioner. The easements in question, however, are easements in gross, benefitting taxpayer, and not the subject property. Petitioner's contention that the legal effect of the easements is somehow negated by the fact that they are part of a bundle of rights has no support in logic or the law. Accordingly, we find that the easements in question do not pertain to the subject property.
Petitioner next argues that certain passages in the orders of the ICC and FPC, as well as taxpayer's correspondence with those agencies, serve as evidence that the rights and privileges to the reservoirs that accrued to the taxpayer pertain to the subject property. Petitioner initially notes that the September 1952 order of the FPC, which granted taxpayer the right to construct Compressor Station 201 and utilize the reservoirs, includes the words storage rights in approximately 15,000 acres    together with all necessary and appropriate consents, permits, contracts, easements, rights-of-way, and other interests in property pertaining to or used in connection with the storage project. Petitioner notes that the FPC used the term pertaining, which is the statutory term at issue here. Petitioner argues that the PTAB incorrectly concluded that the method of assessing the subject property may not take account of these pertaining underground storage rights. Petitioner also details the history of the creation of Compressor Station 201 and the use of the reservoirs, concluding that the history of regulatory approvals leading to the development of the gas storage project shows that the reservoirs were intended to be operated as a single facility which would necessarily be managed and controlled from one control center, wherever constructed. In support of its contention, petitioner cites two 1952 orders from the ICC and FPC, each granting taxpayer the right to acquire ownership in fee simple or by other estate of parcels of real estate within or adjacent to the storage area necessary for the erection of compression plants, dehydration plants, and any structures appurtenant thereto, [and] lay gathering lines to connect them to the centrally located compressor station and dehydration plant. Petitioner also relies on a 1959 supplemental order from the ICC as well as a 1959 legal notice that ran in the Kankakee Daily Journal. These provide that taxpayer owns and operates (under authority of certificates of public convenience and necessity issued to it by the FPC) an aquifer-type underground storage reservoir near Herscher. Petitioner asserts that these passages from the recorded history of regulatory approval leading up to the development of the gas storage operation show plainly that the reservoirs were intended to be operated in union with a compressor station located in their vicinity. Petitioner contends that, since Compressor Station 201 is located on the subject property, the subject property cannot then be separated from the reservoirs for valuation purposes. Illinois case law is consistent in holding that government permits, ordinances, licenses, orders, or regulatory approvals do not create assessable entities. See, e.g., Boland v. Walters, 346 Ill. 184, 188, 178 N.E. 359 (1931) (a license in respect to real property is merely a privilege to do certain things on land without being an estate itself); Dimucci Home Builders, Inc. v. Metropolitan Life Insurance Co., 312 Ill.App.3d 779, 782, 245 Ill.Dec. 667, 728 N.E.2d 749 (2000) (permits are not conveyances of title); Pasquinelli v. Village of Mundelein, 257 Ill.App.3d 1057, 1062-63, 1065, 196 Ill.Dec. 416, 630 N.E.2d 113 (1994) (permits and village board approvals to operate a sewer line are not indicia of ownership). Central Illinois Public Service Co. v. Swartz, 284 Ill. 108, 119 N.E. 990 (1918), is instructive. In Swartz, the plaintiff was granted, by ordinance, the right to construct and maintain an electric plant as well as electric poles and wires in the town of Bushnell. Swartz, 284 Ill. at 110, 119 N.E. 990. When the property of the plaintiff was assessed for taxation, the assessor included the franchise, got through an ordinance of the city of Bushnell, to operate a plant in the city. Swartz, 284 Ill. at 110, 119 N.E. 990. The Swartz court rejected the assessment of the franchise as tangible property. Swartz, 284 Ill. at 112, 119 N.E. 990. Specifically, it stated, This permission or license exists independently of the poles, wire, apparatus, machinery or other means whereby it may be available. It attaches not to the tangible property of the corporation but to the franchise, and would remain and be available to the corporation if all its tangible property were destroyed. Swartz, 284 Ill. at 112, 119 N.E. 990. In the instant case, all of the ICC and FPC orders attached to taxpayer, and not to the subject property. Just as in Swartz, should the taxpayer choose to leave the subject property, or suffer any destruction of its tangible property, the orders would remain in place, continuing to benefit taxpayer regardless of where its property was located. See also Quantum Pipeline Co. v. Illinois Commerce Comm'n, 304 Ill.App.3d 310, 315-17, 237 Ill.Dec. 481, 709 N.E.2d 950 (1999) (permit issued by the ICC grants only a business right, not one of property). Accordingly, we find that the ICC and FPC orders did not, as petitioner alleges, create an indivisible union between the subject property and the reservoirs. Rather, the rights to the reservoirs accrue to taxpayer, and do not pertain to the subject property. We note that petitioner attempts to draw an analogy between governmental orders such as those at issue in the instant case and property zoning. Petitioner argues that, just as zoning changes can affect the use of property and therefore its value, the rights to use the reservoir, which arise from easements and governmental rulings which have transpired over 50 years, enhance the value of the subject property. We find no merit in this argument. Zoning regulations apply to particular properties and not their owners. See Lake Forest Chateau, Inc. v. City of Lake Forest, 133 Ill.2d 129, 131, 139 Ill. Dec. 824, 549 N.E.2d 336 (1989) (zoning ordinances apply to property). As noted, the government orders at issue here accrue to taxpayer and not the subject property. Accordingly, petitioner's analogy to zoning is unpersuasive. In light of our holdings above regarding easements and government permits, we find that the rights and privileges taxpayer enjoys to the reservoirs neither belong nor pertain to the subject property for purposes of section 1-130 of the Code.
