Most Worshipful Grand Lodge of Ancient Free and Accepted Masons v. Department of Revenue ( 2007 )

NO. 4-07-0404 Filed 12/28/07
IN THE APPELLATE COURT
OF ILLINOIS
FOURTH DISTRICT
THE MOST WORSHIPFUL GRAND LODGE OF ) Appeal from
ANCIENT FREE AND ACCEPTED MASONS OF ) Circuit Court of
THE STATE OF ILLINOIS, an Illinois ) Moultrie County
Corporation; and THE ILLINOIS MASONIC ) No. 06MR16
HOME, an Illinois Not-for-Profit )
Corporation, )
Plaintiffs-Appellants, )
v. )
THE DEPARTMENT OF REVENUE OF THE )
STATE OF ILLINOIS and BRIAN A. HAMER, )
Director of Revenue of the State of ) Honorable
Illinois, ) Dan L. Flannell,
Defendants-Appellees. ) Judge Presiding.
_________________________________________________________________
JUSTICE STEIGMANN delivered the opinion of the court:
In November 2003, plaintiffs, the Most Wonderful Grand
Lodge of Ancient Free and Accepted Masons of the State of Illi-
nois and the Illinois Masonic Home (collectively, the Lodge),
filed an application for a nonhomestead property-tax exemption
for 2003, pursuant to sections 15-65 and 15-125 of the Property
Tax Code (35 ILCS 200/15-65, 15-125 (West 2002)). In January
2004, defendants, the Department of Revenue of the State of
Illinois and Brian A. Hamer (collectively, the Department),
denied the application. The Lodge later filed a petition under
section 8-35 of the Code (35 ILCS 200/8-35 (West 2004)), request-
ing reconsideration of the application. Following a July 2006
hearing, the Department accepted the administrative law judge's
(ALJ’s) recommendation that the Lodge did not qualify for the
specific tax exemption it sought. In December 2006, the Lodge
filed a complaint for administrative review, pursuant to section
8-40 of the Code (35 ILCS 200/8-40 (West 2006)), seeking reversal
of the Department's determination. Following an April 2007
hearing, the circuit court affirmed the Department's decision.
The Lodge appeals, arguing that (1) the guidelines set
forth in Methodist Old Peoples Home v. Korzen, 39 Ill. 2d 149,
233 N.E.2d 537 (1968), should be applied with regard to the
evolving definition of "charitable use" and (2) the Department
erroneously considered the property in isolation from the Lodge's
integrated community and overarching charitable mission. We
disagree and affirm.
I. BACKGROUND
A. The Lodge
Founded in 1904, the Lodge is an Illinois not-for-
profit corporation that provides nursing-care services. In
December 1917, the property owned by the Lodge was deemed tax
exempt. See Most Worshipful Grand Lodge of Ancient Free &
Accepted Masons of the State of Illinois v. Board of Review of
Moultrie County, 281 Ill. 480, 485-86, 117 N.E. 1016, 1018 (1917)
(concluding that the land owned by the Lodge fell within the
statutory definition of lands actually and exclusively used for
charitable or beneficent purposes).
Prior to 1997, the Lodge offered only two types of
assistance and living programs--sheltered care and intermediate
care. In 1997, the Lodge began to offer a third type of care,
referred to as the "independent-living program." The Lodge
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implemented this program based on survey results indicating that
older residents desired to live where nursing care would be
readily available. In response, the Lodge developed apartment
and duplex housing so that residents could "age in place" and
easily transition within the Lodge's "continuum of care" as their
physical and medical needs changed. The Lodge's continuum of
care consists of approximately 72 sheltered-care beds, 237
intermediate-care beds, and 48 independent-living units. These
different levels of assistance are located in separate buildings
on the Lodge’s property.
Prior to 1999, the Lodge's application procedures
required prospective residents to surrender all assets in ex-
change for lifetime care. In 1999, the Lodge altered the admis-
sions procedures to include a fee-for-service program. The
procedures included an option to request financial-subsidy
assistance through the Lodge's endowment-assistance program for
residents in financial need.
