Nos. 2--01--0900 & 2--01--0901 cons.

IN THE

APPELLATE COURT OF ILLINOIS

SECOND DISTRICT

David and Susan Swank (Swanks) and Leonard and Shirley Wilde(Wildes) applied for property tax exemptions pursuant to section15--35 of the Property Tax Code (Code) on the grounds that theirrespective properties were used for educational purposes. 35 ILCS200/15--35 (West 2000). The Department of Revenue of the State ofIllinois (Department) denied these applications, and both partiessought judicial review.

The circuit court reversed the Department's decision and heldthe properties to be tax exempt. The Department appeals, arguingthat the subject properties were "used with a view to profit" (35ILCS 200/15--35 (West 2000)) and therefore not entitled to property tax exemptions. For the following reasons, we reverse thecircuit court's decision and reinstate the Department's findingthat the properties were not entitled to property tax exemptions.

On November 2, 1998, the Swanks applied for a property taxexemption pursuant to section 15--35 of the Code on the groundsthat the property was used for educational purposes. 35 ILCS200/15--35 (West 2000). On November 3, 1998, the Wildes appliedfor a property tax exemption based on the same grounds. Theadministrative law judge (ALJ) reviewed the applications submittedby the Swanks and Wildes and recommended to the Department that therequested exemptions be denied. On March 11, 1999, the Departmentissued a determination finding that the subject properties were inneither exempt ownership nor exempt use. Subsequently, the Swanksand the Wildes filed a timely notice of appeal of this denial andpresented evidence at a formal administrative hearing. On August15, 2001, the Department adopted the hearing officer'srecommendation and denied the applications for property taxexemptions submitted by the Swanks and the Wildes.

The findings of the ALJ, adopted by the Department, are not indispute. The Swanks were the sole beneficiaries of a land trustthat holds title to the property identified as Winnebago Countyparcel index 203B-395. The Swanks were also the sole shareholdersand directors of Swank Educational Enterprises, an Illinois for-profit corporation, incorporated under the Business Corporation Actof 1983 (805 ILCS 5/1.01 (West 2000)). Swank EducationalEnterprises did business as Rockford Business College (RBC)throughout 1998. RBC provided a number of scholastic programs andcourses of study and was authorized to grant associate degrees toenrolled students. RBC was accredited by the Accredited Council ofIndependent Colleges and Schools and certified by and registeredwith the Illinois State Board of Higher Education and the IllinoisState Board of Education. The Swanks were the directors of RBC andapproved all expenditures made in the ordinary course of RBC'sbusiness. These expenses, including necessary equipment repairsand property taxes, were paid out of an account funded by RBC'stuition revenues. RBC was organized and operated exclusively foreducational purposes, and the subject property was used for nopurpose other than as a venue for RBC.

The Department similarly found that the Wildes were the solebeneficiaries of a land trust that holds title to the propertyidentified as Winnebago County parcel index 149C-031. The Wildeswere also the sole shareholders and directors of Christian Learn 'NCare, Ltd., an Illinois for-profit corporation, incorporated underthe Business Corporation Act of 1983. In 1998, Christian Learn 'NCare did business as Rainbow Academy and Learning Center (RainbowAcademy). Rainbow Academy was a private elementary schoolcertified by and registered with the Illinois State Board ofEducation. The Wildes paid all of Rainbow Academy's operatingexpenses, including property taxes, from an account funded by thetuition revenue. Rainbow Academy was organized and operatedexclusively for educational purposes, and the subject property wasused for no purpose other than as a venue for Rainbow Academy.

The Swanks and the Wildes filed their applications forproperty tax exemptions as private individuals, not as schools orfor-profit corporations. After the Department denied theirapplications, the Swanks and the Wildes sought judicial review onSeptember 18, 2001. On May 31, 2001, the circuit court reversedthe Department's decision and found that both properties inquestion qualified for exemption pursuant to section 15--35 of theCode (35 ILCS 200/15--35 (West 2000)). On August 3, 2001, theDepartment's timely notice of appeal from the two trial court casesfollowed. The cases were consolidated on September 4, 2001, forappellate review.

