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Docket No. 86138-Agenda 12-March 1999.

THE STREETERVILLE CORPORATION, Appellant, v. THE DEPARTMENT OF REVENUE OF THE STATE OFILLINOIS, Appellee.

Opinion filed July 1, 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 exemptionfor a parking garage which it owns and operates for the use of Northwestern Memorial Hospital. We hold that it is soentitled.

BACKGROUND

The facts in this case are not in dispute. Both Streeterville and Northwestern Memorial Hospital are tax-exemptcorporations. One of the properties owned by Streeterville is a large parking garage located near the hospital in thedowntown Chicago area. During all times relevant herein, the garage, which contains 1,072 parking spaces, offereddiscounts to Northwestern employees, but was also open to the general public. Although the garage did not designate anyarea for exclusive parking by Northwestern personnel, the parties agree that 74% of the customers parking in the garagereceived 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 RevenueAct 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 providedhereinbefore and owned by any school district, non-profit hospital or school, or religious or charitable institutionwhich 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 inthe circuit court of Cook County. The circuit court set aside the Department's decision, finding that Streeterville wasentitled 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 itcould not identify any specific parking spaces which were used solely by hospital personnel. No. 1-97-2607 (unpublishedorder 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 whichproperty may qualify for a tax exemption despite a partial, nonexempt use. First, property may be wholly exempt from tax ifany nonexempt use can be described as "merely incidental." Skinner, 49 Ill. 2d at 66. Second, even where nonexempt use ismore than merely incidental, the property may nonetheless qualify for a partial exemption where an "identifiable portion" ofthe 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 merelyincidental. Thus, the dispositive question in this case is whether an "identifiable portion" of the parking structure is used forexempt purposes. The Department contends that the answer is no. The Department concedes, however, that if Streetervillehad designated certain parking spaces for use solely by hospital personnel, then the parking structure would be partiallyexempt. At oral argument, counsel for the Department suggested that Streeterville could get a partial exemption byassigning 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 chooserenders the entire parking structure taxable.

In support of its position, the Department makes two distinct arguments: first, that a taxpayer may never rely uponstatistical evidence concerning the use of its property in order to "identify" a portion of that property which is used forexempt purposes; and second, that allowing a partial exemption under these circumstances would create seriousadministrative 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 principlethat taxpayers may not use statistical evidence to identify an exempt portion of their property. In Evangelical Hospitals, theappellate court considered whether a pharmacy was entitled to a partial real estate tax exemption based upon evidence thatthe portion of the pharmacy's sales which constituted a nonexempt use accounted for only 15% to 20% of the pharmacy'soperating costs. The appellate court found such evidence insufficient to support a partial tax exemption, because "there wasno evidence establishing what portion [of the property] was used for sales to third parties at a markup and what portion wasused to sell to its own health care facilities." Evangelical Hospitals, 223 Ill. App. 3d at 231. The Department readsEvangelical Hospitals as establishing a blanket rule prohibiting the use of statistical evidence to identify an exempt portionof a taxpayer's property.

Assuming, for the sake of argument, that Evangelical Hospitals was correctly decided, we find its facts to be inapposite. InEvangelical Hospitals, the pharmacy presented evidence regarding the percentage of its sales which constituted an exemptuse. Such evidence says nothing about the amount of space which was used for exempt purposes, and thus could notdemonstrate that an "identifiable portion" of the property was used for such purposes. In contrast, the instant case concernsa claimed exemption for a parking garage based upon evidence concerning the use of space in the facility. By its verynature, the product which Streeterville deals in is space. Accordingly, evidence that 74% of Streeterville's customers werehospital 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 factswould create administrative difficulties for the Department. In the first place, administrative difficulties are hardly a legaljustification for disregarding a tax exemption. Arguably, every tax exemption may cause administrative difficulties. It is theresponsibility of the Department of Revenue to accommodate such difficulties. Secondly, we note the Department'spredicted difficulties did not, in fact, surface in this case. The record before us discloses that Streeterville and theDepartment had no difficulty agreeing upon the percentage of the parking facility which was used by hospital personnel.Finally, the law is clear that 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 theexemption applies. Evangelical Hospitals, 223 Ill. App. 3d at 231. Therefore, in those instances where the nature of theproperty makes it impossible to determine an "identifiable portion" of the property which is used for exempt purposes, thetaxpayer 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 facilitywhich, as agreed, is used by Northwestern Memorial Hospital personnel. Accordingly, we reverse the judgment of theappellate court, affirm the judgment of the circuit court, and remand the cause to the Department for proceedings consistentwith this opinion.

Appellate court judgment reversed;

circuit court judgment affirmed;

cause remanded.

JUSTICE HARRISON, dissenting:

Under Illinois law, all property is subject to taxation unless specifically exempted by statute in conformity with thegoverning provisions of our constitution. Rogers Park Post No. 108 v. Brenza, 8 Ill. 2d 286, 289-90 (1956). Taxation is therule. Tax exemption is the exception. Chicago Bar Ass'n v. Department of Revenue, 163 Ill. 2d 290, 301 (1994); City ofChicago v. Illinois Department of Revenue, 147 Ill. 2d 484, 491 (1992).

Consistent with these principles, statutes exempting property from taxation are to be strictly construed in favor of taxation.Chicago Patrolmen's Ass'n v. Department of Revenue, 171 Ill. 2d 263, 271 (1996). If there is any doubt as to applicabilityof an exemption, it must be resolved in favor of requiring that tax be paid. Van's Material Co. v. Department of Revenue,131 Ill. 2d 196, 216 (1989). We presume that the exemption is inapplicable (Van's Material Co., 131 Ill. 2d at 216), and theparty seeking the exemption has the burden of proving otherwise by clear and convincing evidence (see Institute of GasTechnology v. Department of Revenue, 289 Ill. App. 3d 779, 782 (1997)).

The Illinois Constitution of 1970 provides: