The Kankakee County Board of Review v. The Property Tax Appeal Board

Docket No. 102318.

IN THE

SUPREME COURT

OF

THE STATE OF ILLINOIS

THE KANKAKEE COUNTY BOARD OF REVIEW, Appellant, v.

THE PROPERTY TAX APPEAL BOARD et al., Appellees.

Opinion filed June 7, 2007.

JUSTICE BURKE delivered the judgment of the court, with

opinion.

Chief Justice Thomas and Justices Fitzgerald, Kilbride, Garman,

and Karmeier concurred in the judgment and opinion.

Justice Freeman took no part in the decision.

OPINION

Section 1–130 of the Property Tax Code (Code) defines taxable

property as “[t]he land itself, with all things contained therein, and

also all buildings, structures and improvements, and other permanent

fixtures thereon, *** and all rights and privileges belonging or

pertaining thereto, except where otherwise specified by this Code.” 35

ILCS 200/1–130 (West 2004). In the instant case, petitioner

Kankakee County board of review assessed the property of

respondent Natural Gas Pipeline Company of America (taxpayer1) for

the tax years of 2000 and 2001. In its assessments, petitioner included

the value of the rights and privileges taxpayer enjoys to two gas

storage reservoirs that lie under the surface property of others.

Taxpayer appealed these assessments before the Property Tax Appeal

Board (PTAB) which found that the rights and privileges to the

reservoirs should not have been assessed to taxpayer’s property. The

PTAB then reduced the property’s assessed value for each year. The

appellate court confirmed the decision of the PTAB.

We granted petitioner’s petition for leave to appeal (210 Ill. 2d R.

315) and permitted the Central Illinois Public Service Company,

Central Illinois Light Company, Centerpoint Energy-Mississippi River

Transmission Corporation, Commonwealth Edison Company, Illinois

Power Company, Invenergy Investment Company LLC, Magellan

Pipeline Company, L.P., Northern Illinois Gas Company, d/b/a Nicor

Gas, North Shore Gas Company, and the Peoples Gas Light and Coke

Company to file a brief amici curiae in support of taxpayer. We have

also permitted the Illinois Telecommunications Association to file a

brief amicus curiae in support of all respondents. For the reasons that

follow, we find that the rights and privileges to the reservoirs should

not be included in the assessment of taxpayer’s property, and affirm

the judgment of the appellate court.

BACKGROUND

Taxpayer, a subsidiary of Kinder Morgan, a Kansas corporation,

owns a 75.976-acre parcel of land in Kankakee County (hereinafter,

the subject property) on which it operates a multibuilding control

center. The control center, known as Compressor Station 201,

facilitates the piping of gas to a cross-country pipeline 16 miles away

and the storage of natural gas in two underground storage facilities.

The underground storage facilities, known as “reservoirs,” are actually

two separate layers of porous rock lying 1,700 and 2,400 feet below

1

This term includes both the current owner, Natural Gas Pipeline

Company of America, and its predecessor, Natural Gas Storage Company

of Illinois, a Delaware corporation.

-2-

the surface, respectively. These reservoirs2 lie below approximately

15,600 surface acres that surround and include the subject property.

Taxpayer owns the portion of the reservoirs that lies directly below

the subject property, but does not own any of the surrounding 15,600

acres or the reservoirs that lie below them.

For storage purposes, natural gas is injected into the reservoirs

through a system of pipes that connect the pipeline to the compressor

station, and connect the compressor station with 281 wells that reach

down into the reservoirs at various surface points throughout the

15,600 acres. The injected gas displaces the water that naturally

occurs within the porous rock. The displaced water then creates a

natural “vessel” which keeps the gas from escaping laterally. The gas

is prevented from exiting to the surface by a layer of nonporous rock

that is likened to an upside-down soup bowl. The injection process is

reversed when gas is removed from the reservoirs. Taxpayer charges

its customers monthly reservation charges and tariffs based on gas

volume transported.

In the early 1950s, before it acquired the subject property or began

construction of the compressor station, taxpayer secured voluntary

easements from the owners of the land that lay above and included the

reservoirs so that it could install and operate the wells and pipes used

in its storage system. The easements taxpayer acquired are similar for

each granting owner. An easement identified as “the Dickman

easement,” which was found to be representative by the PTAB, reads

in pertinent part: “This instrument made this [date] by record owner

[name of the fee landowner], herein referred to as Grantors, is in favor

of Natural Gas Storage Company of Illinois, a Delaware corporation,

herein referred to as Grantee.” The easements give taxpayer, as

grantee, “the exclusive right, privilege and easement to introduce

natural gas or other gases or vapors *** into the [reservoirs] *** to

store gas in said storage reservoir and retain the possession of gas so

stored as personal property, [and] to remove gas *** from the storage

reservoir.”

2

The reservoirs are part of a much larger underground geological

formation known as an aquifer. Any testimonial references to “the aquifer”

can be inferred to be references to the reservoirs at issue.