On appeal, the Department contends that its decision should bereinstated. Specifically, the Department argues that the subjectproperties were "used with a view to profit" (35 ILCS 200/15--35(West 2000)) and therefore ineligible for property tax exemptionspursuant to section 15--35 of the Code.

II. Analysis

A Department decision that denies an application for a taxexemption is reviewable as a final administrative decision underthe Administrative Review Law (735 ILCS 5/3-101 et seq. (West2000)). 35 ILCS 200/8-40 (West 2000). It is well established bythis court that our role is to review the Department's decision andnot the circuit court's determination. National Data Services ofChicago, Inc. v. Director of Employment Security, 319 Ill. App. 3d25, 29 (2001).

The first issue raised in this appeal is the properconstruction of section 15--35 of the Code (35 ILCS 200/15--35(West 2000)). Interpretation of a statute is a question of law; incases involving an agency's interpretation of a statute that theagency is charged with administering, the agency's interpretationis considered relevant but not binding on the court. Branson v.Department of Revenue, 168 Ill. 2d 247, 254 (1995). Accordingly,our review of this issue is de novo, with some deference accordedto the Department's statutory interpretation. Our supreme courthas frequently acknowledged the wisdom of judicial deference to anagency's experience and expertise. AFM Messenger Service, Inc., v.Department of Employment Security, 198 Ill. 2d 380, 394 (2001). Moreover, a significant reason for giving substantial weight anddeference to an agency's interpretation of an ambiguous statute isthat " 'agencies can make informed judgments upon the issues, basedon their experience and expertise.' " AFM Messenger Service, 198Ill. 2d at 394, quoting Abrahamson v. Illinois Department ofProfessional Regulation, 153 Ill. 2d 76, 98 (1992).

At the outset, we also note that the general rule is that allproperty is subject to taxation unless specifically exempted bystatute. Chicago & Northeast Illinois District Council ofCarpenters Apprentice & Trainee Program v. Department of Revenue,293 Ill. App. 3d 600, 605 (1997). In applying the facts of thiscase to section 15--35, the court must construe the statutory taxexemption narrowly and strictly in favor of taxation. See FirstPresbyterian Church of Dixon v. Zehnder, 306 Ill. App. 3d 1114,1116 (1999). In addition, the party claiming the exemption has theburden of proving clearly and conclusively that it is entitled toexemption. Rogy's New Generation, Inc. v. Department of Revenue,318 Ill. App. 3d 765, 771 (2000). Finally, all facts are to beconstrued, and all debatable questions resolved, in favor oftaxation. Forest Preserve District of Du Page County v. Departmentof Revenue, 266 Ill. App. 3d 264, 270 (1994).

Section 15--35 of the Property Tax Code provides:

"All property donated by the United States for schoolpurposes, and all property of schools, not sold or leased orotherwise used with a view to profit, is exempt, whether ownedby a resident or non-resident of this State or by acorporation incorporated in any state of the United States. Also exempt is:

(a) property of schools which is leased to amunicipality to be used for municipal purposes on a not-for-profit basis:

(b) property of schools on which the schools arelocated and any other property of schools used by theschools exclusively for school purposes, including, butnot limited to, student resident halls, dormitories andother housing facilities for students and their spousesand children, staff housing facilities, and school-ownedand operated dormitory or residence halls occupied inwhole or in part by students who belong to fraternities,sororities, or other campus organizations;

(c) property donated, granted, received or used forpublic school, college, theological seminary, university,or other educational purposes, whether held in trust orabsolutely[.]"  35 ILCS 200/15--35 (West 2000).

The statutory question in this case is whether properties"used with a view to profit," even if used for educationalpurposes, are entitled to tax exemption under section 15--35(c) ofthe Code. 35 ILCS 200/15--35 (West 2000). Stated another way,does the "used with a view to profit" exclusion of section 15--35apply to properties falling within the parameters of section 15--35(c)?

