Tax Decoded | Winter 2016/17
Illinois Property Tax Made Simple-ish
A cursory overview of why property taxes are so complex.
Keith Staats, JD
Executive Director, Illinois Chamber Tax Institute
Deciphering Today's State & Federal Tax Law
Every Illinois property owner ends up paying them, but few folks ever know more about property taxes than what they have to pay—if that! So let me fill you in.
In Illinois, property taxes are local taxes—none of the revenue raised goes to the state. Illinois has around 6,000 units of local government and many of them levy and collect taxes on property.
The Illinois Constitution currently only authorizes the taxation of “real property” and forbids the taxation of “personal property.” Illinois is unlike some states in this.
Many states tax personal property as well as real property; some even impose personal property tax on both individuals and businesses. About 20 percent of states impose a personal property tax on business inventories. In short, every state does it a bit differently. However, personal property didn’t always escape taxation in Illinois.
Prior to enacting the 1970 Illinois Constitution, Illinois taxed business—but not individual—personal property. Drafters of the 1970 Illinois Constitution then changed course, eliminating all personal property taxation by 1979.
To keep local governments from suffering revenue losses, the Illinois General Assembly was authorized to impose non-property taxes to replace personal property tax revenues, resulting in the Personal Property Tax Replacement Income Tax. This tax is in effect to this day, and is imposed on the income of corporations, including S Corporations, Partnerships and Trusts, and the money collected is paid over to local governments.
The Property Tax Code (the “Code”) sets the ground rules for Illinois property taxation. Under the Code, the “property” or “real property” that’s subject to taxation consists of land and buildings, structures and improvements, and permanent fixtures.
As I mentioned, property taxes are local taxes, and therefore the process of assessment and collection virtually always occurs at the local level. At the state level, the Illinois Department of Revenue (IDOR) only assesses railroad property and certain pollution control equipment. However, IDOR does have other statutory duties related to property taxation, like ensuring consistency in valuation, exemption and assessment among the various counties.
How is it taxed?
Property is assessed by local officials as of January 1 of the first year of the two-year property tax cycle. By law, the assessment of each parcel is required to equal 33-1/3 percent of the property’s fair cash value. Of course, though, Cook County is the exception. The Constitution grants Cook County authority to “classify” various property types to be assessed at various percentages.
After local officials assess the property, the County Board of Review evaluates the assessed values and exemptions. For example, organizations that are religious, educational, or exclusively charitable are entitled to property tax exemption. The local Board of Review makes an initial determination on such exemptions and then forwards them to IDOR for final determination.
IDOR equalizes the assessments among counties by providing an “equalization factor” to each to ensure consistency. Equalization also serves a number of functions, including maintaining the required 33-percent statutory assessment level (or the appropriate level in Cook County); equally distributing state aid to schools and other state grants to local authorities; allowing the tax burden to be distributed equally in local taxing districts located in more than one county; and setting statutory rate limits and limits on local government unit bond-ed indebtedness.
How much tax?
The other piece of the property tax story involves the rules governing how local governments determine the amount of property taxes they need to collect to fund government operations. Various provisions of Illinois law set forth the taxing powers and limits of local governments.
Once the assessment books are closed, county clerks can bill (extend) the taxes only after the Board of Review adjourns, the state certifies the value of the properties and the equalization factor, and each taxing district provides its levy. (A levy is assigned to a county in those cases where a taxing district is located in more than one county.)
Taxing districts are not always allowed to levy the full amount they desire; by law there are limitations. What's more, the Property Tax Extension Limitation Law (PTELL) limits increases in property tax extensions for non-home rule taxing districts. PTELL limits increases to the lesser of 5 percent or the increase in the Consumer Price Index for the year prior to the levy year. PTELL, however, doesn’t cap individual property assessments—it caps individual property tax bills.
Furthermore, PTELL doesn’t apply to all taxing districts or all taxing districts’ funds, and taxing districts must ask voters to approve any increase over the PTELL limits.
As you can see from this rather cursory review, Illinois property taxation has many moving parts that lend to its complexity. With property taxes being the largest source of revenues for most local government units, it’s worth understanding the process. IDOR offers a number of publications on its website [revenue.state.il.us] if you’d like to learn more.