                           ILLINOIS OFFICIAL REPORTS
                                        Appellate Court




           OKO, LLC v. Illinois Department of Revenue, 2011 IL App (4th) 100500




Appellate Court            OKO, LLC, Plaintiff-Appellant, v. THE ILLINOIS DEPARTMENT OF
Caption                    REVENUE, Defendant-Appellee.



District & No.             Fourth District
                           Docket No. 4–10–0500


Filed                      June 20, 2011


Held                       The denial of a real estate tax exemption to the titleholder of the land at
(Note: This syllabus       issue was affirmed, notwithstanding the fact that the titleholder had
constitutes no part of     entered into a sale-and-leaseback agreement with the charitable
the opinion of the court   organization that sold the property to the titleholder in order to improve
but has been prepared      the organization’s financial condition, since the agreement did not require
by the Reporter of         the charitable organization to pay the real estate taxes, the titleholder,
Decisions for the          which did not have tax-exempt status, sought the real estate tax
convenience of the         exemption, and allowing a nonexempt landlord to claim a real estate tax
reader.)
                           exemption merely because an exempt tenant was conducting charitable
                           activities on the leased premises would be an impermissible extension of
                           the holding in Cole Hospital and a result not contemplated by section
                           15–65 of the Property Tax Code.


Decision Under             Appeal from the Circuit Court of Macon County, No. 09–MR–604; the
Review                     Hon. Theodore E. Paine, Judge, presiding.



Judgment                   Affirmed.
Counsel on                Christopher M. Ellis and Timothy J. Tighe, Jr. (argued), both of Bolen
Appeal                    Robinson & Ellis, LLP, of Decatur, for appellant.

                          Lisa Madigan, Attorney General, of Chicago (Michael A. Scodro,
                          Solicitor General, and Eric Truett (argued), Assistant Attorney General,
                          of counsel), for appellee.


Panel                     JUSTICE POPE delivered the judgment of the court, with opinion.
                          Presiding Justice Knecht concurred in the judgment and opinion.
                          Justice Cook dissented, with opinion.



                                           OPINION

¶1              In September 2009, plaintiff, OKO, LLC (OKO), filed a complaint for administrative
        review of the decision of defendant, the Illinois Department of Revenue (Department),
        denying OKO’s application for a property-tax exemption for the tax year 2007 under section
        15–65 of the Property Tax Code (Code) (35 ILCS 200/15–65 (West 2008)) because the
        property in question was not owned by a charitable organization. In May 2010, the circuit
        court affirmed the Department’s decision.
¶2              OKO appeals, arguing the Department’s denial was clearly erroneous where, under
        the terms of the sale-leaseback agreement, the previous owner, who is also the lessee,
        retained sufficient indicia of ownership to qualify for the exemption. We affirm.

¶3                                        I. BACKGROUND
¶4                                        A. Subject Property
¶5               This case arises from the sale of property located at 815 North Church Street in
        Decatur, Illinois (property), by Old Kings Orchard Community Center, Inc. (Center), to
        OKO. The Center is a tax-exempt, not-for-profit organization engaged in community-
        outreach activities such as after-school programs and meals for children. The parties
        stipulated the property was being used for charitable purposes. As a result, the issue of
        charitable use is not part of this appeal.
¶6               The Center was operating at a loss, and its mortgage was going to be foreclosed.
        Decatur businessman Thomas Kowa, president of the Huston-Patterson Corporation, created
        OKO as a limited-liability company (LLC) for the purpose of purchasing the property. Kowa
        testified he purchased the Center because he wanted to help the community. However, he
        explained the Center’s chances of staying open were much greater if he paid off the note
        instead of just donating $100,000. According to Kowa, the Center had a history of
        encumbering its property with liens it could not pay.

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¶7                                  B. Purchase Agreement
¶8            On March 16, 2007, OKO entered into a purchase and sales agreement with the
       Center for $100,000, which was used to pay off the existing mortgage on the property. The
       agreement provided at closing the parties would execute a lease, the terms of which provided
       OKO would lease the property to the Center.

¶9                              C. Parties’ Lease and Modifications
¶ 10           On March 30, 2007, the parties entered into the original lease agreement. Thereafter,
       the parties entered into two subsequent addenda dated March 25, 2008, and September 29,
       2008.