The Swanks and the Wildes (plaintiffs) first argue that theplain language of section 15--35 mandates exemption. According toplaintiffs' reading of the statute, the language "not sold orleased or otherwise used with a view to profit" in the firstparagraph of section 15--35 (35 ILCS 200/15--35 (West 2000)) isplainly read to apply when a school sells, leases, or uses propertyfor a profit "unrelated to schooling." In line with thatreasoning, plaintiffs state that sections 15--35(a) and 15--35(b)exempt the property of schools, whether or not the schools are forprofit, as long as the property is exclusively used for schoolpurposes. Similarly, plaintiffs argue that section 15--35(c)exempts any privately held property, whether or not it is forprofit, as long as it is devoted exclusively to school purposes. Plaintiffs believe that the word "otherwise" modifies the term"school" and that it is only when a property's use diverges fromschooling that the profit motive destroys the exemption. In short,according to plaintiffs' interpretation, section 15--35 does notprohibit a for-profit school or for-profit entity from gaining anexemption so long as the property's sole use is school related.

It is the Department's position that any property used with aview to profit, even if used for educational purposes, is excludedfrom the section 15--35 tax exemption. The Department maintainsthat the word "otherwise," as used in the statute, modifies theterm "used," thereby encompassing all uses of the property with a"view to profit" other than, or different from, selling or leasingit. We agree with the Department.

The primary rule of statutory construction is to give effectto legislative intent by first looking at the plain meaning of thelanguage. Davis v. Toshiba Machine Company, America, 186 Ill. 2d181, 184 (1999). In addition, where the language of a statute isclear and unambiguous, a court must give it effect as written,without reading into it exception, limitations or conditions thatthe legislature did not express. Davis, 186 Ill. 2d at 184-85. Under plaintiffs' reading of the statute, the section 15--35exclusion of property "used with a view to profit" applies only ininstances where the property is not used for educational purposes. As we understand plaintiffs' argument, the phrase "otherwise usedwith a view to profit" means "unrelated to schooling." However, nolanguage in the statute supports such an interpretation. While weagree with plaintiffs' contention that the plain language ofsection 15--35 limits tax exemption to property used for "schoolpurposes," we also believe that the plain language excludesproperty "used with a view to profit." As the Department states,section 15--35 is clear that property of schools cannot be "sold"with a view to profit, "leased" with a view to profit, or"otherwise used with a view to profit." 35 ILCS 200/15--35 (West2000).

Moreover, we reject plaintiffs' reading of the word"otherwise" to be a modification of the term "school." The "lastantecedent rule" of statutory construction requires that relativeor qualifying words, phrases, or clauses are to be applied to thewords immediately preceding, and do not modify words, phrases, orclauses that are more remote. People v. Storms, 254 Ill. App. 3d139, 141 (1993). Section 15-35 reads, "All property donated by theUnited States for school purposes, and all property of schools, notsold or leased or otherwise used with a view to profit, is exempt***." 35 ILCS 200/15--35 (West 2000). According to Black's LawDictionary, "otherwise" means "[i]n a different manner; in anotherway, or in other ways." Black's Law Dictionary 1101(6th ed. 1990). Thus, the term "otherwise" refers to all uses of the property "witha view to profit" other than, or different from, selling or leasingit. This would include property devoted to school purposes, ifused with a "view to profit."

In addition, we reject plaintiffs' argument that the "view toprofit" language in section 15--35 need not apply to section 15--35(c). According to plaintiffs' interpretation of the statute, thesection 15--35 exclusion of property "otherwise used with a view toprofit" only applies if the property is not used for educationalpurposes. If we understand plaintiffs' interpretation correctly,section 15--35(c) does not contain the "view to profit" languagebecause it only addresses property used for "educational purposes." For the reasons stated earlier, we reject plaintiffs' statutoryinterpretation of the language "otherwise used with a view toprofit." Assuming that "otherwise used with a view to profit"means exactly what it says, and not "unrelated to schooling," asplaintiffs assert, we believe it must be read in conjunction withsection 15--35(c).

