In handling commercial, industrial, or large multi-family (e.g. apartment) real estate transactions, the general practitioner often forgets or is simply unable to ensure that taxes have been assessed, distributed, and prorated fairly with respect to the subject property. Yet this valuable ancillary service, which can save sizeable amounts, often distinguishes the experienced practitioner from the novice.
While the typical real estate Client may not look to you for much more than getting the deal done, in fact property taxes can have a significant impact on the feasibility of the transaction, the Client’s return on investment (or "capitalization rate"), and even on title to the property. In this regard it is critical that the Client be advised as to the appropriate avenues and methods by which to obtain an accurate assessment and, where necessary, how to protest an inequitable assessment, of the subject real estate.
Since the most fertile area for property tax protests is valuation, this article will focus on the proper way to challenge inequitable assessments. Nonetheless, practitioners should keep in mind that there are a variety of issues that can have a significant impact on the desirability of property from the Client’s standpoint, including eligibility for tax incentives in the form of an Open Space1 or Farm valuation,2 a Historical Residence Freeze,3 or an out and out exemption.4 While general practitioners may wish to refer to this article as a primer, where potential property liability is significant they should consult professionals that concentrate in this area of practice.
How the System Works 5
Threshold for Tax Protests: Fair Cash Value
Outside Cook County, and especially in the contiguous or "collar" counties such as DuPage, the property tax system starts with the local Township Assessor: the official charged with preparing the assessments that ultimately give rise to property tax liability. Assessors focus on "fair cash value." In this context, a property’s fair cash value is synonymous with its fair market value. The fair cash value of a parcel is in turn debased at a rate of 33.33 %, the pre-determined level of assessment in the collar counties. The resulting assessed value (e.g. market value x 33.33 %) is the primary variable in the calculation of the tax bill for a particular parcel.
The Board of Review
Within thirty (30) days of its publication6 a taxpayer may dispute the Assessor’s evaluation to the County Board of Review.7 This 30-day filing period is jurisdictional and must be adhered to strictly. The Assessor will be available for consultation during that period. As the authors have found local township assessors to be reasonably open on the question of valuation, it is advisable to pursue a resolution right at this stage, if at all possible.
The Property Tax Appeal Board
Of course the taxpayer may also protest the decision rendered by the Board of Review. In the collar counties, and DuPage County in particular, such an appeal is usually made to the State Property Tax Appeal Board8 (sometimes referred to as the "PTAB"). Since both Board of Review and PTAB hearings are administrative, such decisions must be protested before the Circuit or Appellate Courts, respectively, as required by the Administrative Review Act.9
Valuation of Income-Producing and Owner Occupied Properties
Baseline rules of property valuation contrast owner-occupied units (traditionally thought of as "residential") with income producing (usually rental) property. Valuing the former involves an examination of sale prices, while valuing the latter calls into question rental rates. Thus in the case of owner-occupied property good evidence of value can be found in a recent sale price or an appraisal done since January 1 of that tax year. Income producing properties are often valued based on the capitalized net income they produce; that is, the level of rent paid for use of the real estate, not the business income generated by the tenant. Assessing authorities typically want to look at current year operations (rental income and allowable expenses), as well as historical statements for the three (3) preceding years. A vacancy history as well as a current statement of vacancy is also relevant in valuing the property.
Missing the Filing Deadline is Fatal
Clients often do not realize that their taxes are excessive until they receive their bill: by which time it is far too late. For example, bills payable in 2005 are generally for taxes assessed in 2004, yet the time to protest the assessments giving rise to those taxes would have been months prior to the issuance of the first installment tax bills for 2004. Yet the bill for 2004 will not be issued, and is not payable, until 2005. Hence potential clients that call when they receive their tax bill are generally already too late.
If this sounds confusing, it is. The statutory theory supporting this system is that the value of the property for a given assessment year cannot be known until sometime during the year (often during the latter part). In our example of a 2004 tax assessment billed in 2005 the Township Assessor and Board of Review will have resolved all valuation questions in calendar year 2004; and it is only during this time period that a taxpayer may protest their assessment. In the collar counties the protest period varies by township but generally falls in the autumn and winter of the calendar year at issue (September through December 2004 in our example). The Township Assessor and Board of Review will publish time-tables that reveal the periods during which protests may be filed and heard.
The Township Assessor
Although they are independent, County Boards of Review give great weight to the opinions of local Township Assessors. Accordingly, Clients are well advised to compromise with the assessor so that the question of valuation can be stipulated to the Board and an appropriate reduction entered. If that is not possible, a complaint must be filed and the process starts over at the Board level.