¶ 11                             1. Original March 30, 2007, Lease
¶ 12           The term of the original lease was for 15 years, with a March 30, 2007, effective date.
       According to the lease, the Center was to pay $1,000 rent per month. However, paragraph
       four of the lease stated, “So long as the Premises subject to this Lease retains its status as
       exempt from real estate taxes, which shall be based upon a final determination from the
       relevant governmental authority, then Lessor will waive its right to collect any rent ***.”
¶ 13           Under the original lease the Center also agreed to pay all utility, maintenance, repair,
       and insurance costs on the property. However, the Center was not required to pay real-estate
       taxes. The Center also agreed not to assign or sublet the property without OKO’s consent.
       The Center had the right to purchase the property at any time so long as it maintained its
       property-tax-exempt status. However, the Center would lose that right if the property lost its
       tax-exempt status. The original lease also gave the Center the right of first refusal in the
       event OKO received a bona fide offer on the property.

¶ 14                               2. March 25, 2008, Addendum
¶ 15           On March 25, 2008, the parties entered into an addendum to the original lease. The
       addendum had a March 1, 2008, effective date. The addendum modified paragraph four of
       the original lease to state OKO would waive its right to collect rent so long as the Center
       continued its not-for-profit activities as opposed to the original lease which stated the waiver
       applied if the property retained its tax-exempt status.

¶ 16                           3. September 29, 2008, Addendum
¶ 17           On September 29, 2008, the parties entered into another addendum to the original
       lease. This addendum had a March 30, 2007, effective date.
¶ 18           The addendum replaced paragraphs 4, 10, 11, and 13 of the original lease. Paragraph
       4 retained the changes made in the prior addendum. Where paragraph 10 of the original lease
       provided the Center could purchase the property so long as the property maintained its tax-
       exempt status, the addendum conditioned the purchase ability on the Center continuing its


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       not-for-profit activities. Paragraph 11 of the original lease gave the Center the right of first
       refusal. Pursuant to the addendum, OKO agreed not to sell or transfer the property as long
       as the Center continued its not-for-profit activities. Under paragraph 13 of the original lease,
       the Center could not terminate the lease or surrender the property in the event of casualty.
       However, the addendum gave the Center the option to terminate the lease and surrender the
       property in the event of casualty.

¶ 19                                 D. OKO’s Application
¶ 20          On November 20, 2007, OKO filed an application for a property-tax exemption with
       the Macon county board. On December 14, 2007, the board recommended the denial of
       OKO’s application because the property was not owned by a charitable organization. On
       January 17, 2008, the Department denied OKO’s exemption, finding the property was not
       in exempt ownership or exempt use. On March 4, 2008, OKO filed a request for a formal
       administrative hearing to challenge the Department’s conclusions.

¶ 21                                E. Administrative Hearing
¶ 22          In the June 2008 pretrial order, the administrative law judge (ALJ) identified the
       following issues:
                  “(1) whether the lessee has the indicia of ownership for property tax purposes
              pursuant to the lease that was in effect during 2007; (2) if no, whether the
              modifications that were made in 2008 revert back to the year 2007; (3) if yes,
              whether the lessee has the indicia of ownership for property tax purposes pursuant
              to the modifications that were made during 2008. The issue of whether the property
              is for charitable purposes is not disputed by the Department.”
¶ 23          In August 2009, the ALJ recommended the denial of OKO’s application. The ALJ
       found the evidence did not support a finding the Center had sufficient indicia of ownership
       to remain the owner of the property for tax purposes.

¶ 24                               F. Administrative Review
¶ 25          In November 2009, OKO filed a complaint for administrative review, arguing the
       ALJ and the Department erred. According to OKO, even though it held legal title to the
       property, the Center owned the property for property-tax purposes under the parties’ lease-
       back arrangement.
¶ 26          On May 25, 2010, the circuit court affirmed the Department’s decision.
¶ 27          This appeal followed.

¶ 28                                    II. ANALYSIS
¶ 29           On appeal, OKO argues the Department erred in denying it an exemption because the
       sale-leaseback arrangement between OKO and the Center did not divest the Center of
       ownership for property-tax purposes. Specifically, OKO contends the property is still owned


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       by the Center for property-tax purposes even though OKO holds title to it. However, while
       OKO argues the property is still owned by the Center for property-tax purposes, OKO, not
       the Center, applied for the exemption and is the party appealing before this court.