A statute should be evaluated as a whole, with each provisionconstrued in connection with every other section. Paris v. Feder,179 Ill. 2d 173, 177 (1997). Although the Department concedes thatsection 15--35(c) does not expressly contain the "used with a viewto profit" language, it argues that section 15--35(c) cannot beread consistently with section 15--35 unless it is read inconjunction with that language. Otherwise, according to theDepartment, section 15--35(c) largely subsumes the exemption in thefirst paragraph of section 15--35, substantially diminishing theeffect of the plain language of that provision. We agree.

Section 15--35 provides that property "used with a view toprofit" does not qualify for the exemption. To read section 15--35(c) without the "view to profit" language would bring propertyused for educational purposes and with a "view to profit" withinthe exemption. We agree with the Department that this readingwould have the effect of mitigating the "view to profit" exclusionof section 15--35. Accordingly, we believe that section 15--35(c)excludes from tax exemption property held for profit, even if usedfor school purposes.

Likewise, we are not persuaded by plaintiffs' next argumentthat for-profit status does not bar tax exemption. Plaintiffs citethe burial purposes exemption for the proposition that thelegislature has established property tax exemptions favoring for-profit enterprises. The burial purposes statute states, "Allproperty used exclusively as graveyards or grounds for burying thedead is exempt." 35 ILCS 200/15--45 (West 2000). However, theDepartment does not deny that the legislature has created taxexemptions applicable to for-profit corporations. Instead, theDepartment's position is that this particular provision of the Codedoes not apply to for-profit corporations. Moreover, we agree withthe Department that had the legislature intended that for-profitcorporations be exempt under section 15--35, it would not haveincluded the "view to profit" language.

Finally, we reject plaintiffs' last argument that publicpolicy supports tax exemption for private, for-profit propertydevoted to educational purposes. Plaintiffs assert that thelegislature enacted section 15--35 with the following ideas inmind: (1) property of schools is presumptively exempt, unless itis put to a profitable purpose other than schooling; and (2)property devoted solely to schooling is exempt, regardless ofownership or whether a profit is made. We disagree. First,plaintiffs' reasoning contradicts the litany of cases providingthat tax-exemption statutes in Illinois are to be construednarrowly. Second, while Illinois policy may favor those privateinstitutions that provide some substantial part of the educationaltraining that otherwise would be furnished by publicly supportedschools (People ex rel Brenza v. Turnverein Lincoln, 8 Ill. 2d 198,202-203 (1956)), that is not the case here. In this situation,plaintiffs are individual property owners and the sole shareholdersof for-profit corporations that provide educational services. Thus, plaintiffs are using their property with a "view to profit,"which prevents exemption under section 15--35. Finally, plaintiffsare unable to cite any authority for their proposition that thelegislature intended for-profit entities to receive tax exemptionsunder section 15--35 of the Code. As a result, we decline tointerpret section 15--35 as providing tax exemption to propertyused by a for-profit corporation for educational purposes.

In sum, we believe that the "view to profit" language in thefirst paragraph of section 15--35 applies to section 15--35(c). This interpretation follows the mandate that tax-exemptionprovisions be construed narrowly (Forest Preserve, 264 Ill. App. 3dat 270), and it gives the appropriate deference to the Department'sapplication of the statute, which it is empowered to enforce(Abrahamson, 153 Ill. 2d at 97-98).

Having determined that the "view to profit" language insection 15--35 applies to section 15--35(c), we turn now to theultimate issue of whether plaintiffs are entitled to receiveproperty tax exemptions under section 15--35. For the followingreasons, we affirm the Department's decision denying plaintiffs'applications for tax exemptions.

Before addressing the merits of this issue, we must firstdetermine the applicable standard of review. The parties disagreeas to what standard of review should be applied. Plaintiffs arguethat this case is a question of law, requiring de novo review. They rely on Chicago Patrolmen's Ass'n v. Department of Revenue,171 Ill. 2d 263, 271 (1996), which held that a determination ofwhether property is exempt from taxation is a question of law. TheDepartment argues that this case involves a mixed question of lawand fact and should be reviewed under the more deferential "clearlyerroneous" standard as articulated in City of Belvidere v. IllinoisState Labor Relations Board, 181 Ill. 2d 191, 205 (1998).