Prospective independent-living residents must enter
into a "life right contract" where they agree, in pertinent part,
to (1) provide detailed information regarding their current
health and financial status before entering into the contract;
(2) provide, at their own expense, updated health and financial
information as requested by the Lodge; (3) not deplete assets to
the extent the applicant cannot meet the financial obligations of
the contract; and (4) pay a $1,000 application fee.
Independent-living residents must also pay 25% of the
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Lodge's initial unit fee upon occupancy or 60 days after signing
the contract. The initial unit fee ranges from $18,000 to
$117,000. In addition, residents are required to pay a monthly
maintenance fee that ranges from $292 to $804. Both fees are
contingent upon the type (apartment or duplex), size, and loca-
tion of the unit. Residents in independent-living units may
qualify for the endowment-assistance program if they exhaust
their funds while living in the residence, but they still must
pay the initial fee.
The Lodge's independent-living unit terms and condi-
tions state, in pertinent part, that (1) the Lodge can terminate
the agreement if a resident fails to pay monthly service fees and
(2) if the resident cannot pay the independent-living unit fees,
the Lodge has the right to reasonably accommodate the resident in
another residential program where public or private assistance is
available. When residents vacate their units, a portion of their
initial fee is returned based upon their length of stay (ranging
from an 80% to 95% refund for duplex residents and 55% to 90%
refund for apartment residents).
B. Administrative Proceedings
In November 2003, the Lodge applied for a nonhomestead
property-tax exemption for 2003, pursuant to sections 15-65(a),
(c), and 15-125 of the Code (35 ILCS 200/15-65(a), (c), 15-125
(West 2002)). Prior to the Department’s decision on the applica-
tion, the Lodge and the Department stipulated that (1) the
Lodge's request for a tax exemption applied only to the property
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where the independent-living units were located and (2) the
remainder of the Lodge's property continued to be tax exempt. In
January 2004, the Department denied the application, upon finding
that the property in question was neither owned nor used exclu-
sively for charitable purposes. The Lodge later requested
reconsideration under section 8-35 of the Code (35 ILCS 200/8-35
(West 2004)), and the matter proceeded to a hearing before an
ALJ.
Following a June 2004 hearing, the ALJ recommended that
the portion of the Lodge's property containing the independent-
living units did not qualify for a tax exemption. Specifically,
the ALJ made the following findings of fact: (1) before prospec-
tive residents can live in the independent-living units, they
must pay a substantial fee that varies according to the size and
desirability of the unit; (2) prospective residents must complete
an application that demonstrates they have the financial and
physical ability to reside in the units; (3) despite a provision
in the Lodge's bylaws that it will waive fees in certain circum-
stances, initial fees for the independent-living program were not
waived; (4) none of the residents in the independent-living units
received assistance from the endowment-assistance program; (5)
the Lodge does not have the legal obligation to keep residents in
the units; and (6) the Lodge can remove residents for failure to
pay fees. Based upon the guidelines announced by our supreme
court in Methodist Old Peoples Home, 39 Ill. 2d at 156-57, 233
N.E.2d at 541-42, the ALJ determined that the primary use of the
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independent-living program "appear[ed] to be to provide housing
to residents who can pay for it." In May 2005, the Department
accepted the ALJ’s recommendation.
In June 2005, the Lodge filed a petition under section
8-35 of the Code (35 ILCS 200/8-35 (West 2004)), seeking recon-
sideration. The Lodge argued that the Department's decision (1)
failed to adequately reflect evidence that the Lodge's charitable
mission included providing a continuum of care, (2) incorrectly
divided various elements of the Lodge's charitable program not
intended to be operated in isolation from the remainder of the
Lodge's programs, and (3) arbitrarily faulted the Lodge for not
waiving initial fees prior to the original hearing. In June
2005, the Department accepted the ALJ’s order denying the Lodge's
petition.