¶ 30                                   A. Standard of Review
¶ 31            We initially note the appellate court’s role is to review the Department’s
       administrative decision, not the circuit court’s. JB4 Air, LLC v. Department of Revenue, 388
       Ill. App. 3d 970, 972, 905 N.E.2d 310, 312 (2009). The appropriate standard of review
       concerning administrative decisions is contingent upon whether the question being reviewed
       is one of fact, law, or both. Express Valet, Inc. v. City of Chicago, 373 Ill. App. 3d 838, 847,
       869 N.E.2d 964, 972 (2007). “An administrative agency’s decision on questions of fact are
       entitled to deference and are reversed only if against the manifest weight of the evidence.”
       Friends of Israel Defense Forces v. Department of Revenue, 315 Ill. App. 3d 298, 302, 733
       N.E.2d 789, 792-93 (2000). An administrative agency’s decisions on questions of law are not
       afforded deference and thus are reviewed de novo. Friends of Israel, 315 Ill. App. 3d at 302,
       733 N.E.2d at 793.
¶ 32            However, when a case “involves an examination of the legal effect of a given set of
       facts, it involves a mixed question of fact and law.” City of Belvidere v. Illinois State Labor
       Relations Board, 181 Ill. 2d 191, 205, 692 N.E.2d 295, 302 (1998). In such cases, we review
       the agency’s decision under the clearly erroneous standard. City of Belvidere, 181 Ill. 2d at
       205, 692 N.E.2d at 302; see also Board of Trustees of the University of Illinois v. Illinois
       Labor Relations Board, 224 Ill. 2d 88, 97, 862 N.E.2d 944, 950 (2007) (“clearly erroneous
       standard of review is proper when reviewing a decision of [an administrative agency]
       because the decision represents a mixed question of fact and law”).
¶ 33            Under this standard, the agency’s decision will not be deemed clearly erroneous
       unless the reviewing court is left with the definite and firm conviction a mistake has been
       committed. Daley v. Lakeview Billiard Café, Inc., 373 Ill. App. 3d 377, 381-82, 869 N.E.2d
       171, 175 (2007). Because this case involves a mixed question of fact and law, i.e., whether
       the Department’s decision complied with the rule of law as applied to the facts, the clearly
       erroneous standard of review applies.

¶ 34                                B. Principles of Construction
¶ 35           Generally, all real property is subject to taxation unless exempt by statute and the
       constitution. Provena Covenant Medical Center v. Department of Revenue, 236 Ill. 2d 368,
       388, 925 N.E.2d 1131, 1143-44 (2010); see also City of Chicago v. Illinois Department of
       Revenue, 147 Ill. 2d 484, 491, 590 N.E.2d 478, 481 (1992) (tax exemption is the exception
       while taxation is the rule (citing Rogers Park Post No. 108 v. Brenza, 8 Ill. 2d 286, 290, 134
       N.E.2d 292, 295 (1956))). Accordingly, statutes granting tax exemptions are strictly
       construed in favor of taxation. Provena Covenant Medical Center, 236 Ill. 2d at 388, 925
       N.E.2d at 1144.
¶ 36           A party claiming an exemption must demonstrate it is entitled to the exemption by
       clear and convincing evidence. Provena Covenant Medical Center, 236 Ill. 2d at 388, 925

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       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. Provena Covenant
       Medical Center, 236 Ill. 2d at 388, 925 N.E.2d at 1144. All questions of fact and “debatable
       questions” are resolved in favor of taxation. Provena Covenant Medical Center, 236 Ill. 2d
       at 388, 925 N.E.2d at 1144 (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 [citation].” 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)).

