99-031012000…

ILLINOIS POLLUTION CONTROL BOARD

January 20, 2000

CASS COUNTY SERVICE COMPANY,

Petitioner,

ILLINOIS ENVIRONMENTAL

PROTECTION AGENCY,

Respondent.

)

PCB 99-31

(Tax Certification - Appeal)

GREG ROOSEVELT, OF THE ROOSEVELT LAW OFFICE, APPEARED ON BEHALF

OF PETITIONER; and

LISA MORENO, OF THE ILLINOIS ENVIRONMENTAL PROTECTION AGENCY,

APPEARED ON BEHALF OF RESPONDENT.

OPINION AND ORDER OF THE BOARD (by C.A. Manning):

Petitioner Cass County Service Company (Cass) is an agricultural service cooperative

that owns and operates a bulk petroleum storage and transfer facility in Virginia, Cass County,

Illinois. The facility contains eight steel tanks, a concrete dike, and a concrete spill pad, all of

which are covered by a steel building. Petroleum product is shipped to the facility in bulk to

store in the steel tanks. Cass transfers the petroleum from the tanks to trucks for delivery to

customers.

In 1998, Cass applied to the Illinois Environmental Protection Agency (Agency) to

receive property tax certification of the dike, spill pad, and steel building as pollution control

facilities. While the Agency granted tax certification status for the dike and spill pad, the

Agency denied that status for the steel building. Cass now asks the Board to review the

Agency’s decision to deny tax certification status for the steel building.

Based on the record before it, the Board disagrees with the Agency’s decision to deny

the tax certification. The Board finds that Cass has proved that the steel building is a “pollution

control facility” as defined in the Property Tax Code (35 ILCS 200/11-10 (1998)). The Board

therefore certifies that the steel building is a pollution control facility. The Board directs the

Agency to timely provide any additional documentation of this tax certification that the

Department of Revenue may require.

PROCEDURAL MATTERS

On August 17, 1998, Cass filed an appeal of the Agency’s July 16, 1998 partial denial

of Cass’ tax certification application. On August 20, 1998, the Board accepted this matter for

hearing. The Agency filed the administrative record of the tax certification application on

March 8, 1999.

Hearing Officer Amy Muran Felton held a hearing in this matter on July 21, 1999.

Two witnesses appeared for Cass and two witnesses appeared for the Agency. Cass offered 13

exhibits, all of which were admitted. The Agency offered one exhibit, which was admitted.

Cass filed a posthearing brief on August 18, 1999. On November 16, 1999, the

Agency filed a response brief, accompanied by a motion for leave to file the brief

instanter

. On

December 30, 1999, Cass moved the Board to strike the Agency’s brief because the Agency

filed it late. The Board denies Cass’ motion to strike and accepts the Agency’s brief. Cass

filed a reply brief on January 7, 2000.

Finally, on August 30, 1999, Hancock Service Company (Hancock) filed an

amicus

curiae

brief, accompanied by a motion for leave to file the brief. Hancock is the petitioner in a

similar tax certification proceeding currently pending before the Board. See Hancock Service

Company v. Illinois Environmental Protection Agency, PCB 99-138. The Board grants

Hancock’s motion.

STANDARD OF REVIEW

The Board’s authority in this matter arises from the Property Tax Code, under which

the Board has sole authority to certify pollution control facilities for property tax purposes. The

Board’s review here therefore is

de novo

. Accordingly, the Board will consider the Agency’s

record of Cass’ tax certification application as well as the evidence presented at the July 21,

1999 hearing. See Reed-Custer Community Unit School District No. 255-U v. Commonwealth

Edison Co. and the Illinois Environmental Protection Agency (August 30, 1990), PCB 87-209

(Board considered tax certification application and evidence introduced at hearing in arriving at

its determination), aff’d

sub nom.

Reed-Custer Community Unit School District No. 255-U v.

Pollution Control Board, Commonwealth Edison Co., and the Illinois Environmental Protection

Agency, 232 Ill. App.3d 571, 597 N.E.2d 802 (1st Dist. 1992).

APPLICABLE STATUTORY PROVISIONS

Persons who obtain a tax certification receive preferential property tax treatment for

certain facilities. Specifically, under the Property Tax Code, “pollution control facilities” are

valued at 33 1/3% of the fair cash value of their economic productivity to their owners. See 35

ILCS 200/11-5 (1998).

The administrative record is cited as “R. at _.”

The transcript of the hearing is cited as “Tr. at _.” Cass’ hearing exhibits are cited as “Pet.

Exh. _;” the Agency’s hearing exhibits are cited as “Resp. Exh. _.”

Cass’ first brief is cited as “Pet. Br. at _;” the Agency's response brief is cited as “Resp. Br.

at _;” Cass’ reply brief is cited as “Reply Br. at _.

The Property Tax Code provides that “the Pollution Control Board, acting through its

Chairman or his or her specifically authorized delegate” may certify that a facility is a

“pollution control facility.” 35 ILCS 200/11-25 (1998). On January 11, 1982, the Chairman

of the Board delegated to the Agency the authority to issue or deny tax certifications. Resp.

Br., Exh. A. The Agency’s final decision may be appealed to the Board. See CGE Ford

Heights, L.L.C. v. Illinois Environmental Protection Agency (February 1, 1996), PCB 96-164,

slip op. at 1.

The Property Tax Code defines “pollution control facilities” in pertinent part as follows:

[A]ny system, method, construction, device or appliance appurtenant thereto, or

any portion of any building or equipment, that is designed, constructed, installed

or operated for the primary purpose of:

eliminating, preventing, or reducing air or water pollution, as the terms

“air” and “water pollution” are defined in the Environmental Protection

Act . . . . 35 ILCS 200/11-10 (1998).

The Environmental Protection Act (Act), 415 ILCS 5/1

et seq.

, defines “water

pollution” as follows:

[S]uch alteration of the physical, thermal, chemical, biological or radioactive

properties of any waters of the State, or such discharge of any contaminant into

any waters of the State, as will or is likely to create a nuisance or render such

waters harmful or detrimental or injurious to public health, safety or welfare, or

to domestic, commercial, industrial, agricultural, recreational, or other legitimate

uses, or to livestock, wild animals, birds, fish, or other aquatic life. 415 ILCS

5/3.55 (1998).

As used in the definition of “water pollution,” the Act also defines “contaminant” and

“waters” as follows:

“Contaminant” is any solid, liquid, or gaseous matter, any odor, or any form of

energy, from whatever source.

“Waters” means all accumulations of water, surface and underground, natural,

and artificial, public and private, or parts thereof, which are wholly or partially

within, flow through, or border upon this State. 415 ILCS 5/3.06, 3.56 (1998).

FINDINGS OF FACT

Cass owns and operates a bulk petroleum storage and transfer facility in Virginia, Cass

County, Illinois. Tr. at 13. Petroleum product is shipped to the facility in bulk to store in

tanks. Tr. at 13. Cass transfers the petroleum from the tanks to trucks for delivery to

customers. Tr. at 13.

The facility contains eight steel tanks (four 19,000 gallon tanks and four 50,000 gallon

tanks) to store the petroleum product. Tr. at 15. All eight tanks are located inside a concrete

dike. A 40 feet by 40 feet steel building covers the steel tanks, the concrete dike, and the

facility’s 36 feet by 36 feet concrete spill pad. The steel building has a roof, sidewalls, and an

entrance door. Tr. at 15, 34; Pet. Exh. 1-5, 8, 9.

The concrete dike and spill pad are secondary containment structures. The dike is

located around and underneath the petroleum storage tanks. Cass installed the spill pad to

contain spillage incident to transferring petroleum product to and from the tanks. Tr. at 14.

The steel building was part of the overall design to control pollution at the facility. Specifically,

Cass designed the steel building to reduce the amount of rainwater coming into contact with

spilled petroleum in the area of the tanks, dike, and spill pad. Tr. at 14-15, 19, 38.

Spilled petroleum product and rainwater in this area accumulate in a concrete trench.

The trench contains a sump pump that Cass uses to pump the material from the trench. If

petroleum and rainwater commingle, Cass cannot return the material to the tanks. Cass has

incurred additional expense to dispose of such material at an offsite facility. Tr. at 19-20, 28-

29; Pet. Exh. 12.

In the past, Cass’ engineers designed bulk petroleum facilities without steel buildings to

cover loading and unloading operations. Tr. at 24. These bulk petroleum facilities were

capable of operating in an open environment. Tr. at 24-25. Before 1992, when Cass built the

steel building at issue, the facility did not have any structure to cover its petroleum loading and

unloading activities. Tr. at 38. Before Cass constructed the steel building, it paid 90 cents per

gallon to dispose of an estimated 400 to 500 gallons of commingled petroleum and rainwater

during periods of heavy rain. Tr. at 34-35; Pet. Exh. 12.

Cass constructed the steel building to reduce the amount of this commingled material that

it disposed of offsite and in an effort to comply with federal requirements for a Spill Prevention

Control and Countermeasures (SPCC) plan.

The steel building is part of the facility’s SPCC

plan. By covering Cass’ loading and unloading operations, the steel building reduces the

amount of rainwater entering the area, thereby reducing the amount of commingled petroleum

and rainwater. Tr. at 37.

On April 16, 1998, the Agency received Cass’ application for property tax certification

of the dike, spill pad, and steel building as pollution control facilities. R. at 1. On July 16,

1998, the Agency granted tax certification status for the dike and spill pad, but denied that

status for the steel building. R. at 10.

Under Section 311(j)(1)(c) of the federal Clean Water Act (33 U.S.C.§ 1251(j)(1)(c)), the

United States Environmental Protection Agency established the SPCC program to protect

surface water from petroleum contamination. Facilities subject to the regulations must prepare

and maintain an SPCC plan, which includes provisions for appropriate containment or

diversionary structures to prevent discharged petroleum from contacting surface waters. See 40

C.F.R. 112.

The Agency acknowledged that the steel building helps to keep rainwater away from

spilled petroleum. Tr. at 53. The Agency denied tax certification status for the steel building,

however, because it determined that its primary purpose appeared to be to allow Cass to

continue operating the facility during adverse weather. Tr. at 50; R. at 10. Agency

representatives did not inspect Cass’ facility, interview Cass’ employees, or review design plans

for the steel building. Tr. at 56. In other tax certification matters, the Agency has approved

structures that cover fertilizer and pesticide operations. Tr. at 51-52.

DISCUSSION

The issue presented to the Board is whether the steel building that covers Cass’

petroleum loading and unloading area was designed and constructed for the primary purpose of

eliminating, preventing, or reducing water pollution.

Initially, the Board finds that petroleum-impacted rainwater accumulated at Cass’ facility

constitutes “water pollution” as defined in the Act. See

Supra

3. The parties do not dispute

this. Nor do the parties dispute that the steel building reduces the commingling of rainwater

and spilled petroleum. Nevertheless, before the Board can decide whether it agrees with the

Agency’s decision to not certify the steel building as a “pollution control facility” for

preferential tax treatment under the Property Tax Code, the Board must decide whether the

record demonstrates that the steel building’s “primary purpose” is to eliminate, prevent, or

reduce such water pollution. See Reed-Custer, PCB 87-209, slip op. at 7-10. For the reasons

set forth below, the Board finds that the steel building was designed and constructed for the

primary purpose of preventing or reducing water pollution.

The Agency denied tax certification status for the steel building because it found that the

primary purpose of the structure appeared to be to allow Cass to continue operating the facility

during adverse weather, rather than to control pollution. Cass argues that the steel building was

designed and constructed primarily to control water pollution. Larry Sands (Sands), Cass’

design engineer, testified as follows:

The building over the spill pad is designed to keep – as much as possible to keep

water off the structure . . . . If things are not picked up right away, with water

on it then you have a real problem, and you have a mixture of oil and water, and

so you try to keep water off the pad.

* * *

The structure over the spill pad, the steel building, was there to try to cut down

on the amount of rainwater coming in. That’s the primary purpose. Tr. at 15,

23-24.

Additionally, Sands testified that if rainwater comes into contact with petroleum on the concrete

pad, Cass pumps out the mixture and disposes it offsite at cost. Tr. at 19.

The Board finds Sands’ testimony persuasive and uncontradicted by any evidence in the

record. No evidence in the record supports the Agency’s assertion that the steel building’s

primary purpose is to allow Cass to continue operating in inclement weather. In fact, the

evidence shows that such facilities can operate in an open environment. It is undisputed that

rainwater can enter the petroleum handling area at Cass’ facility and commingle with spilled

petroleum. If this happens, Cass pays to dispose of the accumulation of petroleum-impacted

water at an offsite facility. The record shows that Cass designed and built the steel building to

prevent or reduce this water pollution.

Cass also contends that the steel building’s design takes into account the federal SPCC

requirements at 40 C.F.R. 112. These regulations require certain petroleum storage facilities to

prepare SPCC plans and install drainage and containment systems for tank car and truck

loading and unloading areas. See 40 C.F.R. § 112.7(c).

The Agency argues that these federal regulations are not determinative of whether the

steel building meets the definition of “pollution control facility” under the Property Tax Code.

The Board agrees. Merely because Cass built the steel building in an effort to comply with

federal SPCC requirements does not, in itself, mean that the structure is entitled to tax

certification status. It does, however, provide additional evidence in support of Cass’ position.

The Agency further suggests that finding the steel building to be a pollution control

facility “makes every commercial and private garage in the State of Illinois a pollution control

facility.” Resp. Br. at 10. The Board disagrees. Like Cass, each individual taxpayer must

carry the burden of proving that its particular facility meets the “primary purpose” test. See

XL Disposal Corp. v. Zehnder, 304 Ill. App. 3d 202, 709 N.E.2d 293 (4th Dist. 1999)

(taxpayer failed to satisfy primary purpose test when the evidence showed that pollution control

benefits are ancillary to the facility’s primary purpose). The Board’s decision in this case is not

determinative of the issue in every situation without regard to the facts.

The Board’s reasoning here is consistent with appellate court case law. For example, in

Beelman Truck Co. v. Cosentino, 253 Ill. App. 3d 420, 624 N.E.2d 454 (5th Dist. 1993), a

hazardous waste transporter sought tax certification status for its dump truck liners and certain

“escort trucks.” Beelman lined its dump truck beds with a plastic liner to prevent contaminated

soil from leaking during transport. Additionally, the dump trucks were accompanied by pickup

trucks referred to as “escort trucks,” which carried emergency response equipment.

Id.

at 421.

When Beelman sought and was denied tax certification status, it sued the State Treasurer and

the Director of Revenue in circuit court seeking a declaratory judgment that the plastic liners

and escort trucks were tax-exempt pollution control facilities under the Use Tax Act.

The

The “primary purpose” language in the definition of “pollution control facilities” in the Use

Tax Act, 35 ILCS 105/2a (1998), is nearly identical to the language at issue here from the

Property Tax Code, 35 ILCS 200/11-10 (1998). Thus, a construction of either definition

operates as an interpretation of both. See Van’s Material Co. v. Department of Revenue, 131

Ill. 2d 196, 200-01, 545 N.E.2d 695, 698-99 (1989) (court’s analysis of Use Tax Act

circuit court found that the plastic liners and escort trucks were tax-exempt pollution control

facilities.

Id.

at 422, 424. In affirming the circuit court’s decision, the appellate court stated:

Beelman submitted and the trial court considered uncontradicted evidence that the

primary purpose of the plastic liner was to prevent hazardous waste from

escaping from the dump trucks. Under section 2a [definition of “pollution

control facilities”], a business is entitled to an exemption for

any

system, method,

or device or appliance whose primary purpose is to eliminate, prevent, or reduce

pollution.

Id.

at 424 (emphasis in original).

The appellate court in Beelman also stated that the broad terms of the definition of

“pollution control facilities” must not be construed as “limiting its application based on the type

or nature of the component part.”

Id.

at 424 (quoting Wesko Plating, Inc. v. Department of

Revenue, 222 Ill. App. 3d 422, 426, 584 N.E.2d 162, 164 (1st Dist. 1991)). The Beelman

court determined that the pollution control facility encompasses the entire “system” or “method”

of eliminating, reducing, or preventing pollution. Beelman, 253 Ill. App. 3d at 424, 624

N.E.2d at 458.

Similarly, the appellate court in Wesko affirmed the circuit court’s determination that the

use of chemicals in a system for eliminating pollutants in an electroplating process was tax

exempt. See Wesko, 222 Ill. App. 3d at 426, 584 N.E.2d at 163. In its review of the

definition of “pollution control facilities” in Section 2a of the Use Tax Act, the appellate court

found:

[P]recluding application of the exemption to systems, such as Wesko’s, where

chemicals are the integral components for eliminating pollutants, . . . imposes an

improper limitation on the terms method and system. That constraint is contrary

to the purpose of section 2a to encourage efforts to control pollution by

providing a tax exemption for the employment of pollution control facilities.

Id.

at 426.

The facts of the instant case are analogous to those of Beelman and Wesko. Cass uses

the building, dike area, and spill pad as its system for controlling water pollution. Like the

plastic liners in Beelman and the chemicals in Wesko, the steel building is a component of Cass’

system to control water pollution.

CONCLUSION

The Board disagrees with the Agency’s decision to deny tax certification status for Cass’

steel building. The record in this case demonstrates that the steel building was designed and

constructed for the primary purpose of preventing or reducing water pollution. Accordingly,

applicable to Retailers’ Occupation Tax Act because of noted similarities between the definitions

of “pollution control facilities” in the respective statutes).

the Board certifies that the steel building is a “pollution control facility” under the Property Tax

Code.

Under Section 11-25 of the Property Tax Code, the effective date of this certification is

“the date of application for the certificate or the date of the construction of the facility, which

ever is later.” 35 ILCS 200/11-25 (1998). Cass built the steel building in 1992 and the

Agency received Cass’ tax certification application on April 16, 1998. The effective date of the

Board’s certification therefore is April 16, 1998. The Agency must timely provide any

additional documentation of this tax certification that the Department of Revenue may require.

This opinion constitutes the Board’s findings of fact and conclusions of law in this

matter.

ORDER

The Board certifies that Cass’ steel building is a pollution control facility under

the Property Tax Code, 35 ILCS 200/11-10 (1998). The effective date of this

certification is April 16, 1998.

The Board directs the Agency to timely provide any additional documentation of

the tax certification set forth in paragraph one of this order that the Department

of Revenue may require.

IT IS SO ORDERED.

Section 41 of the Environmental Protection Act (415 ILCS 5/41 (1998)) provides for the

appeal of final Board orders to the Illinois Appellate Court within 35 days of service of this

order. Illinois Supreme Court Rule 335 establishes such filing requirements. See 172 Ill. 2d

R. 335; see also 35 Ill. Adm. Code 101.246, Motions for Reconsideration.

I, Dorothy M. Gunn, Clerk of the Illinois Pollution Control Board, hereby certify that

the above opinion and order was adopted on the 20th day of January 2000 by a vote of 6-0.

Dorothy M. Gunn, Clerk

Illinois Pollution Control Board