The Lodge later filed its first complaint for adminis-
trative review, pursuant to section 8-40 of the Code (35 ILCS
200/8-40 (West 2006)), seeking reversal of the Department's
determination. In February 2006, the circuit court remanded the
matter to the Department with instructions to "conduct a rehear-
ing and re-open [sic] proofs" to permit the Lodge to introduce
additional financial evidence.
Following a June 2006 rehearing, the ALJ again recom-
mended that the Lodge's application be denied. The ALJ
acknowledged that the Lodge "provided evidence that the
independent[-]living units did not generate a profit" but reaf-
firmed that the facts "do not support a finding that the primary
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use of the apartment and duplexes is charitable." In November
2006, the Department accepted the ALJ's recommendation.
In December 2006, the Lodge filed another complaint for
administrative review, pursuant to section 8-40 of the Code (35
ILCS 200/8-40 (West 2006)), arguing that the Department's deci-
sion was (1) contrary to law and (2) against the manifest weight
of the evidence. Following an April 2007 hearing, the circuit
court denied the Lodge's complaint, upon finding that the Depart-
ment's decision was not against the manifest weight of the
evidence.
This appeal followed.
II. ANALYSIS
A. The Standard of Review
Prior to addressing the merits, we must determine the
appropriate standard of review. The Lodge contends that the
appropriate standard of review is de novo. The Department
responds that this court's review is under the clearly erroneous
standard. We agree with the Department.
We first note that the appellate court’s role is to
review the administrative decision, not the circuit court's
decision. Metro Developers, LLC v. City of Chicago Department of
Revenue, 377 Ill. App. 3d 395, 397, 877 N.E.2d 785, 788 (2007).
The appropriate standard of review concerning administrative
decisions is contingent upon whether the question being reviewed
is one of fact, law, or both. Express Valet, Inc. v. City of
Chicago, 373 Ill. App. 3d 838, 847, 869 N.E.2d 964, 972 (2007).
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"An administrative agency's decision on questions of fact are
entitled to deference and are reversed only if against the
manifest weight of the evidence." Friends of Israel Defense
Forces v. Department of Revenue, 315 Ill. App. 3d 298, 302, 733
N.E.2d 789, 792-93 (2000). An administrative agency's decisions
on questions of law are not afforded deference and thus are
reviewed de novo. Friends of Israel Defense Forces, 315 Ill.
App. 3d at 302, 733 N.E.2d at 793. However, when a case "in-
volves an examination of the legal effect of a given set of
facts, it involves a mixed question of fact and law." City of
Belvidere v. Illinois State Labor Relations Board, 181 Ill. 2d
191, 205, 692 N.E.2d 295, 302 (1998). In such cases, we review
the agency's decision under the clearly erroneous standard. City
of Belvidere, 181 Ill. 2d at 205, 692 N.E.2d at 302; see Board of
Trustees of the University of Illinois v. Illinois Labor Rela-
tions Board, 224 Ill. 2d 88, 97, 862 N.E.2d 944, 950 (2007) ("As
we explained in City of Belvidere, the clearly erroneous standard
of review is proper when reviewing a decision of [an administra-
tive agency] because the decision represents a mixed question of
fact and law"). Under this standard, the agency’s decision will
not be deemed clearly erroneous unless the reviewing court is
left with the definite and firm conviction that a mistake has
been committed. Daley v. Lakeview Billiard Café, Inc., 373 Ill.
App. 3d 377, 381-82, 869 N.E.2d 171, 175 (2007). "While this
standard is highly deferential, it does not relegate judicial
review to mere blind deference of an agency's order." Board of
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Trustees of the University of Illinois, 224 Ill. 2d at 98, 862
N.E.2d at 951.
Because this case involves a mixed question of fact and
law--namely, does the independent-living-program property qualify
for a tax exemption--we review the Department's decision under
the clearly erroneous standard.
B. The Lodge’s Claim That the Department Failed To
Consider the Evolving Definition of "Charitable Use"
The Lodge first argues that the guidelines the
Department used to determine whether property is tax exempt based
upon charitable use as set forth in Methodist Old Peoples Home,
39 Ill. 2d at 156-57, 233 N.E.2d at 541-542, should have been
applied with regard to the evolving definition of "charitable
use." We disagree.