Board of Review Hearing
When a complaint is filed with the Board of Review, a hearing date is set at which the taxpayer may present evidence in support of its argument for an assessment reduction. The Assessor will also be invited to appear and may present evidence of its own. While the types of evidence presented will vary, the primary issue will be the property’s market value as of January1 of that tax year. For example, in the case of income producing property the Board may review the parcel’s stabilized net operating income capitalized at a market-derived rate – that is, they may use the "income approach" to arrive at a value determination. By contrast, owner occupied property will typically be judged based on evidence either of a recent purchase price or an appraisal using all of the accepted valuation approaches (e.g. the income approach, the asset approach, and the blended approach). In some cases, the subject property’s assessment relative to that of comparable properties must be considered due to the so-called Illinois Constitutional Requirement of Uniformity of Assessment.10 This doctrine requires that comparable properties be assessed similarly, or uniformly to use the language of the Constitution. In the case of commercial, industrial, or large apartment properties, the uniformity argument based on the value of comparable properties is generally not persuasive. Those cases tend to turn on a particular property’s market value.
If the taxpayer is not satisfied with the Board of Review decision, it has thirty (3) days from the date of the Board’s decision to appeal to the Property Tax Appeal Board. Again, this filing deadline is jurisdictional and must be strictly construed. Failure to adhere to the deadline results in a waiver of the right to appeal. It should also be noted that there is an alternative remedy that may be exercised instead of filing with the PTAB: namely, the filing of a tax objection in Circuit Court.11 Although the filing period for such lawsuits is generally longer than that at the PTAB, the burden of proof in court (clear and convincing) is higher than that prevailing at the PTAB (preponderance). In the authors’ experience, as a matter of practice in the collar counties the PTAB remedy is preferable.
PTAB Hearings are De Novo
The Property Tax Appeal Board considers de novo the issue of the property’s market value, that is to say neither the taxpayer nor the local Board of Review (the party opponent in PTAB cases) is bound by the record created at the Board of Review hearing. The taxpayer may present new evidence as may the Board of Review.
At this level, cases seeking a reduction of more than $100,000 assessed value may face intervening parties contesting the taxpayer right to a reduction. Such intervenors typically are school districts or other taxing bodies with a revenue interest in the decision. An intervenor would have the right to present its own evidence on the matter of the correct assessment. PTAB not only has the right to reduce an assessment based on the evidence, but may also increase assessments on the evidence.12
Again, one should attempt to resolve the matter at PTAB by agreement. In the case of an intervenor, this would require the intervenor’s agreement as well as that of the Board of Review. In the authors’ experience, county boards of review tend to endorse the agreement reached between taxpayer and intervenor. If a taxpayer is dissatisfied with the PTAB decision, then it may appeal to the Circuit or Appellate Court (as appropriate based on the amount of assessment relief sought) pursuant to the Administrative Review Act. At that level, the taxpayer and PTAB are both bound by the record created at the PTAB. That is, no new evidence may be submitted and the court decides the matter based on the record created before the PTAB. The court’s decision usually turns on whether the PTAB decision is supported by manifest weight of the evidence. If it is, the court is bound to affirm the decision. Where the court finds that the decision is against the manifest weight of the evidence, then the matter is remanded to the PTAB for a new decision (and a new hearing as appropriate).
As may be observed from the foregoing, a practitioner handling properties in any part of the region (or state) should always be alert to property tax issues. A practitioner should be aware of these issues not only in the context of real estate transaction work, but in his or her day-to-day representation of clients. There are two cardinal rules to remember in representing the client in property tax matters: Time is of the essence; and property taxes directly affect your client’s bottom line. A general practitioner who is able to recognize where real estate taxes may be an important issue performs a valuable service for the client. Once this issue is identified, there are a variety of resources which may be brought to bear to reduce the taxes, including the legal experience of professionals in this specialized area.
1 See 35 ILCS 200/10-155, et seq., see also 2005 IL S.B. 1761 (SN), 1761 (SN), 2005 Illinois Senate Bill No. 1761, Illinois 94th, (Feb 25, 2005) VERSION: Introduced, PROPOSED ACTION: Amended, 2005 IL H.B. 3827 (SN), 3827 (SN), 2005 Illinois House Bill No. 3827, Illinois 94th G, (Feb 25, 2005) VERSION: Introduced, PROPOSED ACTION: Amended.
2 See 35 ILCS 200/10-110, et seq., see also (Farm Use) Bond County Bd. of Review v. Property Tax Appeal Bd., 796 N.E.2d 628, 631, 343 Ill.App.3d 289, 292, 277 Ill. Dec. 542, 545 (Ill. App. 5 Dist. Aug 26, 2003) (NO. 5-02-0064), DuPage Bank and Trust Co. v. Property Tax Appeal Bd. of Illinois Dept. of Revenue, 502 N.E.2d 1250, 151 Ill.App.3d 624, 104 Ill. Dec. 590 (Ill. App. 2 Dist. Dec 31, 1986) (NO. 2-85-0509, 2-85-0542); (Valuation) O’Connor v. A & P Enterprises, 408 N.E.2d 204, 41 Ill. Dec. 782, 81 Ill.2d 260 (Ill. Jun 20, 1980) (NO. 52721), People ex rel. Goetten v. Heitzig, 531 N.E.2d 1126, 177 Ill.App.3d 89, 126 Ill. Dec. 499 (Ill. App. 4 Dist. Dec 15, 1988) (NO. 4-88-0255); Illinois Law and Practice Revenue and Taxes, s24 Statutory Level of Assessment (2005), Illinois Law and Practice Revenue and Taxes, s30 Valuations Performed for Special Properties (2005).
