Streeterville Corp. v. Department of Revenue , 186 Ill. 2d 534 ( 1999 )

JUSTICE HEIPLE

delivered the opinion of the court:

The issue in this case is whether the Streeterville Corporation (Streeterville) is entitled to a partial real estate tax exemption for a parking garage which it owns and operates for the use of Northwestern Memorial Hospital. We hold that it is so entitled.

BACKGROUND

The facts in this case are not in dispute. Both Streeterville and Northwestern Memorial Hospital are tax-exempt corporations. One of the properties owned by Streeterville is a large parking garage located near the hospital in the downtown Chicago area. During all times relevant herein, the garage, which contains 1,072 parking spaces, offered discounts to Northwestern employees, but was also open to the general public. Although the garage did not designate any area for exclusive parking by Northwestern personnel, the parties agree that 74% of the customers parking in the garage received some form of Northwestern discount.

Streeterville applied for a partial real estate tax exemption for the 1993 tax year based upon section 19.16 of the Revenue Act of 1939 (as then in effect), which exempted from tax:

“Parking areas, not leased or used for profit, when used as a part of a use for which an exemption is provided herein-before and owned by any school district, non-profit hospital or school, or religious or charitable institution which meets the qualifications for exemption.” 35 ILCS 205/19.16 (1992).

After the Illinois Department of Revenue (Department) denied the application, Streeterville sought administrative review in the circuit court of Cook County. The circuit court set aside the Department’s decision, finding that Streeterville was entitled to a partial exemption based upon the portion of the property used for exempt purposes. The Department appealed, and a divided panel of the appellate court reversed, holding that Streeterville was not entitled to any exemption because it could not identify any specific parking spaces which were used solely by hospital personnel. No. 1 — 97—2607 (unpublished order under Supreme Court Rule 23). We granted Streeterville’s petition for leave to appeal and now reverse.

ANALYSIS

In Illinois Institute of Technology v. Skinner, 49 Ill. 2d 59 (1971), this court identified two distinct situations in which property may qualify for a tax exemption despite a partial, nonexempt use. First, property may be wholly exempt from tax if any nonexempt use can be described as “merely incidental.” Skinner, 49 Ill. 2d at 66. Second, even where nonexempt use is more than merely incidental, the property may nonetheless qualify for a partial exemption where an “identifiable portion” of the property is used for exempt purposes. Skinner, 49 Ill. 2d at 66.

In the instant case, Streeterville concedes that the 26% nonexempt use of the parking facility cannot qualify as merely incidental. Thus, the dispositive question in this case is whether an “identifiable portion” of the parking structure is used for exempt purposes. The Department contends that the answer is no. The Department concedes, however, that if Streeterville had designated certain parking spaces for use solely by hospital personnel, then the parking structure would be partially exempt. At oral argument, counsel for the Department suggested that Streeterville could get a partial exemption by assigning the first 3 of its 10 floors to paying customers, and reserving the remaining seven floors for hospital personnel. Nevertheless, the Department maintains that the fact that Streeterville allows its patrons to park wherever they choose renders the entire parking structure taxable.

In support of its position, the Department makes two distinct arguments: first, that a taxpayer may never rely upon statistical evidence concerning the use of its property in order to “identify” a portion of that property which is used for exempt purposes; and second, that allowing a partial exemption under these circumstances would create serious administrative difficulties for the Department. Neither argument is persuasive.

The Department cites Evangelical Hospitals Corp. v. Department of Revenue, 223 Ill. App. 3d 225 (1991), for the principle that taxpayers may not use statistical evidence to identify an exempt portion of their property. In Evangelical Hospitals, the appellate court considered whether a pharmacy was entitled to a partial real estate tax exemption based upon evidence that the portion of the pharmacy’s sales which constituted a nonexempt use accounted for only 15% to 20% of the pharmacy’s operating costs. The appellate court found such evidence insufficient to support a partial tax exemption, because “there was no evidence establishing what portion [of the property] was used for sales to third parties at a markup and what portion was used to sell to its own health care facilities.” Evangelical Hospitals, 223 Ill. App. 3d at 231. The Department reads Evangelical Hospitals as establishing a blanket rule prohibiting the use of statistical evidence to identify an exempt portion of a taxpayer’s property.

Assuming, for the sake of argument, that Evangelical Hospitals was correctly decided, we find its facts to be inapposite. In Evangelical Hospitals, the pharmacy presented evidence regarding the percentage of its sales which constituted an exempt use. Such evidence says nothing about the amount of space which was used for exempt purposes, and thus could not demonstrate that an “identifiable portion” of the property was used for such purposes. In contrast, the instant case concerns a claimed exemption for a parking garage based upon evidence concerning the use of space in the facility. By its very nature, the product which Streeterville deals in is space. Accordingly, evidence that 74% of Streeterville’s customers were hospital personnel establishes that an “identifiable portion” of the facility was used for exempt purposes.

We are similarly unpersuaded by the Department’s claim that recognizing the right to a partial exemption under these facts would create administrative difficulties for the Department. In the first place, administrative difficulties are hardly a legal justification for disregarding a tax exemption. Arguably, every tax exemption may cause administrative difficulties. It is the responsibility of the Department of Revenue to accommodate such difficulties. Secondly, we note the Department’s predicted difficulties did not, in fact, surface in this case. The record before us discloses that Streeterville and the Department had no difficulty agreeing upon the percentage of the parking facility which was used by hospital personnel. Finally, the law is clear that the burden of proving the right to an exemption rests upon the party seeking it. Willows v. Munson, 43 Ill. 2d 203, 207 (1969). The taxpayer seeking exemption must demonstrate by clear and convincing evidence that the exemption applies. Evangelical Hospitals, 223 539. App. 3d at 231. Therefore, in those instances where the nature of the property makes it impossible to determine an “identifiable portion” of the property which is used for exempt purposes, the taxpayer will simply be unable to meet its burden of proof.

In conclusion, we hold that Streeterville is entitled to a partial tax exemption for that 74% portion of its parking facility which, as agreed, is used by Northwestern Memorial Hospital personnel. Accordingly, we reverse the judgment of the appellate court, affirm the judgment of the circuit court, and remand the cause to the Department for proceedings consistent with this opinion.

Appellate court judgment reversed; circuit court judgment affirmed; cause remanded.