-3-

The easements also give taxpayer the right to drill wells, construct

and maintain those wells, lay pipes and electric lines on the grantees’

properties, and to enter onto the grantees’ properties to maintain the

wells and pipes. In return, taxpayer pays each landowner an annual

monetary sum. Taxpayer also agrees to pay the landowners for any

damage to crops, timber, or fences that its activities may cause, and

to provide grantees with free city water.

In 1952, orders from the Illinois Commerce Commission (ICC)

and Federal Power Commission (FPC) gave taxpayer the exclusive

right to store gas in the reservoirs, to construct Compressor Station

201, to run approximately 16 miles of pipe from Compressor Station

201 to the cross-country pipeline, to dig the wells down to the

reservoirs, and to lay the pipe that connects the wells with

Compressor Station 201.3 Once the FPC and ICC orders were in

place, taxpayer purchased the subject property from Otto Kruse and

constructed Compressor Station 201. Operations began thereafter and

continue to this day.

Petitioner assessed the subject property based on market values of

$17,160,849 for the tax year of 2000, and $32,000,000 for the tax

year of 2001. Market value is defined by the Uniform Standards of

Professional Appraisal Practice as “the most probable price which a

property should bring in a competitive and open market under all

conditions requisite to a fair sale, the buyer and seller each acting

prudently and knowledgeably, and assuming the price is not affected

by undue stimulus.”

Taxpayer paid the taxes in full for each year, and then appealed

both the 2000 and 2001 assessments to the PTAB. These appeals

were consolidated. Before the PTAB, taxpayer submitted several

other appraisals of the subject property, all of which estimated its

market value at between $1,625,000 and $1,700,000. Kankakee

County officials, employees of taxpayer, and the drafters of all the

3

As the 1950s progressed, the FPC and ICC issued additional orders

allowing alterations and expansions to the original control center. In 1958,

taxpayer sought to expand its use of the aquifer to an even deeper layer of

porous rock, and filed supplemental applications with the ICC and FPC,

which were approved.

-4-

appraisals appeared and testified at two hearings before the PTAB in

April 2002 and May 2003.

At the 2002 hearing, Brad Baker, the assessor for the subject

property’s township, testified that he assessed the subject property for

the 2000 tax year based on a market value of $17,000,000. He

testified that this market value “was on the books, and it was just a

value that’s been carried on throughout the years.” Baker stated that

he did not know how any of the previous assessment values, or the

“cost ladders” detailing appreciation, were calculated.

Sheila Donohoe, the chief county assessment officer for Kankakee

County, also testified. Donohoe testified that she had no record of any

complete appraisal of the subject property prior to the year 1999,

although adjustments to the valuation of the subject property had been

made throughout the years to account for the addition of new

buildings and structures. Donohoe stated that the county’s assessment

records for the subject property make no reference to the reservoirs,

nor attribute a value to them. Donahoe also testified that the county

does not assess pipelines.

Steven Beatty, a member of the board of review, testified that

petitioner endorsed the $17,000,000 market value provided by Baker

for 2000 based on “testimony and research that was done and review

of information that was available at the hearings that we had, as well

as research that we did elsewhere.” Beatty also testified that petitioner

based its 2001 assessment on an appraisal of the subject property’s

market value prepared by Gary DeClark and Nancy Myers of Integra

Realty Resources of Chicago (Integra).

Integra’s appraisal was entitled “A Converted Aquifer Natural

Gas Storage Facility of 101.4 BCF Capacity Beneath 75.976 Fee

Owned Acres at 5611 S. West Road And Inclusive of Subterranean

Easement Rights Beneath Some 15,600 Acres of Unowned Land.”

The “Special Limiting Conditions” section of the appraisal stated,

“[T]he subject’s storage field actually lies below the surface of

some 15,600 acres of land; meanwhile, that land area under

fee ownership, according to available public records, is 75.976

acres, a mere fraction of the total surface area over the storage

field. Therefore, this analysis assumes that the rights to be

considered include the subterranean easement rights for access

-5-

to and utilization of the storage field across the remaining

15,600 + acres of land not owned in fee title by subject

property ownership.”

The assumption that the subject property is the beneficiary of

easement rights to the reservoirs was repeated and relied upon several

times throughout Integra’s appraisal. On cross-examination, DeClark

admitted that he did not read the gas storage easements before he

prepared his appraisal. He also admitted that, upon inspection, the

easements name taxpayer as the grantee, and not the subject property,

or any specific piece of property. When asked to indicate on a map

exactly where the parcels burdened by easements were, DeClark was

unable to do so. DeClark also admitted that portions of the reservoirs

extend into Iroquois County, and that his appraisal did not take that

fact into account.

