Grace Community Church Assemblies of God v. Illinois Department of Revenue

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State: Illinois

Court: 4th District Appellate

Docket No: 4-10-0445 Rel

Case Date: 04/18/2011

Preview:NO. 4-10-0445 IN THE APPELLATE COURT OF ILLINOIS FOURTH DISTRICT

Opinion Filed 4/18/11

GRACE COMMUNITY CHURCH ASSEMBLIES OF ) Appeal from GOD, ) Circuit Court of Plaintiff-Appellee, ) Sangamon County v. ) No. 08MR718 THE ILLINOIS DEPARTMENT OF REVENUE ) and BRIAN A. HAMER, Director, ) Defendants-Appellants, ) and ) SANGAMON COUNTY, Acting Through JOHN ) Honorable SCHMIDT, State's Attorney, ) Leo J. Zappa, Jr., Defendant. ) Judge Presiding. _________________________________________________________________ JUSTICE POPE delivered the judgment of the court, with opinion. Presiding Justice Knecht and Justice Turner concurred in the judgment and opinion. OPINION For the 2007 tax year, an approximately seven-acre parcel owned by plaintiff, Grace Community Church Assemblies of God, was reassessed from agricultural to commercial property. Consequently, plaintiff's property-tax liability rose from $60 per year to over $15,000 per year. Plaintiff challenged the

assessment, claiming its property was exempt from taxation as it was used exclusively for religious purposes. The Sangamon County

board of review agreed with plaintiff and determined the property should be exempt. After review of the board's decision, defen-

dants, the Illinois Department of Revenue (Department) and its Director, Brian A. Hamer, denied the exemption. requested a formal hearing. Plaintiff

After a hearing before an adminis-

trative law judge (ALJ), the ALJ recommended the exemption be

denied, and her determination was accepted by the Department and its Director. On administrative review, the circuit court

reversed, finding the property was exempt. The Department and its Director appeal, arguing the agency determination the property was not exempt should be upheld and the circuit court's judgment reversed. Specifically, these

defendants argue (1) plaintiff submitted insufficient evidence its land qualified for exemption and (2) the evidence actually submitted shows plaintiff's land is not entitled to exemption. Plaintiff responds its land should be found exempt because either (1) the land was actually used exclusively for religious purposes or (2) the land was being developed toward use for religious purposes. As the land in question was used exclusively for

religious purposes, insofar as it was at least minimally used for religious purposes, was not used for secular purposes, and was in the actual process of development and adaptation for religious use in the tax year in question, we affirm. I. BACKGROUND Plaintiff's land in question is approximately seven acres at the intersection of Westchester Boulevard and Chatham Road in Springfield, Illinois. In May 1996, plaintiff acquired

the parcel by quitclaim deed from the Illinois District Council of the Assemblies of God. Until tax year 2007, the parcel was

assessed as agricultural land for property-tax purposes as approximately four of the seven acres were farmed by a nearby farmer. In 2005, this agricultural use ceased when plaintiff - 2 -

sold off approximately one acre of the parcel.

For tax year This

2007, the parcel was reassessed as commercial property.

resulted in an increase in plaintiff's annual property-tax liability from $60 to more than $15,000. could not cover the increased liability. In May 2007, plaintiff's pastor, Danny L. Shaner, sent a letter to taxing authorities listing plaintiff's activities on the property in question. The activities listed are: "Services"; Plaintiff's budget

"Prayer Walks"; "Youth activities: Camping, launching rockets, observing the wildlife, various sports/games"; "Picnics/Fellowship meals"; "Kid's Day (outreach into the neighborhood)"; "Work day"; "School Supplies/Free Lunch outreach"; and "Use of property (no charge) to other nonprofit groups (Sojourn Shelter)." In June 2007, plaintiff applied for a religious

exemption for the property taxes sought to be collected with the Sangamon County board of review. Later that month, the board of

review recommended the exemption be granted. After the board of review made its recommendation, as a matter of course, the Department inquired into plaintiff's use of the land in question. Specifically, the Department requested

