Institute of Gas Technology v. Department of Revenue

                                                            Second Division
                                                              June 30, 1997










No. 1-96-1735


INSTITUTE OF GAS TECHNOLOGY,       )  Appeal from the
                                   )  Circuit Court of
     Plaintiff-Appellant,          )  Cook County.
                                   )
     v.                            )  
                                   )
THE DEPARTMENT OF REVENUE,         )  Honorable
                                   )  George Smith,
     Defendant-Appellee.           )  Judge Presiding.


     JUSTICE RAKOWSKI delivered the opinion of the court:
     Plaintiff, Institute of Gas Technology (IGT), appeals from
an order confirming the decision of the Department of Revenue
(the Department) that denied IGT's 1993 application for a
charitable real estate tax exemption.  We affirm.
                                   FACTS
     IGT is a not-for-profit Illinois corporation that conducts
research and education in the energy and environmental fields. 
It has no shareholders or capital stock, pays no dividends, and
its directors are not compensated.  It generally shows no profit
at year end.  IGT has been granted a section 501(c)(3) federal
tax exemption (26 U.S.C. 501(c)(3) (1994)), and exemptions under
Illinois law for retailers occupation tax (35 ILCS 120/1 et seq.
(West 1994)), use tax (35 ILCS 105/1 et seq. (West 1994)),
service occupation tax (35 ILCS 115/1 et seq. (West 1994)), and
service use tax (35 ILCS 110/1 et seq. (West 1994)), because it
is organized and operated exclusively for educational purposes.
     IGT conducts research in the natural gas industry and seeks
to develop alterative energy sources to compete with natural gas
to provide the public with a broader base of energy choice.  Two
examples of its research are the fuel cell energy system and
processes to turn Illinois' abundant coal into a form of useable
energy.  The fuel cell method is an advanced form of electricity
generation.  It is highly efficient, has almost zero emission,
and makes almost no noise.  Additionally, it is employable in
small incremental units so there is no need for a central power
station.  IGT also developed a strain of bacteria that converts
coal into a vaporous form of fuel.  The resulting vaporous form
is a clean gas that can be used to generate electricity.
     Bernard S. Lee, president of IGT, testified that IGT does
not respond to bids for projects but instead develops concepts
and then solicits funding.  According to Lee, IGT's scientists
and engineers generate a concept.  They then utilize limited, in-
house funding to perform preliminary research to ascertain
whether the concept is viable.  If the concept is found viable,
IGT then seeks funding to further develop the project.  Lee
stated that 95% to 98% of IGT's funding comes from solicited
sponsorship.  He also testified that IGT conducts 85% of its
research for nonmembers.
     IGT derives revenue from two sources: (1) sponsored research
and (2) "other" sources, including membership dues, course fees,
royalty income, and miscellaneous income.  Total revenue in 1993
was $22,077,800; $14,953,900 (68%) in sponsored research and
$7,123,900 (32%) in "other" revenue.  In 1993, IGT showed a net
loss of $240,000.
     IGT does grant licenses and patents for some of its
research.  Lee testified that IGT first exhausts all nonexclusive
avenues to disseminate a concept before granting a license or
patent.  Only when there is no alternative method to ensure
development for an ultimate public use does IGT grant an
exclusive license.  Lee also testified that patents are sometimes
granted to protect the concept itself.  In some instances, if a
patent is not granted, the concept could fall into the hands of
other entities and its benefit might not ultimately fall upon the
public.  Additionally, Lee stated that patents are a means to
fund research necessary to carry a project forward.
     Lee testified that all of its research results are published
and made available to the public.  Government research projects
are submitted to the National Technical Information Service for
publication.  This organization makes the publications available
to the public for the cost of handling.  IGT's staff publishes
other research results in journals, magazines, and public forums. 
Additionally, the results are available at IGT's library, open to
the public, and on its database.  Finally, IGT responds to public
requests for information at no charge.
