No. 3-02-0727

IN THE

APPELLATE COURT OF ILLINOIS

THIRD DISTRICT

A.D., 2004

JUSTICE LYTTON delivered the opinion of the court:

The county fair owns fairgrounds consisting of about 90 acresof land.⁽¹⁾ Over the course of the year, the county fair leased theland on a short term basis to organizations which hosted variousagricultural and non-agricultural events at the fairgrounds. Forexample, the leases ranged from one day sales events to automobileraces which took place on eight different dates. The county fairused the proceeds from the leases to offset the cost of hosting thecounty's agricultural fair, an event which it coordinated andoffered to the public free of charge.

The county fair applied for a tax exemption for the 1999assessment year pursuant to 35 ILCS 200/15-85, which provides that"all property used exclusively by societies for agricultural orhorticultural purposes, and not used with a view to profit, isexempt." To determine whether the property was exempt, thedepartment used one test: counting the number of days the propertywas used for exempt purposes and for non-exempt purposes. Thedepartment denied the exemption because the grounds were used foragricultural events for 10 days and for non-agricultural events onat least 44 days.

Plaintiff appealed to the circuit court, arguing that it wasa non-profit organization and the only reason it leased theproperty was to fund the county agricultural fair. The circuitcourt reversed the department's decision, finding that the use ofthe property for agricultural events was more "intensive" than forother events. The circuit court held that the "facility isconstructed, maintained, and managed to support the annual CountyAgricultural Fair and the annual 4-H fair. All other uses are, infact, incidental."

I. Standard of Review

In reviewing a final decision under administrative review law,we review the agency's finding, not the circuit court'sdetermination. Metropolitan Airport Authority v. Property TaxAppeal Board, 307 Ill. App. 3d 52, 55 (1999). An agency'sdetermination of fact will be disturbed only if it is against themanifest weight of the evidence. Abrahamson v. Illinois Departmentof Professional Regulation, 153 Ill. 2d 76, 88 (1992). Questionsof law, however, are not entitled to deference and are reviewed denovo. Envirite Corp. v. Illinois Environmental Protection Agency,158 Ill. 2d 210, 214 (1994). A case that involves the examinationof the legal effect of a set of given facts is a question of mixedlaw and fact, and therefore should not be overturned unless clearlyerroneous. City of Belvidere v. Illinois State Labor RelationsBoard, 181 Ill. 2d 191, 205 (1998).

II. Tax Exemption

Statutes imposing tax liability are generally construedagainst the state and in favor of the taxpayer. People Who Care v.Tax Objectors, 193 Ill. 2d 490, 496 (2000). However, statutoryexemptions to taxation are strictly construed in favor of taxation.Central Illinois Light Co. v. Department of Revenue, 336 Ill. App.3d 908, 913 (2003). The party seeking the exemption bears theburden of clearly and conclusively proving it is entitled to theexemption. Chicago Bar Association, 163 Ill. 2d at 300. Alldebatable questions must be analyzed in favor of taxation.Wyndemere Retirement Community v. Department of Revenue, 274 Ill.App. 3d 455, 459 (1995).

To qualify for tax exempt status under 35 ILCS 200/15-85, twocriteria must be met: (A) the property must be used exclusively foragricultural or horticultural purposes and (B) the property cannotbe used with a view to profit.

A. Exclusive Use

Property satisfies the exclusive use requirement if it is"primarily used for the exempted purpose" (emphasis in original). National Bus Service, Inc. v. Department of Revenue, 302 Ill. App.3d 820, 825 (1998). If the non-exempt uses of the property aremore than "merely incidental," the exemption must be denied. Streeterville Corp. v. Department of Revenue, 186 Ill. 2d 534, 536(1999).

The department argues that its "number of days" analysis is areasonable way to determine the primary use of property. Whilethat analysis may be relevant, we do not believe that simplycounting days should be the sole measure of ascertaining theprimary use of property. Relying exclusively on one factor mayresult in an inaccurate or unrealistic finding of primary use.

Recently, in The Arts Club of Chicago v. Department ofRevenue, 334 Ill. App. 3d 235 (2002), the court considered a taxexemption for property used for charitable purposes. The Arts Clubsubmitted an application for tax exemption in 1995. The departmentdenied the application, finding that the Arts Club did not use theproperty exclusively for exempt purposes. As in the instant case,the department used only one criterion to reach its finding. There, the test was how the greatest number of people used theproperty. The court reversed the department's decision, findingother factors relevant to the primary use, including the percentageof the property allocated and used for exempt purposes and thepercentage of total visitors who use the premises for exemptpurposes. Arts Club of Chicago, 334 Ill. App. 3d at 249. Thus, thecourt broadened the scope of the department's primary use analysisto insure a more accurate determination of whether the property wasexempt.

We believe that the department's analysis in this case mustalso be broadened and that other factors should be considered. Amore accurate definition of "primary use" must include an analysisof the following factors: (1) whether non-exempt uses directly andsubstantially support the exempt uses, (2) the amount of time theproperty is used for exempt purposes, (3) the percentage of theproperty used for exempt purposes, and (4) the percentage of totalvisitors who use the property for exempt purposes. See Arts Clubof Chicago, 334 Ill. App. 3d at 249-50. All of these factors mustbe weighed together to determine whether the property's primary useis agricultural. See Arts Club of Chicago, 334 Ill. App. 3d at250.