plaintiff (1) submit a list of all activities that took place on the property after January 1, 2007, (2) describe where the property was located in relation to the church, and (3) indicate whether the property was "the location for the new church in the floor plans submitted with the application." In September 2007, In response to

plaintiff responded to the Department's inquiry. - 3 -

the Department's first request, plaintiff stated "[t]here is only a small shed for maintenance equipment on the property" and listed 12 specific dates between January and September 2007 on which the property was used other than for storage. According to

plaintiff, the property was used for eight prayer walks with participation by Pastor Shaner and, variously, plaintiff's "leadership," the "Capitol section leadership," and plaintiff's congregation. The property was also used for three "leadership

meeting[s]," a "sectional meeting," three "property development meeting[s]," and a "leadership and maintenance training." In

response to the Department's second request, plaintiff stated it was "presently" meeting for church services at the Illinois Retired Teacher's Association building on North Walnut Street. In response to the Department's third request, plaintiff stated the property in question was intended to be the site of the new church. Specifically, plaintiff responded, "We would like

construction to begin as soon as possible, sometime late in 2008 is our best hope. We cannot begin until the tax issue is reIn October

solved and won't begin until we can build debt free."

2007, the Department denied the exemption, finding "[t]he property is not in exempt use." In December 2007, plaintiff requested a formal hearing with the Department on the exemption. appeared at a hearing before an ALJ. In May 2008, the parties On the Department's motion,

the ALJ admitted a group of documents containing plaintiff's request for a formal hearing, the Department's denial of plain- 4 -

tiff's application for exemption, the board of review application and recommendation, the quitclaim deed by which plaintiff acquired the property, an "Affidavit of Purpose of Plat," an "Affidavit of Use" (plaintiff's response to the Department's request for further information), plaintiff's constitution and bylaws, a 2006 notification from the Department of plaintiff's exemption from sales and use taxes, Pastor Shaner's May 2007 letter listing uses of the property, and a photograph of the property. In relevant part, plaintiff's constitution states plaintiff's purpose is "[t]o conduct, in a Scriptural manner, the work of world-wide evangelism and discipleship in obedience to the command of the Lord Jesus." Under its constitution, plain-

tiff may "own, hold in trust, use, sell[,] convey, mortgage, lease or otherwise dispose of any real estate or chattels as may be necessary for the furtherance of its purposes." The constitu-

tion further sets forth procedural prerequisites to plaintiff's mortgaging real property. Plaintiff's case at the hearing consisted relevantly of Pastor Shaner's testimony and a copy of blueprints for a new church facility, dated March 2000. Pastor Shaner testified he Until plaintiff

had worked as plaintiff's pastor since 1991.

acquired sole ownership of the property in 1996 by quitclaim deed, it was held jointly by plaintiff and the Illinois District Council of the Assemblies of God. The land at the intersection

of Westchester Boulevard and Chatham Road was initially acquired - 5 -

by the district council for no "purpose other than to construct a church at that corner." When Pastor Shaner began working for

plaintiff, plaintiff had in place a three-phase, $3 million building plan for constructing a new church facility on the land in question. After plaintiff acquired sole ownership of the

land, plaintiff scaled back its $3 million development plan to "a lot less than $3 million." Plaintiff maintained a "building fund

that the people contribute to on a regular basis" but did not raise funds specifically for developing the new church facility for theological reasons. Plaintiff preferred, if possible, to Pastor

build its new facilities without incurring any debt.

Shaner testified, "It's not that we can't [borrow money for that purpose], but we don't want to make a payment where money can be better used somewhere else." There was no testimony to establish

how much money had accumulated in the building fund. Eventually, plaintiff engaged an architect to develop plans for the new church facility, which were drafted in March 2000. However, after a tornado struck plaintiff's land in 2006,

plaintiff discovered these plans were obsolete and required revision. Pastor Shaner stated whether the architectural changes

would be pursued depended on the exemption status of plaintiff's land. Until plaintiff could be certain of the land's status, the Plain-

reassessment had "ground [development plans] to a halt."

tiff was "not prepared to be investing more finances into updating the blueprints" until its tax liability was determined. The only improvement ever actually built on the land - 6 -

was a shed used to store plaintiff's tractor, supplies, and records. Occasionally, church leadership met and Pastor Shaner This counseling was "some-

did "some counseling" in the shed. times [of] a religious nature."