                                ANALYSIS  
                          I.  STANDARD OF REVIEW
     Exemption statutes are to be strictly construed in favor of
taxation.  Chicago Patrolmen's Ass'n v. Department of Revenue,
171 Ill. 2d 263, 271 (1996).  All facts and debatable questions
are to be resolved in favor of taxation.  City of Chicago v.
Illinois Department of Revenue, 147 Ill. 2d 484, 491-92 (1992). 
The party seeking the exemption has the burden of proving by
clear and convincing evidence that it is entitled to the
exemption.  Chicago Patrolmen's Ass'n, 171 Ill. 2d  at 271.  Each
claim for exemption is to be evaluated from the facts present in
the case.  Chicago Patrolmen's Ass'n, 171 Ill. 2d  at 271. 
"Whether an institution has been organized and is operating
exclusively for a purpose exempt from real estate tax is to be
determined from its charter and bylaws and the actual facts
relating to its method of operation."  Du Page County Board of
Review v. Joint Comm'n on Accreditation of Healthcare
Organizations, 274 Ill. App. 3d 461, 466 (1995). 
     "The findings and conclusions of the administrative agency
on questions of fact shall be held to be prima facie true and
correct."  735 ILCS 5/3-110 (West 1994).  Accordingly, the
reviewing court's function is limited to determining whether the
Department's decision is against the manifest weight of the
evidence.  Wyndemere Retirement Community v. Department of
Revenue, 274 Ill. App. 3d 455, 459 (1995).   However, when the
facts are undisputed, the question of whether property is exempt
is a question of law.  Chicago Patrolmen's Ass'n, 171 Ill. 2d  at
271.  Then, "the decision as to whether property is exempt
depends solely upon the application of the appropriate legal
standard to the undisputed facts."  Du Page County Board of
Review, 274 Ill. App. 3d at 467.  In other words, the question is
whether the circuit court properly found that the property in
question was not entitled to tax-exempt status.  Lutheran General
Health Care System v. Department of Revenue, 231 Ill. App. 3d
652, 660 (1992).
     The only disputed question in the instant case is whether
IGT's research confers a direct benefit to an indefinite number
of people or whether the benefit falls primarily on the sponsors
and only indirectly on the public.  Because this is a disputed
inference to be drawn from undisputed facts, the manifest weight
of the evidence standard applies.
                           II. EXEMPTION STATUS
     Initially, we note that plaintiff does not contend that,
because it possesses a federal exemption and Illinois exemptions
for retailers occupation tax, use tax, and service taxes, it is
therefore entitled to a real property tax exemption.  In fact, it
admits otherwise and quotes: "But these exemptions [federal and
Illinois sales and use tax] do not 'furnish material facts about
exclusive charitable use of property under our constitution,'
[citations] and the existence of such exemptions is not
determinative of the issue before us [charitable property tax
exemption]."  People ex rel. County Collector v. Hopedale Medical
Foundation, 46 Ill. 2d 450, 464 (1970).
     Pursuant to the Illinois Constitution's grant of power
authorizing the legislature to exempt certain property from
taxation (Ill. Const. 1970, art. IX, 6), the legislature adopted
what was then identified as section 19.7 of the Revenue Act of
1939. 35 ILCS 15/-65 (West 1994).  This section states, in
pertinent part:
               "All property of the following is exempt
          when actually and exclusively used for
          charitable or beneficent purposes, and not
          leased or otherwise used with a view to
          profit:
               (a) institutions of public charity."  35
          ILCS 200/15-65 (West 1994).
Two elements are required to entitle a parcel to exemption:
charitable use and ownership by a charitable organization. 
Chicago Patrolmen's Ass'n, 171 Ill. 2d  at 270.
     The Department determined that IGT was not entitled to an
exemption because: (1) it presented no evidence that a sliding
fee scale was ever applied; (2) it presented no evidence that it
discharged any debt; and (3) its benefits were restricted to
those who could afford royalty payments and the benefits were not
available to an indefinite number of people.
