Tax Decoded | Winter 2020
How Tax Reductions Pass the Buck
Tax reductions may seem like a good way to help deserving people, but the system is designed to simply shift the burden to the next taxpayer’s shoulders.
Keith Staats, JD
Executive Director, Illinois Chamber Tax Institute
Deciphering Today's State & Federal Tax Law
In my fall 2020 Insight column
, I gave a basic overview of the Illinois property tax system
and how reductions in assessed values for some properties in a taxing district have the
effect of increasing the amount of property taxes paid by the remaining property owners.
I warned that the description was a bit simplistic and didn’t consider many of the
complications that affect the property tax base. Now I’ll try to decode some of those
complications and outline some of the provisions that reduce the tax base and further shift
the allocation of property taxes from one property owner to the next.
The Illinois Constitution allows the Illinois General Assembly to exempt certain real property
from taxation—property of the state, units of local government and school districts, and
property used exclusively for agricultural and horticultural societies, or for school, religious,
cemetery, and charitable purposes. The Constitution also allows the General Assembly to
grant homestead exemptions or rent credits. The General Assembly has exercised its power
to grant homestead exemptions but has not yet adopted rent credits.
In exempting property used exclusively for agricultural and horticultural societies, school,
religious, cemetery, and charitable purposes, the General Assembly has also included a
statutory ownership requirement along with the constitutional “exclusive use” requirement.
As you can imagine, what constitutes “exclusive use” has been the subject of extensive
litigation. Without getting too deep in the weeds, suffice it to say that although “exclusive”
has not been defined by the courts to mean 100 percent, the term has been defined in
such a way as to be a high bar for a taxpayer seeking property tax exemptions.
The General Assembly enacted a general homestead exemption for residential property,
as well as many other homestead exemptions targeted to discrete groups of taxpayers. To
claim the homestead exemption, a taxpayer must attest the home is his or her primary
residence. Individuals are only entitled to one homestead exemption. You may recall that
more than one candidate for political office has been embarrassed by the disclosure that
a homestead exemption was claimed for multiple residences.
The general homestead exemption is a reduction to the current year equalized assessed
valuation (EAV) of $10,000 in Cook County and $6,000 in all other counties. But the General
Assembly didn’t stop with a general homestead exemption: Illinois has also adopted
legislation authorizing a host of special homestead-type exemptions to discrete groups of
property owners, taking this constitutional authority to its limit.
In Cook County, there’s a long-time occupant homestead exemption granted to households
with a total household income of $100,000 or less and occupied for 10 continuous years or
five continuous years if the homeowner received assistance in acquiring the property as
part of a government or non-profit housing program. Other homestead-type partial
exemptions provided to certain homeowners include homestead exemptions for senior
citizens, persons with disabilities, veterans with disabilities, veterans with disabilities
exemptions for specifically adapted housing, and returning veterans. There are also
additional homestead improvement exemptions and natural disaster homestead exemptions.
Further, while not an exemption, qualified senior citizens are
authorized to defer all or a portion of their real estate taxes or special
assessments under the Senior Citizens Real Estate Tax Deferral
Program. The senior citizen must be 65 or older, have a total yearly
household income of no more than $55,000, and have owned and
occupied the property or another qualifying residence for at least the
last three years to qualify. The taxes deferred must be repaid within
one year of the taxpayer’s death or 90 days after the property is sold,
transferred, or otherwise no longer qualified for the exemption.
Interest is charged on the deferred amount at 6 percent per year—
not the greatest interest rate in the current interest rate climate.
Along with these various homestead-type exemptions, Illinois’
Property Tax Code also contains a series of “preferential
assessments” that reduce the assessed market values of properties
granted to certain groups of property owners for things like open
space, conservation stewardship, forestry management, solar
heating and cooling (the system can be assessed as if heated and
cooled by conventional means), rehabilitation of historic residences,
veterans organizations (e.g., the local VFW hall), fraternal
organizations (e.g., the local Elks lodge), and non-governmental
airports in counties of 200,000 or more—just to name a few. My
recollection is that these preferential assessments were granted to
entities that came to their legislators requesting property tax
exemptions when they didn’t qualify as one of the types of entities
that could be exempted under the Constitution. The General
Assembly worked around the constitutional limitation by passing
legislation that reduces property taxes through the granting of a
Local taxing districts may also instruct the local county clerk to
abate any portion of its taxes for certain qualifying types of property.
Examples include commercial and industrial expansion, horse and
auto racing, academic or research institutes, senior housing,
historical societies, recreational facilities, relocated corporate
headquarters, and U.S. public or private residential development.
These exemptions, deferrals, and preferential assessments reduce
the overall assessed values of properties in taxing districts even
more, thus increasing the tax bill of all other property owners and
shifting the incidence of the tax to an even greater degree. Simply
put, property owners that don’t receive exemptions or reductions
pay for the exemptions and reductions of others.
Reductions like these proliferate because they’re easy wins for
legislators. If you vote against providing an additional homestead
exemption to veterans with disabilities because it will increase
property taxes on all other property owners, your opponent in the
next election will accuse you of being a heartless anti-veteran.
Additionally, such legislation has no effect on state revenues or
local revenues—the taxing district levies are not reduced. The taxes
are just shifted to other taxpayers who don’t receive the exemptions
or reduced assessments. Because Illinois’ property tax system is
so complicated and opaque, most taxpayers don’t understand that
these exemptions and reduced assessments contribute to the size
of their individual property tax bill.
Two notes in conclusion: I’ve only scratched the surface of Illinois’
property tax system. I haven’t even touched upon tax increment
financing, the Cook County property tax system, or the property tax
assessment system. Secondly, I’m not contending that property tax
relief shouldn’t be provided in appropriate situations, but such relief
isn’t free—it contributes to the bottom line of your property tax bill
and those of your clients.