3 See 35 ILCS 200/10-40, et seq., see also P.A. 91-806, §5, eff. Jan. 1, 2001, House Bill Status, 91st General Assembly, Regular Session, House Bill 3428, IL H.R. B. Stat. 1999-2000 Reg. Session H.B. 3428, 1999-2000.
4 See 35 ILCS 200/15-5, et seq., see also P.A. 92-333, § 5, eff. Aug. 10, 2001, House Bill Status, 92nd General Assembly, Regular Session, House Bill 280, IL H.R. B. Stat. 2001-2002 Reg. Sess. H.B. 280, 2001-2002.
5 For reasons largely beyond the scope of this article, property taxes for commercial, industrial, and large residential, properties are even more critical for properties located in Cook County than for those found in the collar counties. For example, with respect to industrial and commercial properties typical Cook County property taxes are twice as high as they are in the collar counties. In addition, in Cook County the venues for tax protest and appeal are slightly different than those legally authorized in the collar counties. See 35 ILCS 200/16-95, et seq., see also 2005 IL S.B. 1816 (SN), 2005 Illinois Senate Bill No. 1816, Illinois 94th (Feb 25, 2005), VERSION: Introduced, PROPOSED ACTION: Amended; 2005 IL H.B. 2563 (SN), 2005 Illinois House Bill No. 2563, Illinois 94th G (Feb 18, 2005), VERSION: Introduced, PROPOSED ACTION: Amended; and 35 ILCS 200/23-5, et seq., see also P.A. 88-455, Art. 23, § 23-5, eff. Jan. 1, 1994. Amended by P.A. 89-126, § 5, eff. July 11, 1995.
6 See 35 ILCS 200/16-55, see also P.A. 88-455, Art. 16, § 16-55, eff. Jan. 1, 1994.
7 See 35 ILCS 200/16-5, et seq., see also P.A. 88-455, Art. 16, § 16-5, eff. Jan. 1, 1994. Amended by P.A. 89-126, § 5, eff. July 11, 1995; P.A. 89-671, § 10, eff. Aug. 14, 1996.
8 See 35 ILCS 200/16-160, et seq., see also P.A. 88-455, Art. 16, § 16-160, eff. Jan. 1, 1994. Amended by P.A. 89- 126, § 5, eff. July 11, 1995; P.A. 89-671, § 10, eff. Aug. 14, 1996; P.A. 91-393, § 5, eff. July 30, 1999; P.A. 91-425, § 5, eff. Aug. 6, 1999.
9 See 35 ILCS 200/16-195, see also P.A. 88-455, Art. 16, § 16-195, eff. Jan. 1, 1994.
10 See ILL. CONST. of 1970, Art. IX, Sec. 4
11 See 35 ILCS 200/23-5, et seq., see also P.A. 88-455, Art. 23, § 23-5, eff. Jan. 1, 1994. Amended by P.A. 89-126, § 5, eff. July 11, 1995.
12 See La Salle Partners, Inc. v. Illinois Property Tax Appeal Bd. 269 Ill. App. 3d 621, 646 N.E.2d 935 (2nd Dist. 1995), appeal denied LaSalle Partners, Inc. v. Illinois Property Tax Appeal, 163 Ill.2d 560, 657 N.E.2d 623, 212 Ill. Dec. 422 (Ill. Oct 04, 1995) (TABLE, NO. 79009).
Thomas J. McCracken, Jr. is a partner at McCracken, Walsh and de Levan, where he represents large, industry-owned Clients in all manner of property tax matters throughout Chicagoland, including tax exemption work for charitable organizations. Formerly an Illinois State Representative and State Senator for eleven (11) years, Mr. McCracken was also Chairman of the Regional Transportation Authority for more than ten (10) years, and a commissioner with the National Conference of Commissioners on Uniform State Laws. Mr. McCracken’s offices are located in Chicago and he lives in Downers Grove. Mr. McCracken’s firm accepts referrals concerning property tax matters.
Whitney T. Carlisle, a graduate of the John Marshall Law School with a bachelor’s degree in political science from the University of Illinois, is a member of McCracken, Walsh and de Levan in Chicago. Mr. Carlisle formerly served as a supervisor in the Real Estate Tax Division of the Cook County State’s Attorney’s Office, where he represented Cook County tax officials in State and Federal Court, as well as before the Illinois Property Tax Appeal Board. Mr. Carlisle and the Firm concentrate their practice in Real Estate Tax law.