     In confirming the Department's decision, the circuit court
noted that IGT was not entitled to the exemption since it failed
to demonstrate that its purpose was for charity.  In agreeing
that the public benefitted only indirectly, the court stated:
          "While it appears that the federally funded
          research could be conceived to provide
          incidental public benefit, this benefit, more
          exactly, flowed to corporations within the
          public domain.  The benefit from research
          funded by other sources inured to an even
          more restricted group, those comprised of
          providing the funding.  The fact Taxpayer's
          research information was published and made
          available does not confer a benefit to an
          indefinite number of persons when the
          majority of, Taxpayer's resources were
          devoted to industry specific applications and
          generally made available for contributing
          members."
In addition, the court stated that since some private entitles
were given a share of royalty income, the benefit of the research
inured to the private entities, not the general public.  The
circuit court found that North Star Research Institute v. County
of Hennepin, 306 Minn. 1, 236 N.W.2d 754 (1975) (discussed
below), was both factually similar and persuasive.
     In Methodist Old Peoples Home v. Korzen, 39 Ill. 2d 149
(1968), the Illinois Supreme Court outlined the following
criteria in evaluating whether property is exempt from taxation
based on a charitable use:
               " '(1) the benefits derived are for an
          indefinite number of persons [for their
          general welfare or in some way reducing the
          burdens on government]; (2) the organization
          has no capital, capital stock or
          shareholders, and does not profit from the
          enterprise; (3) funds are derived mainly from
          private and public charity, and the funds are
          held in trust for the objects and purposes
          expressed in the charter; (4) the charity is
          dispensed to all who need and apply for it;
          (5) no obstacles appear to be placed in the
          way of those seeking the benefits; and (6)
          the exclusive (primary) use of the property
          is for charitable purposes.' "  Vermilion
          County Museum Society v. Department of
          Revenue, 273 Ill. App. 3d 675, 678 (1995),
          quoting Decatur Sports Foundation v.
          Department of Revenue, 177 Ill. App. 3d 895,
          900 (1988), citing Methodist Old Peoples
          Home, 39 Ill. 2d  at 157.
     At the onset, we agree with Du Page County Board of Review
that the Methodist Old Peoples Home factors are guidelines and
not definitive requirements.  Du Page County Board of Review, 274
Ill. App. 3d at 468.  "A review of Methodist Old Peoples Home,
together with the Illinois case law that interprets it, confirms
that our supreme court did not intend to have these factors used
as requirements for assessing an institution's charitable status. 
Instead, these factors were to be used as guidelines for such an
assessment."  Du Page County Board of Review, 274 Ill. App. 3d at
468.  Thus, a rigid formula is not to be applied to all fact
situations but instead "courts consider and balance the
guidelines by examining the facts of each case and focusing on
whether and how the institution serves the public interest and
lessens the State burden."  Du Page County Board of Review, 274
Ill. App. 3d at 469.
     No cases in Illinois address the issue of whether a research
institute such as IGT serves a charitable purpose and none of the
cases we have found are factually similar.  Although the parties
cite numerous cases in support of their positions, none involves
an entity comparable to IGT with the exception of Gas Research
Institute v. Department of Revenue, 154 Ill. App. 3d 430 (1987). 
     Gas Research Institute, however, is not particularly helpful
since the nature of the entities and their functions are
different.  Gas Research Institute (GRI) was a not-for-profit
company funded by a federally authorized surcharge on interstate
pipeline transfers that was passed along to consumers.  GRI's
stated purpose was "funding, encouraging, and conducting research
and development of natural gas resources and uses."  Gas Research
Institute, 154 Ill. App. 3d at 432.  It was organized and
operated solely by members of the gas industry.  The court denied
a charitable sales tax exemption to GRI, finding that it failed
to benefit the public generally.  Although the public was
benefitted by GRI's efforts to make natural gas more appealing,
the court found that this benefit was indirect and not primary or
substantial.  Gas Research Institute, 154 Ill. App. 3d at 437. 