DeClark testified that he believed taxpayer’s easements, along

with the permits and certifications from the ICC and FPC, created a

“bundle of rights” that met the “unit rule” test of common ownership,

which is why he included them in the valuation. DeClark defined the

unit rule as “a rule in real estate valuation that requires the value of

the property in its entirety or its whole to be valued as an entity, rather

than the summation of the various parts to which it may have been

divided.” The unit rule should be applied, DeClark stated, if a

common use, common ownership, and contiguity are all present in the

property being appraised. DeClark explained that, in applying the unit

rule to the subject property, he looked at the relationship between the

reservoirs and the subject property and found a common use and

contiguity because “the entire entity of [taxpayer’s] facility, which

incorporates the buildings, the 75 acres and the subterranean easement

rights to use the aquifer for gas storage is the use.” DeClark stated

that the “common ownership” requirement of the unit rule was met

because taxpayer “owns the land in fee and also owns the buildings

thereon, but it also has a portion of the bundle of rights that ascribe to

it from the use of the [reservoirs.]” On cross-examination, DeClark

admitted that he did not mention the unit rule in his appraisal but

considered it “implicit in the valuation analysis that [he] conducted.”

DeClark’s appraisal valued the subject property under three

different methods: the cost approach, the income approach, and the

-6-

property tax valuation method. Under the cost approach, the appraisal

valued the replacement cost of the reservoirs, main buildings, ancillary

buildings, wellheads, tanks, fencing, and dikes, then detailed their

values given minus the appropriate depreciation and obsolescence

costs, and arrived at a cost approach market value of $30,000,000.

For the income approach, DeClark’s appraisal used a discounted

cash flow analysis. DeClark stated that such an analysis “take[s] a

look at *** the anticipation of future benefits to get a present value

calculation or value conclusion.” In applying this analysis, the

appraisal noted that “the subject is a special use facility with an

income stream tied directly to the capacity of an underground storage

‘vessel.’ ” On cross-examination, DeClark admitted that he was

unable to acquire income data specific to the subject property, but that

he calculated a proportionate share of taxpayer’s total storage income

and assumed it to be applicable to the storage facility in question. The

appraisal did this by considering the storage facility’s “capacity,

location, and customer base as compared to [taxpayer’s] total gas

storage capacity and the locations of its other storage fields.” After

arriving at a net operating income, DeClark’s appraisal applied a

royalty percentage to the income stream based on his research of

landfills, which he deemed “similar in that they are land based as is this

underground storage vessel.” The appraisal then estimated market

value for the income approach at $32,590,000.

On cross-examination, DeClark stated that, for the property tax

methodology, he used a system based on how taxation of depleted gas

fields occurs in Ohio. The Ohio method calls for the property owner

to pay a tax predicated upon the plant, buildings, and wells, as well as

the volume of gas in the reservoir. These values are then depreciated

accordingly to arrive at an assessed value. In applying this system to

the subject property, DeClark arrived at a value of $35,880,000. As

to the Ohio method, DeClark admitted on cross-examination that he

was not sure if depleted gas fields in Ohio were assessed and taxed as

real estate or personal property. DeClark also testified that he was

aware that the “property tax approach” is not currently applicable in

Illinois. According to DeClark, he implemented it in his appraisal as

a “check of reasonableness.”

-7-

The Integra appraisal then reconciled the values from the cost

approach, the income approach, and the property tax methodology,

and arrived at a market value of $32,000,000.

In support of their appeal before the PTAB, respondent taxpayer

presented several appraisals of the subject property, all of which

estimated its market value at between $1,625,000 and $1,700,000.

Two of these appraisals were created by Howard B. Richter &

Associates, Inc., of Deerfield. The valuation dates for the Richter

appraisals were January 1, 2000, and January 1, 2001. The Richter

appraisals identified the subject property as “Natural Gas Pipeline

Company of America, Storage Facility.” Richter’s appraisals detailed

the characteristics of the subject property and all of its buildings, and

mentioned that the underground storage facility is “controlled through

easements with the neighboring farm owners” but did not attribute

those easements to the value of the property.

Richter’s appraisals applied only the cost approach, and arrived at

an estimated value of $1,665,000 for 2001 and $1,625,000 for 2000.

A passage in one appraisal explained Richter’s reasoning for not using

the income approach. It stated, “No rental attributable to the real

estate alone can be ascertained and the basis of this approach is

negated.” When cross-examined about this statement, Richter replied,

“Any income generated by the ability to tap into this aquifer is

attributable to the business and exists only because of the off-site

business operations of this company”; and “[t]he market value of the

real estate in this case has virtually no relationship to the income

generated as a result of this property’s *** operations.” Richter then

likened the storage of gas to the storage of files in a warehouse. In

each business, he explained, the customer does not care where their

files or gas are stored, but only that the files or gas are transported

away from the business, stored safely, and returned or delivered when

the need arises. According to Richter, the location of the storage

facility is immaterial in each case and, therefore, the property itself

cannot be said to have contributed in any way to the income of the

business.

Respondent taxpayer also submitted appraisals done by Robert

Herman and Michael Kelly of Real Estate Analysis Corporation.

Herman’s appraisals were dated January 1, 1999, and January 1, 2000.