The shed was destroyed by the

2006 tornado, and "about everything" stored in the shed except the tractor was lost. tornado. In 2005, plaintiff sold approximately one acre of its land to Sojourn Shelter and Services, Inc. (Sojourn), a nonprofit women's shelter for abused women and children. As a The shed was rebuilt within days of the

condition of the sale and of annexing plaintiff's land to the City of Springfield, plaintiff was required to construct a new sewer line. The construction of the sewer line cost between In connection with the land sale and

$18,000 and $20,000.

annexation, plaintiff incurred approximately $3,000 or $3,500 in legal fees. Thereafter the ground was not farmed and the assess-

ment was changed from "agricultural" property to "commercial" property. Pastor Shaner testified to various uses of the property. The property was used for some services and prayer walks,

"free school supplies distributions with free lunch" for neighboring children, fund-raisers conducted by and for the benefit of Sojourn, and "boy youth groups *** that shoot rockets and set up camps and such as that." Aside from "the Sojourn activities," Pastor Shaner also

these were "activities of the church."

testified to the "incidental" use of the land by people who - 7 -

"would stop out and, you know, meet and maybe have a lunch or talk and pray." The property was never leased or used for profit

or with a view to profit. In September 2008, the ALJ issued a written recommendation that the Department deny plaintiff's religious exemption for 2007. The ALJ noted plaintiff could demonstrate entitlement to

the exemption by showing it actually either used or adapted and developed the property for an exempt purpose. The ALJ concluded

plaintiff failed to demonstrate its entitlement to the exemption by clear and convincing evidence because it "did not substantiate its oral evidence." "Although documents are not necessary to

verify every single activity that took place" on the land in question, the ALJ stated, "some substantiation is necessary to verify that the property was used primarily for religious purposes and not used with a view to profit." The ALJ noted some

documentary evidence such as the pastor's calendar, church newsletters, bulletins, minutes of meetings, or photographs is necessary to verify the property was primarily used for religious purposes. Accordingly, the ALJ recommended upholding the DepartIn September 2008, the Depart-

ment's denial of the exemption.

ment accepted the ALJ's recommendation to deny the exemption and, in November 2008, the Department adopted the ALJ's recommendation to deny plaintiff's October 2008 request for rehearing. In December 2008, plaintiff filed a complaint against the Department and Sangamon County, acting through its State's Attorney, John Schmidt, for administrative review in the circuit - 8 -

court.

In May 2010, the circuit court reversed the Department's

decision, ordering it to grant plaintiff the requested exemption. Reaching the conclusion that the Department had erred, the court noted, "The unrebutted record establishes that the only use of the property in 2007 was for exempt use only. The Plaintiff

owner has made efforts at development although some time has passed between stages of adaptation." This appeal followed. II. ANALYSIS On appeal, defendants, the Department and its Director, argue the agency decision to deny the exemption should be upheld. They contend the ALJ did not err in concluding plaintiff failed to meet its burden of demonstrating its entitlement to the exemption by clear and convincing evidence. Further, they

contend the evidence shows plaintiff is not entitled to the exemption. In response, plaintiff maintains its only use of the

land was for exempt purposes and, alternatively, the land was being adapted and developed for exempt purposes. plaintiff and affirm the circuit court's judgment. A. Standard of Review On appeal, we review the Department's decision, not the circuit court's. See Cinkus v. Village of Stickney Municipal We agree with

Officers Electoral Board, 228 Ill. 2d 200, 212, 886 N.E.2d 1011, 1019 (2008). The scope of judicial review of administrative

decisions "extend[s] to all questions of law and fact presented by the entire record before the court." - 9 735 ILCS 5/3-110 (West

2008).