Instead, GRI's primary purpose was to "enhance the position of
natural gas in the energy marketplace."  Gas Research Institute,
154 Ill. App. 3d at 436.  IGT, however, is not operated by or for
any particular industry.  It does research in various industries
and is funded from numerous sources, unlike GRI, which was funded
solely by the gas industry.  The fact GRI was denied a sales tax
exemption and IGT possesses a sales tax exemption does not
command a finding that IGT is consequently entitled to a
charitable property tax exemption.  The basis for GRI's sales tax
exemption was a charitable purpose while the basis for IGT's
sales tax exemption was an educational purpose.  The elements
necessary to sustain an exempt status based on educational
purposes are different from those required to sustain an exempt
status on charitable purposes.  Yale Club v. Department of
Revenue, 214 Ill. App. 3d 468, 474 (1991); American College of
Chest Physicians v. Department of Revenue, 202 Ill. App. 3d 59,
64 (1990).  Moreover, simply because an entity is entitled to one
type of exemption does not necessarily signify it is entitled to
another type of exemption.  See, e.g., Gas Research Institute,
154 Ill. App. 3d 430 (although institute granted an Illinois
income tax exemption, sales tax exemption denied).
     Two other jurisdictions have addressed the tax-exempt status
of research institutes, although involving personal property tax
exemptions.  In North Star Research Institute, cited by both
parties and the circuit court, the Minnesota Supreme Court denied
a personal property tax exemption after determining that North
Star was not undertaking a charitable activity.  North Star was a
nonprofit corporation and generally realized no year-end profits. 
It undertook research in various areas from commercial use of
waste products to billing and accounting procedures.  It
performed research at the request of its clients, who defined the
scope of the research.  North Star's objective was "to put the
benefits of research to the purposes of commerce."  North Star
Research Institute, 306 Minn. at 7, 236 N.W.2d  at 757. 
     The North Star court analyzed numerous cases in rendering
its decision and found two distinct characteristics of North Star
that precluded an exempt status: its activities did not benefit
the public generally and its information was not disseminated to
the public.  In all cases allowing exemptions, "no person or
corporation gain[ed] a profit or commercial advantage as the
immediate and intended direct consequence of the 'charity.' " 
North Star Research Institute, 306 Minn. at 7, 236 N.W.2d  at 757. 
North Star performed research at the request of private
enterprises that were engaged in business for profit.  North
Star's "concern [was] not to develop knowledge in the abstract,
with possible indirect benefit to private enterprise, but instead
to apply research tools to the particular problems of a
particular business enterprise for the specific purpose of
developing data or processes which [could] be turned into a
profit for the beneficiary of the information."  North Star
Research Institute, 306 Minn. at 7, 236 N.W.2d  at 757-58. 
Accordingly, because North Star's objective was to put the
benefits of its research to the purposes of commerce, the court
determined that the clients benefitted; North Star's activities
did not directly benefit the public.  The court also noted that
the activities undertaken by North Star, unlike in cases awarding
exemptions, were not in areas that the federal or state
government historically supported with public funds.
     A second characteristic of North Star's activities was that
the information developed was not made available to the public
generally.  Instead, the research became the exclusive property
of the enterprise for which the research was conducted.  Although
noting that other cases have allowed exemptions, the North Star
court stated "but in each instance emphasis was placed on the
circumstances that the data, information, and publicity generated
by the organization *** were made available to the people
generally, or at least such segments of the public as might have
an interest in the subject matter."  North Star Research
Institute, 306 Minn. at 15, 236 N.W.2d  at 761.   In contrast,
North Star operated in "large measure as a business for the
benefit and financial advantage of commercial enterprises." 
North Star Research Institute, 306 Minn. at 11, 236 N.W.2d  at
759.  