Petitioner next contends that regardless of whether the rights and privileges to the reservoirs are tied to it through any recorded basis or legal title, the subject parcel's proximity to the reservoirs enhances its value. Petitioner argues that Illinois courts routinely acknowledge that property value may increase or decrease due to elements that lay beyond the boundaries of the property. In support of its argument petitioner points to cases such as Lake County Board of Review v. Property Tax Appeal Board, 91 Ill.App.3d 117, 122, 46 Ill.Dec. 451, 414 N.E.2d 173 (1980) (property adjoining or in close proximity to a body of water, a park, golf course or other scenic view may well have an increased value because of its location), O'Brien v. City of O'Fallon, 80 Ill.App.3d 841, 36 Ill.Dec. 36, 400 N.E.2d 456 (1980) (value of house on lake impaired when sewage discharged into lake), and Illinois Light & Power Co. v. Bedard, 343 Ill. 618, 175 N.E. 851 (1931) (it is common knowledge that land located near a body of water is worth more than land located elsewhere). Petitioner then cites Board of Education of Township High School District 205 v. Property Tax Appeal Board, 142 Ill. App.3d 853, 96 Ill.Dec. 408, 491 N.E.2d 454 (1986), as an example of how location alone can enhance a property's value. In Board of Education, the property to be valued was a hydroelectric power plant. Board of Education, 142 Ill.App.3d at 854-55, 96 Ill.Dec. 408, 491 N.E.2d 454. The Board of Education court held that the PTAB properly valued the plant by using the income approach applied to the power-generating capacity and potential income of the plant. Board of Education, 142 Ill.App.3d at 857, 96 Ill.Dec. 408, 491 N.E.2d 454. Petitioner asserts that in both Board of Education and the instant case, the property at issue houses a control center type facility that utilizes a resource not found within the boundaries of that property. Petitioner maintains that the hydroelectric power plant in Board of Education, which takes its power from the river that begins and ends outside the boundaries of the property, is directly analogous to Compressor Station 201 here, which is used to access the natural gas stored in the reservoirs that lay mostly outside the subject property. We do not dispute petitioner's argument that amenities or resources situated beyond a property's boundaries can increase its value. The difference between the properties in the cases petitioner relies on and the subject property, however, is one of market value. There is and will always be a market for properties with access to water, golf courses, and countless other features that hold value to prospective purchasers. There is no similar market for the subject property. Any purchaser who might acquire the subject property would not be able to utilize the reservoirs. This is because taxpayer, and not the subject property, holds exclusive rights, obtained through easements and government orders, to use the reservoirs. Thus, the right and privilege of being close to the reservoirs is not a marketable asset, and the market value of the subject property is not enhanced beyond that of other industrial or farming properties in the area. Moreover, Board of Education does not support petitioner's contention. In Board of Education, the income approach to valuation was proper because the plant generated income due solely to its proximity to the river. The ability of a hydroelectric plant to generate income is directly tied to its location. A plant in a location away from the river would not be able to generate the same income. In the instant case, there is no similar need for the compressor station to be located on the subject property. Testimony has established that the compressor station could have been located anywhere in the area, even 16 miles away from the reservoirs along the main pipeline. In contrast to the hydroelectric plant, which derived its entire income value from its location on a river, the location of the compressor station, whether above the reservoirs or otherwise, has no real impact on the income it produces. Therefore, we find Board of Education to be inapplicable to the instant case. Petitioner makes the argument that changes to the control center are forbidden without approval from FERC and the ICC, and that moving a gas storage control center with all its related equipment and connecting entities cannot be readily accomplished. This argument is misplaced. The issue is not whether Compressor Station 201 can be moved, but rather whether its income is derived from its location. Petitioner next contends that even if the compressor station were moved, the taxable character of the rights and privileges related to the reservoirs would not change, but would move with the compressor station. But this argument actually supports respondents' contention that the rights and privileges to the reservoirs do not pertain to the subject property. Accordingly, we find that the PTAB did not err when it relied on market value appraisals which did not attribute added value to the subject property due to its proximity to the reservoirs.