"[T]he taxpayer seeking the protection of the exemption
bears the burden of proving that he is entitled to it."
Harrisburg-Raleigh Airport Authority v. Department of Revenue,
126 Ill. 2d 326, 331, 533 N.E.2d 1072, 1074 (1989). "'[I]n
determining whether property is included within the scope of the
exemption, all facts are to be construed and all debatable
questions resolved in favor of taxation.'" Eden Retirement
Center, Inc. v. Department of Revenue, 213 Ill. 2d 273, 289, 821
N.E.2d 240, 249 (2004), quoting Methodist Old Peoples Home, 39
Ill. 2d at 155, 233 N.E.2d at 540.
Section 15-65(a) of the Code provides, in pertinent
part, as follows:
"All property of the following is exempt
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when actually and exclusively used for chari-
table or beneficent purposes, and not leased
or otherwise used with a view to profit:
(a) Institutions of public
charity." 35 ILCS 200/15-65(a)
(West 2006).
"Two elements are required to entitle property to an exemption:
exclusive use for charitable purposes and ownership by a charita-
ble organization. [Citations.] The term 'exclusive use' refers
to the primary purpose for which the property is used, and not to
the secondary or incidental purpose." Midwest Physician Group,
Ltd. v. Department of Revenue, 304 Ill. App. 3d 939, 953, 711
N.E.2d 381, 390 (1999).
In Methodist Old Peoples Home, our supreme court
outlined the following criteria in determining whether property
is exempt from taxation based upon charitable use: (1) the
benefits derived (a) are for an indefinite number of persons for
their general welfare or (b) in some way reduce the burdens on
government; (2) the organization has no capital, capital stock,
or shareholders and does not profit from the enterprise; (3)
funds are derived mainly from private and public charity, and the
funds are held in trust for the objects and purposes expressed in
the charter; (4) the charity is dispensed to all who need and
apply for it; (5) no obstacles appear to be placed in the way of
those seeking the benefits; and (6) the primary use of the
property is for charitable purposes. Methodist Old Peoples Home,
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39 Ill. 2d at 156-57, 233 N.E.2d at 541-42.
In addition, although the court stated that the mere
charging of fees did not necessarily disqualify the property from
a tax exemption, the following facts did not suggest a charitable
use: (1) different fee schedules based upon size and desirabil-
ity of the residence; (2) requiring applicants to be in good
mental, emotional, and physical health and free of any communica-
ble diseases; (3) rejecting prospective residents who were unable
to pay the required fee; (4) evidence that the property’s primary
source of income was derived from fees rather than donations; and
(5) discharging any legal obligation to house and maintain
residents who were unable to fulfill their financial obligation
or who otherwise became sick or unmanageable. Methodist Old
Peoples Home, 39 Ill. 2d at 158-59, 233 N.E.2d at 542-43.
We note that in its brief to this court, the Lodge
fails to mention or even challenge the specific findings that the
Department made to substantiate the denial of the Lodge's appli-
cation for a tax exemption. Rather, the Lodge asserts only that
the Department, in applying the guidelines announced in Methodist
Old Peoples Home, "failed to consider the larger picture, includ-
ing the overwhelming charitable nature of the [Lodge]." However,
in so asserting, the Lodge fell woefully short of fulfilling its
burden to prove by clear and convincing evidence that the
independent-living residences were actually and exclusively used
for charitable or beneficent purposes, and not leased or other-
wise used with a view to profit.
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Moreover, our review of the record indicates that by
its very terms, the life right contract affords the Lodge the
ability to (1) charge residents a substantial fee, which varies
depending on size and desirability of the residence; (2) require
applicants to be in good mental, emotional, and physical health;
(3) reject prospective residents who are unable to pay the
required fee; and (4) discharge any legal obligation to residents
who are unable to fulfill their financial obligation or who
otherwise become unmanageable. In addition, the Lodge did not
provide any evidence that any independent-living resident re-
ceived financial assistance from the endowment-assistance pro-
gram.