     In summary, the court stated:
          "If it is possible to derive a principle from
          the other cases mentioned, it would be that a
          claim for tax exemption by an organization
          engaged in research in whole or in part, may
          be viewed sympathetically by the courts,
          depending on whether the entity involved
          makes the product of its research efforts
          available to the public generally.  If access
          to the information generated by the study and
          research is limited in whole or in
          significant part to the commercial advantage
          of the person receiving it, and that is the
          case here, exemption will probably be denied,
          particularly in situations where the
          determinative language is 'a purely public
          charity' or words of like import."  North
          Star Research Institute, 306 Minn. at 16, 236 N.W.2d  at 762.
     Eyring Research Institute v. Tax Comm'n, 598 P.2d 1348 (Utah
1979), also involved a personal property tax exemption.  The Utah
Supreme Court denied the exemption, finding the entity was not
sufficiently devoted to a charitable purpose.  In Eyring, 96% of
the entity's work was for the government; the remaining 4% was
for private organizations.  Research was conducted in various
fields including protection of government missiles while in
flight, development of a feasible coal gasification process,
creation of highway safety barriers, improvement of water
quality, and development of a ski resort.  The research was
generally available to the public after it was provided to the
client.  However, Eyring would withhold dissemination if a
private client requested.  In reaching its decision, the court
deemed this factor rather significant:
          "However, the record fails to demonstrate
          that Petitioner's function as a disseminator
          of knowledge is paramount to its chief
          preoccupation, which is the satisfaction of
          its individual customers."  Eyring Research
          Institute, 598 P.2d  at 1350.
In reasoning that Eyring was not a charitable organization, the
court outlined the following factors.  First, one-half of its
research was for the government and involved areas that are not
recognizable as charities.  Second, Eyring's efforts were focused
on a finite, ascertainable number of individual clients and its
public benefit was only incidental.  Eyring's discoveries reached
the public only when and if the client passed them on through
commerce.  Third, Eyring would restrict disclosure of its
research at its client's request.  Finally, Eyring's function in
disseminating information was not its primary purpose.  Eyring
Research Institute, 598 P.2d  at 1351.
     The Eyring court, although noting that the definition of
"charity" was taking on "multifarious forms," stated that "the
more remote the objects and methods become from the traditionally
recognized objects and methods the more care must be taken to
preserve sound principles and to avoid unwarranted exemptions
from the burdens of government."  Eyring Research Institute, 598 P.2d  at 1352.
     Although neither North Star Research Institute nor Eyring
Research Institute is binding upon us, we find their analyses
persuasive.  The most prominent factors to be gleaned from the
cases relative to evaluating research institutes in the context
of charitable exemptions are: (1) Is the institute's research
available to the public? and (2) Who directly benefits from the
institute's research efforts, taking into consideration the
ability of the research to reduce governmental burdens and the
remoteness of the nature of the research from traditional notions
of charities?
     There is no question in the instant case that IGT's
information is available to the public or at least to that sector
of the public that is interested.  The ultimate issue, however,
as agreed to by the parties, is, Who directly benefits from IGT's
research?
     Lee testified that IGT had in place a sliding fee scale for
its courses and would forgive a debt should a party be unable to
pay.  Initially, we note that these provisions are contained only
in the bylaws and not in the course schedules, applications, or
contracts.  Thus, members of the public and even sponsors would
not be aware of the waiver provisions unless they read the
bylaws.  In Du Page Art League v. Department of Revenue, 177 Ill.
App. 3d 895, 900 (1988), the fact that the waiver provisions were
not contained in the public brochures or on the application forms
was found to be relevant in denying an exemption.  Moreover, IGT
presented no evidence it had ever reduced a fee for any person or
entity or that it had forgiven a debt.  Accordingly, there is
evidence from which the Department could determine that obstacles
to the benefits exist.
