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Private developer not exempt from paying property tax at Scott AFB, court rules

By Ann Maher | Feb 25, 2014


A private developer is not exempt from paying property tax on housing units it built, maintains and leases to Scott Air Force Base, according to a recent ruling by the Fifth District Appellate Court.

In a Rule 23 order entered Feb. 13, Justices affirmed a decision St. Clair County Circuit Judge Stephen McGlynn made in 2011.

McGlynn found in favor of the County in its challenge to an Illinois Department of Revenue (DOR) review panel decision that exempted Scott Air Force Base Properties, LLC (SAFBP) from paying property tax on close to 400 housing units on the base.

A three-judge panel led by Justice Melissa Chapman looked at the decision made by DOR rather than McGlynn's ruling. Chapman found that the DOR decision was incorrect as a matter of law.

Chapman wrote that the developer’s argument, which the DOR adopted, was not persuasive. SAFBP argued that it was a non-taxable licensee and not a lease holder because it didn’t have exclusive control and possession over the premises. Chapman held that SAFBP’s agreement with the military gave it a taxable leasehold interest in the property.

According to the order, leases for military public/private residential developments (PPV leases) are not tax exempt under the Illinois Property Tax Code.

Chapman wrote that the lease at issue meets statutory criteria for taxation.

“Property owned by the federal government is exempt from state and local property tax,” she wrote. “However, if tax-exempt property is leased to a party whose property is not exempt from taxation, the property is assessed and taxed as the property of the lessee.”

Chapman wrote that McGlynn noted that SAFBP was a sophisticated party and was aware “that a leasehold interest could be taxed” under Illinois law.

The order states that the military’s request for proposal “RFP” specifically told bidders they should assume that their interest in the project would be subject to state and local property tax and that the lessee would be responsible for any such taxes assessed.

“As such, the court found it significant that none of the numerous documents involved in the agreement contain any language referring to the agreement as a license,” she wrote. “In addition, the court found that the requirements and guidelines related to the management of the rental units were necessitated by the fact that the units were on a military base.”

Justice Richard Goldenhersh concurred.

Justice Thomas Welch dissented, writing that he found that the agreement between parties conveyed only a license to use the property and not a leasehold.

“I would find that the agreement conveyed only a license to use the property for a specific purpose and that it is therefore not subject to taxation under the Property Tax Code,” Welch wrote.

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Illinois Department of Revenue