¶ 37                                   C. Charitable Exemption
¶ 38            Section 6 of article IX of the Illinois Constitution of 1970 provides the General
       Assembly the power to exempt from taxation property used for, inter alia, charitable
       purposes. See Ill. Const. 1970, art. IX, § 6. As part of this grant of authority, the General
       Assembly “ ‘may place restrictions, limitations, and conditions on [property-tax]
       exemptions.’ ” Provena Covenant Medical Center, 236 Ill. 2d at 390, 925 N.E.2d at 1145
       (citing North Shore Post No. 21 of the American Legion v. Korzen, 38 Ill. 2d 231, 233, 230
       N.E.2d 833, 835 (1967)). One such restriction is found in section 15–65 of the Code.
       Pursuant to section 15–65, to qualify for a charitable exemption, the property must be
       “actually and exclusively used for charitable or beneficent purposes, and not leased or
       otherwise used with a view to profit, but also that it be owned by an institution of public
       charity.” (Internal quotation marks omitted.) Provena Covenant Medical Center, 236 Ill. 2d
       at 390, 925 N.E.2d at 1145 (citing Chicago Patrolmen’s Ass’n v. Department of Revenue,
       171 Ill. 2d 263, 270, 664 N.E.2d 52, 56 (1996)); see also 35 ILCS 200/15–65 (West 2008).
¶ 39            In this case, the parties agree the Center is a charitable organization and that its
       activities constitute charitable use. The parties also agree OKO is not a charitable
       organization. However, OKO, not the Center, is seeking the tax exemption.
¶ 40            The Macon County board of review recommended denial of OKO’s request for an
       exemption because the property is not owned by a charitable organization. The Department
       also denied the request because the property was not in exempt ownership. OKO’s status as
       a noncharitable organization is not in dispute in this case–OKO concedes it is not a charitable
       entity. This concession ends the discussion and OKO’s appeal. OKO argues its status as the
       true titleholder is irrelevant for exemption purposes because the Center, as the lessee, has
       sufficient indicia of ownership to qualify for the exemption. However, OKO cannot
       unilaterally step into the Center’s shoes and try to claim an exemption to which the Center
       might be eligible.

¶ 41                                      D. Ownership
¶ 42           OKO relies on this court’s decision in Cole Hospital, Inc. v. Champaign County
       Board of Review, 113 Ill. App. 3d 96, 100, 446 N.E.2d 562, 564 (1983), where we
       recognized a nontitleholder as the owner of property for tax purposes where that party was
       a lessee in a sale-and-leaseback agreement. In fact, OKO argues it tailored the lease to our

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       reasoning in Cole Hospital and Coles-Cumberland Professional Development Corp. v.
       Department of Revenue, 284 Ill. App. 3d 351, 672 N.E.2d 391 (1996), for the specific
       purpose of qualifying for a property-tax exemption. However, our decisions in Cole Hospital
       and Coles-Cumberland were not made under facts similar to those of the instant case.
¶ 43            In Cole Hospital, this court held a lessee in a sale-and-leaseback agreement possessed
       sufficient incidents of ownership in the subject property to entitle the lessee to a property-tax
       exemption. Cole Hospital, 113 Ill. App. 3d at 100, 446 N.E.2d at 565. There, the hospital
       conveyed legal title to a private organization, which in turn leased it back to the hospital for
       a term of 20 years. Cole Hospital, 113 Ill. App. 3d at 100, 446 N.E.2d at 565. The hospital
       entered the leaseback arrangement because it wanted to secure financing to build a new
       facility but had been unsuccessful in securing conventional bank financing. Cole Hospital,
       113 Ill. App. 3d at 97-98, 446 N.E.2d at 563. Pursuant to their agreement, the hospital had
       the absolute option to purchase the property as well as right of first refusal. Cole Hospital,
       113 Ill. App. 3d at 100, 446 N.E.2d at 565. However, the lease would remain in full effect
       in the event of a sale to a third party. Cole Hospital, 113 Ill. App. 3d at 100, 446 N.E.2d at
       565.
¶ 44            The agreement also made the hospital responsible for paying all the insurance and
       maintenance costs as well as the real estate taxes. Cole Hospital, 113 Ill. App. 3d at 100, 446
       N.E.2d at 565. This court found the agreement was undertaken as an alternative to
       conventional financing and the terms of the lease gave the hospital sufficient incidents of
       ownership in the property such that the hospital, a charitable institution, could qualify for a
       property-tax exemption. Cole Hospital, 113 Ill. App. 3d at 100-01, 446 N.E.2d at 565; see
       also Christian Action Ministry v. Department of Local Government Affairs, 74 Ill. 2d 51, 62-
       63, 383 N.E.2d 958, 963-64 (1978) (finding equitable ownership of property by a charitable
       organization for charitable purposes could qualify the organization for an exemption where
       the organization was purchasing the property contract for deed and did not have legal title;
       otherwise, a charitable institution unable to acquire customary financing would be
       penalized).
¶ 45            What distinguishes the case sub judice from Cole Hospital, Christian Action
       Ministry, and Coles-Cumberland is the applicant for the exemption. In Cole Hospital, the
       hospital, a charitable organization, filed for the exemption because under the lease terms it
       was responsible to pay the property taxes even though it no longer owned the property.
       Likewise, in Christian Action Ministry, the charitable organization applied for the exemption.
       In Coles-Cumberland, the charitable lessee was a coapplicant for the exemption and was
       responsible for payment of the property taxes. Coles-Cumberland, 284 Ill. App. 3d at 354-55,
       672 N.E.2d at 394-95. The requisite factors were weighed and the court found the lessee did
       not possess sufficient incidents of ownership to qualify for the exemption. See Coles-
       Cumberland, 284 Ill. App. 3d at 354-55, 672 N.E.2d at 394-95 (finding ownership remained
       with the nonexempt lessor where, inter alia, the lessee paid rent on the property and could
       not assign the lease or force the sale of the property without the lessor’s approval and the
       development of the property enhanced the lessor’s ownership value).
¶ 46            While we agree with the dissent that a charitable lessee could qualify for an
       exemption as the equitable owner if the requisite incidents of ownership are satisfied, that

                                                 -7-
       is not the case here. In this case, OKO, a noncharitable organization responsible for payment
       of the real estate taxes, applied for the exemption because it believed the Center was eligible
       pursuant to Cole Hospital and Coles-Cumberland. As stated, to qualify for a charitable
       exemption, section 15–65 requires both exempt ownership and use. See Provena Covenant
       Medical Center, 236 Ill. 2d at 390, 925 N.E.2d at 1145. We note neither party has been able
       to point to a case–nor has our research revealed one–where a nonexempt owner, rather than
       the charitable organization, was granted the tax exemption.
¶ 47            OKO argues even if the Center does not possess sufficient indicia of ownership to
       obtain the exemption under the original lease, the property should be exempt under the terms
       of the subsequent addenda because they relate back to the date of the original lease. We are
       unpersuaded. Under any version of the lease agreement, the Center is not responsible to pay
       the property taxes.
¶ 48            The terms of the lease between OKO and the Center required the Center to pay
       $1,000 rent per month. OKO waived payment of the rent (1) so long as the Center retained
       its tax-exempt status under the original lease and (2) so long as the Center continued its not-
       for-profit activities under the modified version of the lease. We recognize OKO’s charitable
       intentions under the circumstances. However, a nonexempt landlord may not claim an
       exemption simply because an exempt tenant conducts charitable activities on the leased
       premises. See Victory Christian Church v. Department of Revenue, 264 Ill. App. 3d 919,
       923, 637 N.E.2d 463, 465 (1994). We find granting an exemption to the nonexempt owner
       under the facts of this case to be an impermissible extension of our decision in Cole and one
       not contemplated by section 15–65. In light of the presumption in favor of taxation, the
       Department’s denial of the exemption was not clearly erroneous.

¶ 49                                  III. CONCLUSION
¶ 50         For the reasons stated, we affirm the circuit court’s judgment affirming the
       Department’s decision to deny the exemption.
¶ 51         Affirmed.

¶ 52            JUSTICE COOK, dissenting:
¶ 53            There is a strong presumption in favor of taxation, “preservation of the property tax
       base.” Cole Hospital, 113 Ill. App. 3d at 97, 446 N.E.2d at 563. All property is subject to
       taxation, unless exempt by statute, in conformity with the constitutional provisions relating
       thereto. Statutes granting tax exemptions must be strictly construed in favor of taxation.
       Provena Covenant Medical Center, 236 Ill. 2d at 388, 925 N.E.2d at 1143-44.
¶ 54            That is not to say that every claim for exemption must be denied. There is a public
       policy favoring the “encouragement of charitable works through tax exemption,” where a
       property is exclusively used for charitable purposes and is owned by a charitable
       organization. Cole Hospital, 113 Ill. App. 3d at 97, 446 N.E.2d at 563; Christian Action
       Ministry, 74 Ill. 2d at 62, 383 N.E.2d at 963-64. A pair of Illinois Supreme Court cases from
       the late 1970’s made clear that the concept of “ownership” is broader than mere situs of legal