A court may encounter three types of questions on admin-

istrative review of an agency decision: questions of fact, questions of law, and mixed questions of law and fact. 228 Ill. 2d at 210, 886 N.E.2d at 1018. Cinkus,

Because an administra-

tive agency's findings of fact are presumed true, "a reviewing court is limited to ascertaining whether such findings of fact are against the manifest weight of the evidence." Id.; see also

735 ILCS 5/3-110 (West 2008) ("The findings and conclusions of the administrative agency on questions of fact shall be held to be prima facie true and correct."). "In contrast, an agency's

decision on a question of law is not binding on a reviewing court," and we review such a decision de novo. 2d at 210, 886 N.E.2d at 1018. Mixed questions of law and fact "are questions in which the historical facts are admitted or established, the rule of law is undisputed, and the issue is *** whether the rule of law as applied to the established facts is or is not violated." nal quotation marks omitted.) (InterCinkus, 200 Ill.

American Federation of State,

County & Municipal Employees, Council 31 v. Illinois State Labor Relations Board, State Panel, 216 Ill. 2d 569, 577, 839 N.E.2d 479, 485 (2005). Decisions of mixed questions of law and fact Cinkus, 228

are reversible only if they are clearly erroneous. Ill. 2d at 211, 886 N.E.2d at 1018.

The clearly erroneous Provena Covenant

standard is "significantly deferential."

Medical Center v. Department of Revenue, 236 Ill. 2d 368, 387, 925 N.E.2d 1131, 1143 (2010); see also id. at 387 n.9, 925 N.E.2d - 10 -

at 1143 n.9 (courts accord deference to administrative decisions "in recognition of the fact that agencies make informed judgments on the issues based upon their experience and expertise and serve as an informed source for ascertaining the legislature's intent"). "A decision is 'clearly erroneous' when the reviewing

court is left with the definite and firm conviction that a mistake has been committed." American Federation of State,

County & Municipal Employees, 216 Ill. 2d at 577-78, 839 N.E.2d at 485. fact. B. Principles of Construction Our construction and application of tax-exemption statutes are governed by long-standing principles. In general, The case before us presents a mixed question of law and

all real property is subject to taxation unless exempt by statute and by the constitution. Provena Covenant Medical Center, 236

Ill. 2d at 388, 925 N.E.2d at 1143-44; see also City of Chicago v. Illinois Department of Revenue, 147 Ill. 2d 484, 491, 590 N.E.2d 478, 481 (1992) ("Taxation is the rule[;] tax exemption is the exception." (Internal quotation marks omitted.)) (quoting Rogers Park Post No. 108 v. Brenza, 8 Ill. 2d 286, 290, 134 N.E.2d 292, 295 (1956)). Accordingly, statutes granting tax Provena

exemptions are strictly construed in favor of taxation.

Covenant Medical Center, 236 Ill. 2d at 388, 925 N.E.2d at 1144; accord Board of Certified Safety Professionals of the Americas, Inc. v. Johnson, 112 Ill. 2d 542, 547, 494 N.E.2d 485, 488 (1986) (citing Coyne Electrical School v. Paschen, 12 Ill. 2d 387, 390, - 11 -

146 N.E.2d 73, 75 (1957)). A party claiming an exemption must demonstrate its entitlement to the exemption by clear and convincing evidence. Provena Covenant Medical Center, 236 Ill. 2d at 388, 925 N.E.2d at 1144. That is, such a party must prove the property in

question falls within the terms of both the constitutional authorization and the exempting statute. Id. All questions of

fact and "debatable questions" are resolved in favor of taxation. Id. (citing Follett's Illinois Book & Supply Store, Inc. v. Isaacs, 27 Ill. 2d 600, 606, 190 N.E.2d 324, 327 (1963)). "[E]very presumption is against the intention of the state to exempt property from taxation." Provena Convenant Medical

Center, 236 Ill. 2d at 388, 925 N.E.2d at 1144 (citing Reeser v. Koons, 34 Ill. 2d 29, 36, 213 N.E.2d 561, 565 (1966)). C. Religious Exemption, Generally Exemption from taxation of property used exclusively for religious purposes is authorized by the Illinois Constitution of 1970. See Ill. Const. 1970, art. IX,

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