-8-

Kelly’s appraisal was dated January 1, 2001. Each document

appraised only the subject property and its improvements. Herman and

Kelly testified that, for their appraisals, they used only the cost

approach and the sales comparison approach. Kelly stated that he did

not utilize the income approach because taxpayer could conduct its

operations away from the subject property, including in Iroquois

County. Herman stated that he did not include the value of the

easements because they related to the going concern of the business,

and not to the subject property. Each appraiser testified that they were

aware that the entire facility was constructed to utilize the reservoirs,

and that easements and government permits were essential to the

creation of the facility. However, in their opinion, neither of these

factors added any value to the subject property. Both appraisers noted

that an analysis of the assessments of other parcels which sit atop the

reservoirs showed no added value as a result of their location.

Herman’s appraisal estimated the value of the subject property at

$1,650,000 for each year, and Kelly’s appraisal arrived at a figure of

$1,700,000.

Floyd Hofstetter, the vice president of storage management for

taxpayer, then testified in depth about the history and current

operations of the compressor station and its connection to the pipeline

16 miles away. His testimony touched on such details as the

monitoring of the facility, managing the containment of the stored gas,

the make-up and installation of the well network, the geological

characteristics of the aquifer, the deliverability rate of the two

reservoirs, the cost estimates that should be accounted for in the

development of a gas storage field, and descriptions of the

compressor, gas processing equipment, and piping. Hofstetter

confirmed that Taxpayer had to obtain a certificate of convenience

from the Federal Energy Regulatory Commission (FERC) (the

successor to FPC) to operate the facility and that the rates taxpayer

charges for storage are regulated by FERC.

Over petitioner’s objection, Patrick McFadden, a professor from

Loyola University-Chicago School of Law, testified about the

difference between easements appurtenant and easements in gross.

According to McFadden, easements appurtenant benefit a designated

property and “run with the land.” Conversely, easements in gross

-9-

accrue not to property, but to an individual or entity. McFadden

testified that he had examined the Dickman easement, and determined

it to be an easement in gross which benefitted taxpayer.

During the hearing, petitioner attempted to have the PTAB

compel the testimony of Donald Puckett. Petitioner referred to

Puckett as taxpayer’s district manager, but in actuality Puckett is the

operations manager of the plant on the subject property. Petitioner felt

that Puckett’s testimony was necessary because he was the “tour

guide” and source of some information for DeClark when DeClark

visited the facility during the course of his assessment. Petitioner’s

motion requesting that the PTAB subpoena Puckett was denied.

At the conclusion of the hearings, the PTAB found that petitioner

erred in relying on the DeClark appraisal for its valuation of the

subject property. In its decision, the PTAB noted that petitioner failed

to provide any evidence that Illinois law authorizes application of the

“unit rule” to the subject property, or that it was appropriate to

include the reservoirs in the valuation of the subject property. The

PTAB noted that its decision was based on the fact that portions of

the reservoirs were in Iroquois County, that the subject easements did

not run with the subject property, that petitioner failed to establish any

sort of legal “nexus” between the government permits and the subject

property, and that DeClark’s appraisal contained several errors. The

PTAB also held that petitioner failed to adequately describe the

reservoirs it wished to be included in the valuation of the subject

property. The PTAB found that no weight could be given to

DeClark’s appraisal and instead deemed Kelly’s appraisal to be the

most appropriate. The PTAB concluded that the market value of the

subject property was $1,700,000.

With one justice dissenting, the appellate court confirmed the

decision of the PTAB. The appellate court held that petitioner failed

to adequately describe the reservoirs it proposed to include in its

valuation, and failed to provide any authority to support its

contentions that the easements and government permits that accrued

to Taxpayer benefitted the subject property. No. 3–04–0016

(unpublished order under Supreme Court Rule 23). This appeal

followed.

-10-

ANALYSIS

Before this court, petitioner characterizes the main issue of this

case as the proper interpretation of section 1–130 of the Code, which

holds that taxable real estate includes “all rights and privileges

belonging or pertaining thereto.” 35 ILCS 200/1–130 (West 2004).

As this is an issue of statutory interpretation, petitioner contends de

novo review is proper. Petitioner also contends that the appropriate

property tax assessment methodology is at issue as well, and that this

too should be reviewed de novo.

Respondents argue that this case involves a mixed question of law

and fact. Respondents admit that the PTAB was required not only to

construe the meaning of section 1–130 of the Code, which is a

question of law to be reviewed de novo. However, respondents claim

that the PTAB also had to make factual findings as to whether there

was some basis for each appraiser’s valuations. Respondents then

contend that the PTAB had to apply these facts to determine whether

the right to store gas in the reservoirs was a right attributable to the

subject property. According to respondents, this law-to-fact

application should be reviewed under the clearly erroneous standard.

We initially note that we are not charged with the responsibility of

determining the market value of the subject property. Rather, the

central question before us is whether the PTAB’s decision to reduce

petitioner’s tax assessments for the 2000 and 2001 tax years was

correct. The determination turns on whether petitioner employed a

proper valuation method in assessing the subject property. More

particularly, it turns on whether the easements, governmental permits,

and rights to utilize the reservoirs for gas storage should be

considered “rights and privileges belonging or pertaining to” the

subject property. Accordingly, our first determination is one of

statutory construction, which is reviewed de novo. Fisher v. Waldrop,

221 Ill. 2d 102, 112 (2006). Following that, we must determine

whether the PTAB considered appraisals that utilized the proper

methodology for the valuation of the subject property. This, too, is a

legal question to be reviewed de novo. Kankakee County Board of

Review v. Property Tax Appeal Board, 131 Ill. 2d 1, 14 (1989). See

also United Airlines, Inc. v. Pappas, 348 Ill. App. 3d 563, 569 (2004)

(“This appeal requires us to examine the appropriateness of the

-11-

valuation methodology used by taxpayer’s expert in valuing the

leasehold interest to support its objection to the leasehold’s assessed

value. *** Therefore, our standard of review relating to the question

of law at issue in this appeal is de novo)”; Board of Review v.

Property Tax Appeal Board, 304 Ill. App. 3d 535, 538 (1999)

(“Where the propriety of the method of valuation is challenged ***

the issue is one of law”).

I. “Belonging or Pertaining”

Section 1–130 of the Code defines taxable property as “[t]he land

itself, with all things contained therein, and also all buildings,

structures and improvements, and other permanent fixtures thereon,

*** and all rights and privileges belonging or pertaining thereto,

except where otherwise specified by this Code.” 35 ILCS 200/1–130

(West 2004). Petitioner contends that, by choosing to include the

words “belonging or pertaining” in the definition, the General

Assembly intended another property right short of fee simple

ownership.

In construing a statute, we must give effect to the intention of the

legislature “so that each word, clause, or sentence is given reasonable

meaning and not deemed superfluous or void.” Quad Cities Open,

Inc. v. City of Silvis, 208 Ill. 2d 498, 508 (2004). A tax statute must

be strictly construed against the government and in favor of the

taxpayer. Van’s Material Co. v. Department of Revenue, 131 Ill. 2d

196, 202 (1989); Gem Electronics of Monmouth, Inc. v. Department

of Revenue, 183 Ill. 2d 470, 475 (1998).

“ ‘The primary meaning, and also the common and ordinary

meaning, of the word “belong,” is to be the property of.’ ” In re

Estate of Ostrowski, 3 Ill. App. 2d 431, 435 (1954). See also Black’s

Law Dictionary 164 (8th ed. 2004) (defining “belong” as “[t]o be the

property of a person or thing”). Petitioner maintains that, if

“belonging” connotes ownership of rights or privileges, the disjunctive

reference to “pertaining”in section 1–130 of the Code must indicate

something different and broader than mere ownership of said rights

and privileges. “Pertain” is defined as “[t]o relate to; to concern.”

Black’s Law Dictionary 1181 (8th ed. 2004).

-12-

There is no dispute by either party that the reservoirs at issue

belong, proportionately, to those who own the surface land directly

above them. See Jilek v. Chicago, Wilmington & Franklin Coal Co.,

382 Ill. 241, 248 (1943) (“The owner in fee owns to the center of the

earth”). Petitioner argues, however, that the easements and

governmental permits that allow taxpayer to utilize the portions of the

reservoirs not under the subject property make up a “bundle of rights”

that “pertains” to the subject property, thus enhancing its value

beyond that of the neighboring industrial or farming property.

According to respondents, all of petitioners’ arguments contain

the same fundamental flaw: incorrectly assuming that the gas storage

rights that taxpayer obtained and exercised benefitted the subject

property, and not taxpayer’s business. We agree with respondents and

find that, while “pertain,” for purposes of section 1–130 of the Code,

might imply a less rigid connection than “belong,” there still must be

some direct relationship between the rights and the property at issue.

For the following reasons, we find that petitioner has not established

such a relationship.

A. Easements

The first components of the “bundle of rights” which petitioner

contends pertain to the subject property are the easements that allow

taxpayer to operate its pipes and wells on the 15,600 acres of property

owned by others that surrounds Compressor Station 201. Petitioner

concedes that these easements are easements in gross that name

taxpayer, and not the subject property, as their beneficiary, but

maintains that the classification of the easements is irrelevant because

the easements “provide only part of the basis for Taxpayer’s exclusive

storage rights.” Petitioner argues that, because the easements are only

part of the “bundle of rights,” their classification is not determinative.

Further, according to petitioner, there is no legal authority to support

the contention that easements in gross may not be considered as

“rights and privileges” of a particular property.

An easement appurtenant is “created to benefit another tract of

land, the use of easement being incident to the ownership of that other

tract.” Black’s Law Dictionary 549 (8th ed. 2004). An easement

appurtenant runs with the land and may be transferred. Traylor v.

-13-

Parkinson, 355 Ill. 476, 479 (1934). An easement in gross is defined

as “[a]n easement benefiting a particular person and not a particular

piece of land.” Black’s Law Dictionary 549 (8th ed. 2004). See also

Traylor, 355 Ill. at 479 (easement in gross is personal and

nontransferable).

The Dickman easement, found to be representative, reads, “This

instrument made this [date] by record owner [name of the fee

landowner], herein referred to as Grantors, is in favor of Natural Gas

Storage Company of Illinois, a Delaware corporation, herein referred

to as Grantee.” Such wording clearly indicates that these easements

are in gross, and benefit taxpayer rather than the subject property, as

petitioner concedes.

We find, contrary to petitioner’s unsupported argument, that the

classification of the easements in question is relevant here. Were the

easements at issue here appurtenant, naming the subject property as

the beneficiary of the right to place wells and pipes on the land of

others, then such right would be attributed to the subject property and

assessable by petitioner. The easements in question, however, are

easements in gross, benefitting taxpayer, and not the subject property.

Petitioner’s contention that the legal effect of the easements is

somehow negated by the fact that they are part of a “bundle of rights”

has no support in logic or the law. Accordingly, we find that the

easements in question do not pertain to the subject property.

B. ICC and FPC Permits

Petitioner next argues that certain passages in the orders of the

ICC and FPC, as well as taxpayer’s correspondence with those

agencies, serve as evidence that the rights and privileges to the

reservoirs that accrued to the taxpayer pertain to the subject property.

Petitioner initially notes that the September 1952 order of the FPC,

which granted taxpayer the right to construct Compressor Station 201

and utilize the reservoirs, includes the words “storage rights in

approximately 15,000 acres *** together with all necessary and

appropriate consents, permits, contracts, easements, rights-of-way,

and other interests in property pertaining to or used in connection with

the storage project.” Petitioner notes that the FPC used the term

“pertaining,” which is the statutory term at issue here. Petitioner

-14-

argues that the PTAB incorrectly concluded that the method of

assessing the subject property may not take account of these

“pertaining” underground storage rights.

Petitioner also details the history of the creation of Compressor

Station 201 and the use of the reservoirs, concluding that the history

of regulatory approvals leading to the development of the gas storage

project shows that the reservoirs were “intended to be operated as a

single facility which would necessarily be managed and controlled”

from one control center, wherever constructed. In support of its

contention, petitioner cites two 1952 orders from the ICC and FPC,

each granting taxpayer the right to “acquire ownership in fee simple

or by other estate of parcels of real estate within or adjacent to the

storage area necessary for the erection of compression plants,

dehydration plants, and any structures appurtenant thereto, [and] lay

gathering lines to connect them to the centrally located compressor

station and dehydration plant.” Petitioner also relies on a 1959

supplemental order from the ICC as well as a 1959 legal notice that

ran in the Kankakee Daily Journal. These provide that taxpayer “owns

and operates (under authority of certificates of public convenience and

necessity issued to it by the FPC) an aquifer-type underground storage

reservoir near Herscher.”

Petitioner asserts that these passages from the recorded history of

regulatory approval leading up to the development of the gas storage

operation show plainly that the reservoirs were intended to be

operated in union with a compressor station located in their vicinity.

Petitioner contends that, since Compressor Station 201 is located on

the subject property, the subject property cannot then be separated

from the reservoirs for valuation purposes.

Illinois case law is consistent in holding that government permits,

ordinances, licenses, orders, or regulatory approvals do not create

assessable entities. See, e.g., Boland v. Walters, 346 Ill. 184, 188

(1931) (a license in respect to real property is merely a privilege to do

certain things on land without being an estate itself); Dimucci Home

Builders, Inc. v. Metropolitan Life Insurance Co., 312 Ill. App. 3d

779, 782 (2000) (permits are not conveyances of title); Pasquinelli v.

Village of Mundelein, 257 Ill. App. 3d 1057, 1062-63, 1065 (1994)

-15-

(permits and village board approvals to operate a sewer line are not

indicia of ownership).

Central Illinois Public Service Co. v. Swartz, 284 Ill. 108 (1918),

is instructive. In Swartz, the plaintiff was granted, by ordinance, the

right to construct and maintain an electric plant as well as electric

poles and wires in the town of Bushnell. Swartz, 284 Ill. at 110. When

the property of the plaintiff was assessed for taxation, the assessor

included the “franchise, got through an ordinance of the city of

Bushnell, to operate a plant in the city.” Swartz, 284 Ill. at 110. The

Swartz court rejected the assessment of the franchise as tangible

property. Swartz, 284 Ill. at 112. Specifically, it stated,

“This permission or license exists independently of the poles,

wire, apparatus, machinery or other means whereby it may be

available. It attaches not to the tangible property of the

corporation but to the franchise, and would remain and be

available to the corporation if all its tangible property were

destroyed.” Swartz, 284 Ill. at 112.

In the instant case, all of the ICC and FPC orders attached to

taxpayer, and not to the subject property. Just as in Swartz, should the

taxpayer choose to leave the subject property, or suffer any

destruction of its tangible property, the orders would remain in place,

continuing to benefit taxpayer regardless of where its property was

located. See also Quantum Pipeline Co. v. Illinois Commerce

Comm’n, 304 Ill. App. 3d 310, 315-17 (1999) (permit issued by the

ICC grants only a business right, not one of property). Accordingly,

we find that the ICC and FPC orders did not, as petitioner alleges,

create an indivisible union between the subject property and the

reservoirs. Rather, the rights to the reservoirs accrue to taxpayer, and

do not pertain to the subject property.

We note that petitioner attempts to draw an analogy between

governmental orders such as those at issue in the instant case and

property zoning. Petitioner argues that, just as zoning changes can

affect the use of property and therefore its value, the rights to use the

reservoir, which arise from easements and governmental rulings which

have transpired over 50 years, enhance the value of the subject

property. We find no merit in this argument.

-16-

Zoning regulations apply to particular properties and not their

owners. See Lake Forest Chateau, Inc. v. City of Lake Forest, 133 Ill.

2d 129, 131 (1989) (zoning ordinances apply to property). As noted,

the government orders at issue here accrue to taxpayer and not the

subject property. Accordingly, petitioner’s analogy to zoning is

unpersuasive.

In light of our holdings above regarding easements and

government permits, we find that the rights and privileges taxpayer

enjoys to the reservoirs neither belong nor pertain to the subject

property for purposes of section 1–130 of the Code.

II. Location

Petitioner next contends that regardless of whether the “rights and

privileges” to the reservoirs are tied to it through any recorded basis

or legal title, the subject parcel’s proximity to the reservoirs enhances

its value. Petitioner argues that Illinois courts routinely acknowledge

that property value may increase or decrease due to elements that lay

beyond the boundaries of the property. In support of its argument

petitioner points to cases such as Lake County Board of Review v.

Property Tax Appeal Board, 91 Ill. App. 3d 117, 122 (1980)

(“property adjoining or in close proximity to a body of water, a park,

golf course or other scenic view may well have an increased value

because of its location”), O’Brien v. City of O’Fallon, 80 Ill. App. 3d

841 (1980) (value of house on lake impaired when sewage discharged

into lake), and Illinois Light & Power Co. v. Bedard, 343 Ill. 618

(1931) (it is common knowledge that land located near a body of

water is worth more than land located elsewhere).

Petitioner then cites Board of Education of Township High School

District 205 v. Property Tax Appeal Board, 142 Ill. App. 3d 853

(1986), as an example of how location alone can enhance a property’s

value. In Board of Education, the property to be valued was a

hydroelectric power plant. Board of Education, 142 Ill. App. 3d at

854-55. The Board of Education court held that the PTAB properly

valued the plant by using the income approach applied to the power-

generating capacity and potential income of the plant. Board of

Education, 142 Ill. App. 3d at 857. Petitioner asserts that in both

Board of Education and the instant case, the property at issue houses

-17-

a “control center” type facility that utilizes a resource not found within

the boundaries of that property. Petitioner maintains that the

hydroelectric power plant in Board of Education, which takes its

power from the river that begins and ends outside the boundaries of

the property, is directly analogous to Compressor Station 201 here,

which is used to access the natural gas stored in the reservoirs that lay

mostly outside the subject property.

We do not dispute petitioner’s argument that amenities or

resources situated beyond a property’s boundaries can increase its

value. The difference between the properties in the cases petitioner

relies on and the subject property, however, is one of market value.

There is and will always be a market for properties with access to

water, golf courses, and countless other features that hold value to

prospective purchasers. There is no similar market for the subject

property. Any purchaser who might acquire the subject property

would not be able to utilize the reservoirs. This is because taxpayer,

and not the subject property, holds exclusive rights, obtained through

easements and government orders, to use the reservoirs. Thus, the

right and privilege of being close to the reservoirs is not a marketable

asset, and the market value of the subject property is not enhanced

beyond that of other industrial or farming properties in the area.

Moreover, Board of Education does not support petitioner’s

contention. In Board of Education, the income approach to valuation

was proper because the plant generated income due solely to its

proximity to the river. The ability of a hydroelectric plant to generate

income is directly tied to its location. A plant in a location away from

the river would not be able to generate the same income. In the instant

case, there is no similar need for the compressor station to be located

on the subject property. Testimony has established that the

compressor station could have been located anywhere in the area,

even 16 miles away from the reservoirs along the main pipeline. In

contrast to the hydroelectric plant, which derived its entire income

value from its location on a river, the location of the compressor

station, whether above the reservoirs or otherwise, has no real impact

on the income it produces. Therefore, we find Board of Education to

be inapplicable to the instant case.

-18-

Petitioner makes the argument that changes to the control center

are forbidden without approval from FERC and the ICC, and that

moving a gas storage control center with all its related equipment and

connecting entities cannot be readily accomplished. This argument is

misplaced. The issue is not whether Compressor Station 201 can be

moved, but rather whether its income is derived from its location.

Petitioner next contends that even if the compressor station were

moved, the taxable character of the rights and privileges related to the

reservoirs would not change, but would move with the compressor

station. But this argument actually supports respondents’ contention

that the rights and privileges to the reservoirs do not pertain to the

subject property. Accordingly, we find that the PTAB did not err

when it relied on market value appraisals which did not attribute

added value to the subject property due to its proximity to the

reservoirs.