                                                -8-
       title. Revenue collection is not concerned with refinements of title but with the realities of
       ownership, and although title is to be considered as one factor, it is not decisive. Control and
       the right to benefits of property are of far greater importance. “The key elements of
       ownership are control and the right to enjoy the benefits of the property.” People v. Chicago
       Title & Trust Co., 75 Ill. 2d 479, 489, 389 N.E.2d 540, 544 (1979) (land trust); Christian
       Action Ministry, 74 Ill. 2d at 61, 383 N.E.2d at 963 (contract for deed). There are few, if any,
       per se rules in the field of property taxation. Obviously not every lease qua lease will qualify
       for the exemption. But when, under proper circumstances, a sale-and-leaseback is used as
       a financing device, alternatively to conventional financing, it may qualify. Cole Hospital, 113
       Ill. App. 3d at 101, 446 N.E.2d at 565.
¶ 55            In Cole Hospital, the testimony was “undisputed” that the reason for the conveyance
       and lease-back arrangement was to permit the lessor, Safe Care, Inc., to take over the
       property in the event of a default, without foreclosure proceedings. “Cole had *** a troubled
       financial history.” Cole Hospital, 113 Ill. App. 3d at 100, 446 N.E.2d at 565. As to Safe
       Care, “[t]he exact nature of this organization is nowhere found in the record.” Cole Hospital,
       113 Ill. App. 3d at 98, 446 N.E.2d at 563. The ALJ complains here that OKO “did not clearly
       establish through documentary evidence” that the Center had a troubled financial history, that
       the sale-and-leaseback was its only financing option, or why the Regions Bank loan was
       called in. “No documentary evidence was provided to substantiate the fact that the loan was
       called in.” However, as in Cole Hospital, the evidence in this case is “undisputed.” The
       evidence was not contradicted by any witness or exhibit. Litigants should not be penalized
       for failing to call 10 witnesses when 1 is sufficient.
¶ 56            The majority states:
                “OKO’s status as a noncharitable organization is not in dispute in this case–OKO
                concedes it is not a charitable entity. This concession ends the discussion and OKO’s
                appeal. OKO argues its status as the true titleholder is irrelevant for exemption
                purposes because the Center, as the lessee, has sufficient indicia of ownership to
                qualify for the exemption. However, OKO cannot unilaterally step into the Center’s
                shoes and try to claim an exemption to which the Center might be eligible.”
                (Emphasis in original.) Supra ¶ 40.
¶ 57            That argument was not addressed by the parties, for obvious reasons. The County sent
       the tax bill to OKO. OKO was entitled to argue that it was not the “owner” for purposes of
       taxation. Proof that the Center was the “owner” is proof that OKO was not the owner. We
       are dealing with two sides of the same coin here. Was the property “owned” by OKO, in
       which event it was taxable? Or was it “owned” by the Center, admittedly a charitable
       institution? Again, the concept of “ownership” is broader than the mere situs of legal title.
       The fact that OKO was the titleholder does not resolve this case.
¶ 58            The majority’s argument may be that in the lease OKO covenanted to pay all real-
       estate taxes, if any. That covenant was intended to answer the criticism in Coles-Cumberland
       that the lessor improperly had the right to enjoy the benefits of the property. “The payment
       of the real estate taxes are part of the rent, and it clearly benefits [the lessor] not to have to
       pay these expenses.” Coles-Cumberland, 284 Ill. App. 3d at 354, 672 N.E.2d at 394. An