We first consider whether the non-exempt uses of the propertydirectly and substantially support the exempt uses. The groundswere built, maintained and managed to host the annual Grundy Countyfair. Non-exempt uses of the grounds were temporary leases thatgenerated money used to subsidize the fair itself. The money wasnot used for any other purpose. The various leases generated$19,500.00 in revenue. In addition, the fair received grants fromthe state to partially reimburse the fair for its expenses. Despite the lease revenue and grants, the fair still lost$42,000.00. In light of the above, we find that the non-exemptuses directly and substantially support the exempt uses.

The next three factors lack sufficient support in the recordto sustain a decision. First, although the department reached a"number of days" determination, it is unclear whether it took intoaccount the time involved in setting up and taking down the fair. Since these days are critical to the success of the fair, they mustbe included. The department should also consider all agriculturalor horticultural events hosted at the fairgrounds in its analysis. Next, the percentage of property used for exempt purposes should,of course, include only the 90 acres for which the county fairsought an exemption. Finally, the department must compare thepercentage of people who used the property for exempt purposes withthose using the property for non-exempt purposes.⁽²⁾

Although we have found that the first factor favors the countyfair, the record is insufficient to permit us to make accuratefindings on the last three factors; thus, we must remand to thedepartment to determine the factual bases of these issues.

B. View to Profit

Even if an applicant uses the property exclusively foragricultural purposes, the applicant must also show that theproperty is not used with "a view to profit." 35 ILCS 200/15-85. The department argues that when the grounds were leased for non-exempt purposes, the land was used "with a view to profit." Thecounty fair counters that it never profited from the leases becauseall proceeds funded the county agricultural fair.

In considering a tax exemption based on the property's use, itis the primary use of the property that determines its taxablestatus. Northern Illinois University Foundation v. Sweet, 237 Ill.App. 3d 28, 36-37 (1992). If the property is leased, it is theprimary use of the property by the lessee, and not its incidentalor secondary use, which determines whether the tax-exempt statuscontinues. Sweet, 237 Ill. App. 3d at 36-37. Where the principaland primary purpose to which property is employed is for an exemptpurpose, the mere fact that income is incidentally and secondarilyderived from its use for a nonexempt purpose does not necessarilyrender the property taxable. City of Mattoon v. Graham, 386 Ill.180 (1944). If the primary use is for the production of income"with a view to profit," the tax-exempt status is destroyed. Thus,if the primary use is tax-exempt even though it may involve theincidental production of income, the property retains itstax-exempt status. Childrens Development Center, Inc. v. Olson, 52Ill. 2d 332 (1972).

In Olson, a convent owned property for which it received anannual "religious use" tax exemption. The statute exempted propertyused exclusively for religious or charitable purposes "and notleased or otherwise used with a view to profit." Olson, 52 Ill. 2dat 334. The convent began leasing the property to a non-profitcorporation, which used the property to provide programs foreducationally handicapped children. Olson, 52 Ill. 2d at 333-34. The corporation's activities were exempt under the "charitable use"provision of the tax code. The department of revenue began taxingthe convent, claiming that the convent's lease of the land violatedthe tax exemptions. In finding for the convent, the court heldthat with regard to income, it is the primary use to which theproperty is put that determines the taxable status.

Olson holds that the primary use of the property determineswhether any income generated by the property is incidental. If theproperty is primarily used for exempt purposes, any resultingincome is considered incidental. If the property itself isprimarily used for the generation of profit, the income isconsidered primary and the exempt status is destroyed. Olson, 52Ill. 2d at 336.

Here, the same property has two types of uses: agriculturaland horticultural, and non-agricultural events exemplified by theshort term leases. In order to determine whether the property wasleased with a view to profit in this case, the primary use analysisdiscussed in section II.A. above must be applied. If the primaryuse was for exempt purposes, any income must be consideredincidental.

CONCLUSION

The order of the circuit court of Grundy County is reversedand remanded to the department of revenue.

Reversed and remanded.

HOLDRIDGE, PJ., partial concurrence and partial dissent, andMCDADE, J., concurring.

I agree with the majority's holding that the Department usedthe wrong test to determine the exempt status of the property. Itherefore agree that the decision of the Department should bereversed. I disagree with the decision to remand for furtherproceedings before the Department. I believe that under theanalysis articulated in The Arts Club of Chicago v. Department ofRevenue, 334 Ill. App. 3d 235 (2002), the Fair proved that it wasentitled to the exemption. I would therefore remand to theDepartment with instruction that the exemption be granted.

The record is clear that all funds raised by renting out thefair grounds were used to offset the operating expenses of theannual agricultural fair. Funds raised to meet necessary operatingexpenses of an agricultural or horticultural society will notdefeat that society's tax exempt status. See, In re Application ofCounty Treasurer of Winnebago County, 52 Ill. App. 3d 718, 720. InWinnebago County the statute provided an exemption for propertyused by agricultural societies that was not used "for pecuniaryprofit." Ill. Rev. Stat. Ch 120 section 500.10 (West 1975). Thestatute has been amended replacing the phrase "for pecuniaryprofit" with "not used with a view toward profit." 35 ILCS 200/15-85 (West 2000). The Department suggests that the change instatutory language negates the court's holding in Winnebago County. I disagree. Regardless of whether the agricultural exemption islost if the property is used "for pecuniary profit" or "with a viewtoward profit," funds raised to offset operating expenses of thefair should not negate the agricultural society's exemption.

For the foregoing reasons, I would reverse the ruling of theDepartment and remand only with instructions that the exemption begranted.

1. The county fair's parcel is actually composed of 160 acres,of which 70 acres are leased as farmland. The county fair did notpursue an exemption for that portion.

2. We are aware from our review of the record that attendancefor some of the events may have to be estimated.