III. “A Broad Concept of Rights and Privileges”

Petitioner relies on People ex rel. City of Chicago v. Upham, 221

Ill. 555 (1906), as an example of this court interpreting the statutory

definition of real property now found in section 1–130 of the Code

and applying a “broad concept of rights and privileges.” Petitioner

contends that Upham provides sufficient authority to consider the

rights and privileges of the reservoirs in the assessment of the subject

property.

In Upham, the respondent telephone and telegraph companies, by

virtue of city ordinances, constructed cement tunnels beneath Chicago

city streets to facilitate their businesses. Upham, 221 Ill. at 558. The

ordinances authorized the corporations to maintain the tunnels for 30

years, at which time the tunnels could become the property of the city.

Upham, 221 Ill. at 558. The petitioner contended that the tunnels

were taxable assets that it should assess. Upham, 221 Ill. at 559. The

respondent conceded that the tunnels were subject to assessment for

taxation, but contended that since they were constructed below public

streets, the taxable interest was one of intangible use, and not one of

real property to be assessed by local assessors. Upham, 221 Ill. at

559.

-19-

The Upham court found that “while it is true the title to the streets

of Chicago is in the city, the [corporations], by virtue of said

ordinances, clearly have ‘rights and privileges’ belonging and

pertaining to the soil in which the tunnels are constructed, separate

and apart from the fee of the streets, which rests in the city.” Upham,

221 Ill. at 560. The Upham court held that the tunnels had an

existence separate from the city streets above and were real property

in the same way that a bridge or a pier has a separate existence from

the land upon which it is constructed. Upham, 221 Ill. at 560. The fact

that the tunnels were situated below city streets not subject to

assessment for taxation had no bearing on this court’s determination

that the tunnels were real property. Upham, 221 Ill. at 561. See also

People ex rel. New York & Harlem R.R. Co. v. Commissioners of

Taxes & Assessments, 101 N.Y. 322, 326, 4 N.E. 127, 128 (1886)

(tunnels under city streets should be treated and assessed as real

property).

We find Upham distinguishable and insufficient authority to

support a finding that the rights and privileges taxpayer enjoys to the

reservoirs are assessable to the subject property. The issue in Upham

was whether the underground tunnels were real property or an

intangible right. Upham, 221 Ill. at 560. There is no disagreement in

the instant case as to whether the reservoirs are real property or

whether they have an existence separate from the land under which

they lay. The issue here is whether respondents’ rights to utilize the

reservoirs pertain to and should be assessed to the subject property.

Upham provides no guidance on this issue.

Further, there is a fundamental difference between the man-made

tunnels in Upham and the naturally occurring reservoirs in the instant

case. Piers, bridges, and underground tunnels “create” new property

where none existed before, in spaces that were heretofore

nonassessable. Piers extend into water, bridges soar into air, and

tunnels create space below the surface of land. Upham holds that such

man-made creations have a “separate existence from the land in which

they are constructed,” and are assessable real property belonging to

their constructors. Upham, 221 Ill. at 560. This differs greatly from

the reservoirs at issue here, which are natural formations already

owned by those who own the surface land above them. As such, we

-20-

find that Upham has no bearing on the issues of the instant case and

does not support petitioner’s argument that taxpayer’s right to utilize

the reservoirs should be assessed to the subject property.

IV. Evidentiary Errors

Petitioner lastly argues that the PTAB committed evidentiary

errors requiring reversal when it refused to require the appearance of

Puckett at a hearing and allowed McFadden to testify about the

difference between easements appurtenant and easements in gross.

Petitioner argues that Puckett’s testimony was essential because

Puckett was DeClark’s “primary tour guide” and that some of the

information relied upon by DeClark in performing his analysis was

provided by Puckett. In regard to McFadden, petitioner contends that

his testimony amounted to legal conclusions, which are not properly

admitted.

“Absent some indication that a restriction on evidence has a

prejudicial impact upon an administrative proceeding, any error in that

regard does not rise to the level of reversible error.” Kankakee County

Board of Review v. Property Tax Appeal Board, 337 Ill. App. 3d

1070, 1076 (2003). After carefully reviewing the record, we agree

with the PTAB and the appellate court that petitioner has not

demonstrated how it was prejudiced by Puckett’s absence. The

testimony of Floyd Hofstetter provided ample information about the

operation of the compressor station and the utilization of the

reservoirs. As to McFadden’s testimony, which was about the

differences between easements appurtenant and easements in gross,

we note that petitioner concedes that the easements here are in gross.

Accordingly, after reviewing the record, we do not find his appearance

at the hearing constitutes reversible error.

CONCLUSION

In light of our holdings above, we find that the decision of the

PTAB to disregard Integra’s appraisal, which attributed the rights and

privileges of the reservoirs to the subject property, was correct. We

need not address petitioner’s contention that the PTAB erred in

finding that petitioner failed to adequately describe the reservoirs it

-21-

wished to be included in the valuation of the subject property. We find

that, because neither the reservoirs, nor the rights to utilize them, can

be attributed to the subject property, their description is irrelevant. For

the foregoing reasons, the judgment of the appellate court is affirmed.

Appellate court judgment affirmed.

JUSTICE FREEMAN took no part in the consideration or

decision of this case.

-22-