                                                  -9-
       agreement between parties as to who will make tax payments does not affect the right of the
       State to impose taxes. The State can collect taxes on my real estate from me, no matter what
       agreements I have made with other individuals to reimburse me. The question is, who is the
       true “owner”? Who has the realities of ownership: control and the right to enjoy the benefits
       of the property.
¶ 59            As the Department points out in its brief, property ownership, for purposes of tax
       collection, is not determined solely by record title. “Ownership” for purposes of section
       15–65 is ordinarily determined by the “realities of ownership” test. A court applying this test
       assesses whether the charitable institution has the requisite “incidents of ownership,” such
       as the right to alienate, change or improve, possess, use and enjoy the property, to be
       considered the owner of property for the purpose of an exemption. The Center here has the
       right to alienate the property. Under paragraph 10 of the original lease, as in Cole Hospital,
       the Center has the exclusive right to purchase the premises at any time for the then current
       fair market value. The Center also has the right to change or improve, possess, use, and enjoy
       the property. The Department complains that the Center’s right to purchase the property was
       conditioned on its tax status or tax-exempt activities. So what? The whole purpose of this
       transaction was to ensure that the property continued to be used for charitable purposes. The
       restriction of which the Department complains is no restriction at all. The lease in Cole
       Hospital also contained a requirement that Cole continue to use the property as a hospital and
       that any change in that status required the consent of Safe Care. Cole Hospital, 113 Ill. App.
       3d at 100-01, 446 N.E.2d at 565. A charitable exemption was denied in Coles-Cumberland,
       because under the 99-year lease in that case the lessee had no right to purchase the property.
       Any improvements in the property accordingly went to the benefit of the lessor. Coles-
       Cumberland, 284 Ill. App. 3d at 354-55, 672 N.E.2d at 394-95. That is not the case here. The
       Center has the right to purchase the property at any time, and all benefits in this case go to
       the Center.
¶ 60            The Department also argues that the provisions of the lease are not consistent with
       the use of a sale-and-leaseback agreement as a financing device because the Center did not
       pay rent, insurance, maintenance, or taxes under the lease. First of all, I disagree with the
       argument that the Center was not required to pay any taxes under the lease. Under paragraphs
       3 and 4 of the lease, the Center was required to pay rent of $1,000/month, but only if taxes
       were required to be paid. The requirement that the Center pay “rent” was effectively a
       requirement that the Center pay taxes. The ALJ found that under the original lease the lessee
       was responsible for “all utilities, maintenance and repairs and for maintaining insurance.”
       The Center has not paid those bills, however; they have been paid by a donation from
       Huston-Patterson Corporation. I do agree that any provisions that the Center not pay rent,
       insurance, or maintenance would be unusual in a commercial loan, but again, “so what”?
       Why is the lessor, OKO, not allowed to make a donation to the Center? True, OKO does not
       look much like a bank or other traditional lender, but neither did Safe Care, Inc., the lessor
       in Cole Hospital. The ALJ’s comment that Kowa’s good intentions have divested the Center
       of ownership, because this does not look much like a financing method, is mistaken. It is not
       necessary that the lease agreement mimic a conventional loan. Rather, it is necessary that the
       charity, not the lessor, have the right to enjoy the benefits of the property. The lessor’s lack

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       of benefits here actually reinforces the argument that real ownership rests in the lessee, the
       Center, and not the lessor.
¶ 61            The Department has taken inconsistent positions in this case. It began by arguing
       there was no charitable use. It now concedes there was a charitable use. The Department
       argued “there is no established safe harbor for a certain class of sale-and-leaseback
       agreements” by copying Cole Hospital, that the inquiry whether an agreement is an alternate
       financing device is done on a case-by-case, agreement-by-agreement basis. It later
       complained the agreement here did not “mimic” a conventional loan, “that the agreement in
       this case only resembles in passing the agreement in Cole Hospital.” During negotiations in
       this case, the Department complained that certain words and phrases in the lease did not
       adequately express the parties’ intent. When those words and phrases were changed as the
       Department suggested, the Department found other problems.
¶ 62            The Department argues that the status of an agreement as an alternate financing
       device depends on the intent of the parties and the manifestation of that intent in the
       provisions of the agreement. The intent of the parties in this case is undisputed. Joyce Keller
       testified the Center was having financial difficulties, that Regions Bank had called in its loan
       and mortgage, that the Center was facing foreclosure, and that she had unsuccessfully met
       with other banks and gone several places to try to get funding. Thomas W. Kowa testified
       he used the sale-and-leaseback procedure because he wanted to prevent the Center from once
       again encumbering the property. As in Cole Hospital, he wanted to permit OKO to take over
       the property in the event of a default without foreclosure proceedings. Cole Hospital, 113 Ill.
       App. 3d at 100, 446 N.E.2d at 565. The parties’ intent was clearly set out in paragraph 4 of
       the contract:
                “It is further acknowledged and agreed that it is the intention and purpose of both
                parties that Lessee continue its current exempt operations uninterrupted and unabated
                despite the technical change of ownership of the Premises, and that Lessee will take
                whatever action is necessary and reasonable to assist Lessor in its efforts to have the
                Premises leased to Lessee declared tax exempt.”
¶ 63            The Center continues the same charitable activities it has pursued for many years,
       which have been exempt from taxation. The Department concedes that the property is used
       for charitable purposes. The Center controls the use of the property and has the right to all
       benefits of the property. OKO receives no benefit from its “ownership” of the property. The
       denial of a charitable exemption in this case is clearly erroneous.




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