     As to who directly receives the benefits of IGT's research,
the record contains evidence from which the Department could
determine that the general public was not directly benefited.  In
this regard, we see no viable distinction between the fact that
IGT solicits funds to sponsor research and that, in the
aforementioned cases, the research was requested.  It is
reasonable to conclude that, if IGT's sponsors did not expect a
direct benefit from the research and development, they would not
be willing to furnish funds to IGT.  While it is true that some
funds are given to IGT without strings attached (sustaining
members dues), there is evidence that IGT's sponsors reap the
direct benefits of the research efforts.  The sponsors directly
benefit, since they may eventually place the development in the
stream of commerce or apply it in their own companies for better
energy efficiency or enhanced progress.
     While we agree that IGT's research projects could benefit an
indefinite number of people if a viable alternative energy
resource is developed, we find it hard to say at this time that
the direct benefit is to the public.  The only way the public
could utilize the development is if it is channeled through
commercial means by the sponsors.  However, by channeling the
development through commerce, its sponsors themselves directly
benefit via the revenues they would make.  In this regard, North
Star Research Institute is instructive:
          "It is true of course that a public advantage
          is achieved ultimately whenever a process is
          discovered which makes it possible to produce
          goods or services more efficiently and
          economically than would otherwise be the
          case.  But this public benefit is an indirect
          one and is not the immediate objective of
          [North Star's] undertaking."  North Star
          Research Institute, 306 Minn. at 7-8, 236 N.W.2d  at 758.
As in North Star, one of IGT's missions is ultimate
commercialization of the concept and it admits this purpose.
     Finally, we concur with those courts that have focused upon
the particular activity involved to determine its remoteness from
traditional notions of charity and whether the activity is one
the government has historically supported.  We note that most
decisions have dealt with activities that are traditionally
considered charitable.
          "In all of these situations *** the activity
          involved is one which our state and Federal
          governments have historically supported with
          public funds.  Government programs for relief
          of poverty, care for the sick and aged, and
          the education and training of young people
          have been long and widely accepted.  It can
          be said with respect to activities that are
          traditionally 'charitable' that ultimately
          people will benefit in an economic sense from
          the charitable undertaking.  Persons relieved
          from poverty and illness and the restraints
          of old age demand less of, and contribute
          more to, the economic well-being of a
          community than do those who are not so
          relieved.  A person who receives the benefits
          of an education, whether theoretical or
          practical, may add more to the well-being of
          a society than one who is not so advantaged. 
          It has been recognized that religious
          education and training add to the moral
          strength of a community."  North Star, 306
          Minn. at 7, 236 N.W.2d  at 757.  
The research in North Star was not the type traditionally
recognized as charitable and the court determined that the
research possessed characteristics that distinguished it from
those types of research recognized as charitable.  IGT's research
is akin to that in North Star and Eyring; it is the sort that is
not recognized as a traditional charity.
     While we acknowledge that the definition and concept of
"charity" are continually evolving, we agree with Eyring that the
further away from traditional notions of charity the activity is,
the more exacting the courts must view the activity.
               "We are sensitive to the multifarious
          forms which acts of charity may assume.  ***
          ***
               'Notwithstanding the law's
               acknowledgement of the manifold new
               forms in which charity may find
               expression, the more remote the
               objects and methods become from the
               traditionally recognized objects
               and methods the more care must be
               taken to preserve sound principles
               and to avoid unwarranted exemptions
               from the burdens of government.' " 
               Eyring, 598 P.2d  at 1351-52,
               quoting Boston Chamber of Commerce
               v. Assessors of Boston, 315 Mass.
               712, 718, 54 N.E.2d 199, 202, 152
               A.L.R. 174, 179 (1944).
Each claim must be evaluated on its own facts and we should not
apply a rigid formula but instead should "consider and balance
the guidelines by examining the facts of each case and focusing
on whether and how the institution serves the public interest and
lessens the State burden."  Du Page County Board of Review, 274
Ill. App. 3d at 469.  
                                CONCLUSION
     Based on the above, we conclude that plaintiff failed to
meet its burden of proving its exempt status by clear and
convincing evidence.  Accordingly, the decision of the circuit
court of Cook County is affirmed.
     Affirmed.
     DiVITO, P.J., and TULLY, J., concur.