The Department acknowledges that this court, in LenaCommunity Trust Fund, Inc. v. Department of Revenue, 322 Ill. App.3d 884, 887 (2001), relied on Chicago Patrolmen's Ass'n indeclining to apply the "clearly erroneous" standard to anadministrative review of a tax exemption decision. In Lena, thiscourt stated:

"Although our supreme court discussed in [City of] Belviderehow the 'clearly erroneous' standard might apply inadministrative review cases generally, it did not specificallydiscuss the application of the 'clearly erroneous' standard toproperty tax exemption cases. The question of the standard ofreview for property tax exemption cases was clearly decided byour supreme court in Chicago Patrolmen's Ass'n, which has notbeen overruled." Lena Community Trust Fund, Inc., 322 Ill.App. 3d at 887.

The Department contends that our reading of City of Belviderewas too narrow and that City of Belvidere implicitly overruledChicago Patrolmen with regard to the appropriate standard ofreview. In City of Belvidere, the Illinois State Labor RelationsBoard (Board) determined that the city had committed an unfairlabor practice when it refused to bargain with the firefighters'union over the city's decision to contract out paramedic servicesto a private company. City of Belvidere, 181 Ill. 2d 191. Becausethe case involved an examination of the legal effect of a given setof facts, our supreme court concluded that it involved a mixedquestion of fact and law. City of Belvidere, 181 Ill. 2d at 205. The court then held that a clearly erroneous standard of review wasappropriate to examine the Board's decision, stating that "theapplicable standard of review should be between a manifest weightof the evidence standard and a de novo standard so as to providesome deference to the Board's experience and expertise." City ofBelvidere, 181 Ill. 2d at 205.

In addition, the Department argues that the supreme courtlater applied the City of Belvidere clearly erroneous standard toan administrative review of an unemployment benefits case. AFMMessenger Service, 198 Ill. 2d at 391-2. The Department arguesthat, because our supreme court applied the clearly erroneousstandard to a situation not explicitly addressed in City ofBelvidere, so too should this court apply the clearly erroneousstandard in the present case. Finally, the Department maintainsthat this court has been willing to apply the clearly erroneousstandard from City of Belvidere in other contexts, such as adetermination by the Department of Employment Security that certainworkers were "employees" and not independent contractors forpurposes of unemployment compensation. National Data Services ofChicago, 319 Ill. App. 3d at 29. In light of our supreme court'smost recent application of the clearly erroneous standard in AFMMessenger Service, we agree with the Department. AFM MessengerService, 198 Ill. 2d at 391-92.

A mixed question of law and fact is one involving anexamination of the legal effect of a given set of facts. AFMMessenger Service, 198 Ill. 2d at 391. In City of Belvidere, oursupreme court treated the Board's determination as a mixed questionof fact and law, stating that the "issue presented in this casecannot be accurately characterized as involving solely a questionof fact or a question of law." City of Belvidere, 181 Ill. 2d at205. Similarly, in AFM Messenger Service, our supreme courtcharacterized the Department of Employment Security's decision asa mixed question of law and fact. AFM Messenger Service, 198 Ill.2d at 392. The court reasoned that the decision was, in part,factual because it involved considering whether the facts supportedthe agency's finding that the AFM drivers were employees and notindependent contractors. AFM Messenger 198 Ill. 2d at 392. Nevertheless, the Department of Employment Security's decision wasalso a question of law because the three statutory requirements forindependent contractor status are comprised of legal terms thatrequire interpretation. AFM Messenger, 198 Ill. 2d at 392. Whilewe have a difficult time imagining any case not involving theexamination of the legal effect of a given set of facts, we willapply the clearly erroneous standard set forth by our supreme courtin City of Belvidere and AFM Messenger Service. We believe this tobe the intention of our supreme court in stating:

"As a final matter, we note that this court has reviewedother decisions of the Department which raised issues similarto those present here under a manifest weight of the evidencestandard. [Citations.] These cases, however, predate City ofBelvidere. Further, there is no indication in these casesthat a party raised the possibility that the administrativedecision under review may have presented a mixed question oflaw and fact. Here, the Department raised that possibility." AFM Messenger Service, 198 Ill. 2d at 395-96.