Given that all facts must be construed in favor of
taxation, we agree with the Department that the evidence does not
support a finding that the primary use of the apartments and
duplexes under the independent-living program is charitable. The
primary use of the residences appears to be to provide housing to
residents who can afford to pay for it.
Therefore, because (1) the Lodge failed to carry its
burden of proving by clear and convincing evidence that the
exemption applied and (2) all facts are to be construed and all
debatable questions resolved in favor of taxation, we conclude
that the Department’s decision that the Lodge’s property used for
the independent-living program did not qualify for a property-tax
exemption was not clearly erroneous.
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C. The Lodge’s Claim That the Department Erroneously
Considered the Property-Tax Exemption in Isolation
from Its Overarching Charitable Mission
The Lodge also argues that the Department, in deciding
that the property used for the independent-living program did not
qualify for a tax exemption, erroneously considered the property
in isolation from the Lodge's integrated community and overarch-
ing charitable mission. We disagree.
"'[W]here property is used for two purposes, one of
which is exempt from taxation and one of which is not, a tax
should be assessed against that part which is devoted to a use
not exempt from taxation.'" City of Chicago v. Illinois Depart-
ment Of Revenue, 147 Ill. 2d 484, 499, 590 N.E.2d 478, 485
(1992), quoting City of Lawrenceville v. Maxwell, 6 Ill. 2d 42,
49, 126 N.E.2d 671, 676 (1955).
Because we have concluded that the Department’s deci-
sion that the Lodge did not qualify for a property-tax exemption
was not clearly erroneous, we reject the Lodge’s assertion that
the Department erroneously considered the property in isolation
from the Lodge's integrated continuum of care. See Fairview
Haven v. Department of Revenue, 153 Ill. App. 3d 763, 771, 506
N.E.2d 341, 347 (1987) (where this court concluded that 16
independent-living units connected to a dependent-care unit by a
main hallway did not qualify for charitable-use exemption by
virtue of fees charged to residents even though the dependent-
care unit qualified for the exemption).
However, even if the independent-living units should
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not have been viewed "in isolation" as the Lodge contends, the
Lodge had the burden of showing that the independent-living units
were merely incidental to the operation of the exempt portion of
the Lodge. See Streeterville Corp. v. Department of Revenue, 186
Ill. 2d 534, 536, 714 N.E.2d 497, 498 (1999) ("property may be
wholly exempt from tax if any nonexempt use can be described as
'merely incidental' [citation]").
Thus, because (1) the Department’s decision to reject
the Lodge’s petition for a property-tax exemption was not clearly
erroneous and (2) the Lodge failed to carry its burden of proving
by clear and convincing evidence that the exemption applied, we
reject the Lodge’s assertion that the Department erroneously
considered the property in isolation from the Lodge's integrated
community and overarching charitable mission.
In so concluding, we note that the Lodge urges this
court to expand the dimensions of charitable use to include
relief for the elderly regardless of pecuniary considerations.
While the Lodge’s argument is not unreasonable, it is directed to
the wrong audience. "The power to exempt from taxation is
concomitant with the power to tax." Eden Retirement Center, 213
Ill. 2d at 285, 821 N.E.2d at 247. "The legislature, having the
inherent power to tax, also has the inherent power to grant
exemptions from those taxes." Eden Retirement Center, 213 Ill.
2d at 285, 821 N.E.2d at 247. Thus, although the Lodge urges
this court to modify and expand the current status of the tax
exemption, that role is exclusively within the province of the
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legislature and not the courts. See Eden Retirement Center, 213
Ill. 2d at 286, 821 N.E.2d at 248 (the court has no power to
create exemptions from taxation by judicial construction).
III. CONCLUSION
For the following reasons, we affirm the circuit
court's judgment.
Affirmed.
KNECHT and COOK, JJ., concur.
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