Petitioner relies on People ex rel. City of Chicago v. Upham, 221 Ill. 555, 77 N.E. 931 (1906), as an example of this court interpreting the statutory definition of real property now found in section 1-130 of the Code and applying a broad concept of rights and privileges. Petitioner contends that Upham provides sufficient authority to consider the rights and privileges of the reservoirs in the assessment of the subject property. In Upham, the respondent telephone and telegraph companies, by virtue of city ordinances, constructed cement tunnels beneath Chicago city streets to facilitate their businesses. Upham, 221 Ill. at 558, 77 N.E. 931. The ordinances authorized the corporations to maintain the tunnels for 30 years, at which time the tunnels could become the property of the city. Upham, 221 Ill. at 558, 77 N.E. 931. The petitioner contended that the tunnels were taxable assets that it should assess. Upham, 221 Ill. at 559, 77 N.E. 931. The respondent conceded that the tunnels were subject to assessment for taxation, but contended that since they were constructed below public streets, the taxable interest was one of intangible use, and not one of real property to be assessed by local assessors. Upham, 221 Ill. at 559, 77 N.E. 931. The Upham court found that while it is true the title to the streets of Chicago is in the city, the [corporations], by virtue of said ordinances, clearly have `rights and privileges' belonging and pertaining to the soil in which the tunnels are constructed, separate and apart from the fee of the streets, which rests in the city. Upham, 221 Ill. at 560, 77 N.E. 931. The Upham court held that the tunnels had an existence separate from the city streets above and were real property in the same way that a bridge or a pier has a separate existence from the land upon which it is constructed. Upham, 221 Ill. at 560, 77 N.E. 931. The fact that the tunnels were situated below city streets not subject to assessment for taxation had no bearing on this court's determination that the tunnels were real property. Upham, 221 Ill. at 561, 77 N.E. 931. See also People ex rel. New York & Harlem R.R. Co. v. Commissioners of Taxes & Assessments, 101 N.Y. 322, 326, 4 N.E. 127, 128 (1886) (tunnels under city streets should be treated and assessed as real property). We find Upham distinguishable and insufficient authority to support a finding that the rights and privileges taxpayer enjoys to the reservoirs are assessable to the subject property. The issue in Upham was whether the underground tunnels were real property or an intangible right. Upham, 221 Ill. at 560, 77 N.E. 931. There is no disagreement in the instant case as to whether the reservoirs are real property or whether they have an existence separate from the land under which they lay. The issue here is whether respondents' rights to utilize the reservoirs pertain to and should be assessed to the subject property. Upham provides no guidance on this issue. Further, there is a fundamental difference between the man-made tunnels in Upham and the naturally occurring reservoirs in the instant case. Piers, bridges, and underground tunnels create new property where none existed before, in spaces that were heretofore nonassessable. Piers extend into water, bridges soar into air, and tunnels create space below the surface of land. Upham holds that such man-made creations have a separate existence from the land in which they are constructed, and are assessable real property belonging to their constructors. Upham, 221 Ill. at 560, 77 N.E. 931. This differs greatly from the reservoirs at issue here, which are natural formations already owned by those who own the surface land above them. As such, we find that Upham has no bearing on the issues of the instant case and does not support petitioner's argument that taxpayer's right to utilize the reservoirs should be assessed to the subject property.
Petitioner lastly argues that the PTAB committed evidentiary errors requiring reversal when it refused to require the appearance of Puckett at a hearing and allowed McFadden to testify about the difference between easements appurtenant and easements in gross. Petitioner argues that Puckett's testimony was essential because Puckett was DeClark's primary tour guide and that some of the information relied upon by DeClark in performing his analysis was provided by Puckett. In regard to McFadden, petitioner contends that his testimony amounted to legal conclusions, which are not properly admitted. Absent some indication that a restriction on evidence has a prejudicial impact upon an administrative proceeding, any error in that regard does not rise to the level of reversible error. Kankakee County Board of Review v. Property Tax Appeal Board, 337 Ill.App.3d 1070, 1076, 272 Ill.Dec. 679, 787 N.E.2d 865 (2003). After carefully reviewing the record, we agree with the PTAB and the appellate court that petitioner has not demonstrated how it was prejudiced by Puckett's absence. The testimony of Floyd Hofstetter provided ample information about the operation of the compressor station and the utilization of the reservoirs. As to McFadden's testimony, which was about the differences between easements appurtenant and easements in gross, we note that petitioner concedes that the easements here are in gross. Accordingly, after reviewing the record, we do not find his appearance at the hearing constitutes reversible error.