In the present case, we agree with the Department that itsdecision was in part factual because it required the Department todetermine whether the facts indicated that the subject property wasused for educational purposes and whether it was used with a "viewto profit." In addition, we agree that the determination was inpart a question of law because it required the Department toconstrue the scope of the tax exemption, which is statutorilydefined and requires interpretation. Accordingly, we hold that,because the Department's decision presents a mixed question of lawand fact, the agency decision will be deemed "clearly erroneous"only where the reviewing court, on the entire record, is " 'leftwith the definite and firm conviction that a mistake has beencommitted.' " AFM Messenger Service, 198 Ill. 2d at 393, quotingUnited States v. United States Gypsum Co., 333 U.S. 364, 369, 92 L.Ed. 2d 746, 766, 68 S. Ct. 525, 542 (1948)

Turning now to the merits, the Department held that privateindividuals who hold title to property used by a for-profitcorporation to operate a school were not the intended beneficiariesof the section 15--35 tax exemption. The Department argues thatits decision to deny plaintiffs' exemption requests was not clearlyerroneous since the subject properties, though used for educationalpurposes, were used with a "view to profit." We agree.

Plaintiffs contend that the test is use, not ownership, indetermining whether an applicant is entitled to property taxexemptions. However, we agree with the Department that the use ofthe property in question, though found to be for educationalpurposes only, is not dispositive in this case. Instead, it is thefinding that the properties were "used with a view to profit,"which plaintiffs do not dispute, that prevents tax exemption. Moreover, in instances where use of the property was thedispositive factor under section 15--35, the exemption applicantwas not a for-profit corporation.

Plaintiffs first rely on Oasis, Midwest Center for HumanPotential v. Rosewell, 55 Ill. App. 3d 851, 856 (1977), for theproposition that the test is use, not ownership. However, theentity seeking tax exemption in that case was incorporated on anot-for-profit basis. Oasis, 55 Ill. App. 3d at 853. Similarly,in Illini Media Co. v. Department of Revenue, 279 Ill. App. 3d 432,433 (1996), Illini Media was a multimedia, not-for-profitcorporation that served the University of Illinois. In that case,the court found that any revenue generated was incidental. IlliniMedia, 279 Ill. App. 3d at 437. Plaintiffs also cite Big TenConference, Inc. v. Department of Revenue, 312 Ill. App. 3d 88(2000), where the court found that the Big Ten Conference was nota "school," but was still eligible for tax exemption under section15--35 since the property was used for educational purposes. Again, this case is not controlling because the Big Ten Conferenceis a not-for-profit corporation, although this point is notdiscussed in the opinion. Likewise, in Ass'n of American MedicalColleges v. Lorenz, 17 Ill. 2d 125, 126 (1959), the Association wasa not-for-profit corporation whose general purpose was to improvemedical education in the United States. Finally, People ex rel.Goodman v. University of Illinois Foundation, 388 Ill. 363 (1944),does not support plaintiffs' position. In that case, the applicantwas not for profit, and the supreme court stated that "[n]o part ofthese receipts, income or fees, it is agreed, inures to the benefitof any member or officer of the Foundation." Goodman, 388 Ill. at369. This is not the case here. It is undisputed that plaintiffswere in business to earn profit for themselves as the soleshareholders and directors of for-profit corporations.

In sum, we are not left with the definite and firm convictionthat a mistake has been committed, as required under the clearlyerroneous standard. AFM Messenger Service, 198 Ill. 2d at 393. Asstated earlier, none of the cases cited by plaintiffs addresswhether for-profit corporations are entitled to tax exemptionsunder section 15--35. In following the mandate that the court mustconstrue the statutory tax exemption narrowly and strictly in favorof taxation (First Presbyterian Church of Dixon, 306 Ill. App. 3dat 1116), we decline to extend tax exemption under section 15--35to properties held for profit, even if they are used foreducational purposes.

Accordingly, we conclude that the Department's decision is notclearly erroneous and, therefore, we reverse the judgment of thecircuit court of Winnebago County.

Reversed.

HUTCHINSON, P.J., and GILLERAN JOHNSON, J., concur.