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Local Government Q&A
Test your knowledge of municipal practices and
procedures with the questions and answers below. Click
here to submit a question to Ancel Glink.
Municipal Q&A - April 2004
Does charging a fee for private use of public property destroy its tax-exempt status?
ANSWER:
The Illinois Property Tax Code (the "Code"), 35 ILCS 200/15-5, et seq., provides that certain real property owned by governmental entities and charitable and civic organizations are exempt from property taxes. Several sections of the Code grant tax exemption to property which is used "exclusively for public purposes." For example, § 60 of the Code applies to property used for "maintenance of the poor." Section 66 applies to library property; § 70 to property used for fire protection purposes; § 75 applies to "public grounds." However, such property is sometimes rented or leased to a private person or entity. Does such private use of public property for a fee destroy its tax exempt status? Not necessarily.
While the leasehold interest may be subject to property tax, payable by the lessee (see Korzen v. American Airlines, 39 Ill.2d 11, 233 N.E.2d 568 (1968), charging a fee for private use of public property does not make the municipal landlord liable for property tax, so long as the private use is "incidental" to the primary exempt purpose. Whether the private use is "incidental" is determined on a case-by-case basis, as illustrated in two recent Illinois Appellate Court decisions, Franklin County Board of Review v. Department of Revenue, No. 5-02-0541, and Grundy County Agricultural District Fair, Inc. v. Department of Revenue, No. 3-02-0727.
In Franklin County, the court held that the property of the Rend Lake Conservation District (the "Conservation District") used for a hotel, condominiums, and restaurant was tax-exempt. The court reached this conclusion by first determining that the restaurant, hotel, and condominiums were used for public purposes. The statute establishing conservation districts provided that the primary purposes of a conservancy district were to provide forests, wildlife area, parks, and recreational facilities and to promote the public health, comfort, and convenience. The court stated that the lack of express public purpose was insignificant in that the reasons identified by the legislature were inherently public in nature. Next, the court examined whether the land was being used for the public purposes identified by the legislature. The court found that the land was being used for public purposes in that the restaurant, hotel, and condominiums were open and available to the public. The court stated that the "fact that Rend Lake [Conservation District] charge[d] a fee did not destroy the public purposes the facilities fulfilled." The fees were incidental to the public purpose.
In Grundy County, the Appellate Court defined the proper test to be used in determining whether the property in question was exempt. Grundy County Agricultural District Fair entered into short-term leases for use of its facilities by private, for-profit organizations, such as automobile races. The fees collected by the District from these events were used to offset the cost of hosting the county's agricultural fair; an event which the District coordinated and offered to the public free of charge. The Illinois Department of Revenue (the "DOR") ruled the property was taxable, using a one-factor test: counting the number of days the property was used for exempt purposes and the number of days it was used for non-exempt purposes. The trial court reversed the DOR's decision and held that the use of the property for agricultural events was more intensive than for other events. The Appellate Court rejected both DOR's and the circuit court's approaches. The court stated that the following factors are to be taken into consideration when the same property has two types of uses:
- Whether non-exempt uses directly and substantially support the exempt uses;
- The amount of time the property is used for exempt purposes;
- The percentage of the property used for exempt purposes; and
- The percentage of total visitors who use the property for exempt purposes.
If the non-exempt uses directly and substantially support the exempt uses, the property is used more for the exempt purpose in regards to time and space, and a large number of people utilize the property for exempt purposes, a court will likely find that the property retains its tax-exempt status when a fee is charged.
In sum, public property may not be exempt simply because a public entity owns it. When the exemption is conditioned on use "exclusively for a public purpose," the determinative factors are twofold: whether (1) the purpose of the property is public and (2) the property is actually being used for that purpose. If the property has more than one use, the Department of Revenue and/or a court will consider additional factors. If you have any questions or need additional information please do not hesitate to call or e-mail Stewart Diamond or Paul Keller.
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