9-29-06
Taxes of the Baroque
Something very unusual happened in Cook County at the beginning of this month. I’m not talking about the use of nepotism and clout that made Todd Stroger the Democratic candidate for his father’s job; that was strange and creepy, but not unusual in Cook County.
Property taxes were actually due on Sept. 1, the deadline set forth in state law. That is, surprisingly, unusual. Property tax bills must be sent out at least a month before the taxes are due. The property tax system in Illinois is so cumbersome – particularly in populous counties – that the bills typically go out late, forcing the deadline to be extended. My paid bill files show that 2006 was the first year the bills were on time since 1997.
Basic Multiplication
The formula to calculate the tax on a particular piece of property is simple: multiply the assessed valuation by the rate. Easy, if you know the rate and the assessed valuation. But both are determined by slow and clumsy processes.
The county Assessor’s office, in theory, estimates what each property is worth, and from that derives what’s called the assessed valuation. In Illinois, that is supposed to be one-third of the “true” value, and some counties do just that. That is too simple for Cook County, which uses a bunch of different rates: 16 percent for single-family homes, condominiums, small apartment buildings; 38 percent for large commercial property; 22 percent for vacant land. If it averages a third, it’s an accident. (What’s no accident is that properties likely to be owned by voters get the lowest percentage.) A state board sets an equalization factor for each county, intended to bring the overall percentage to a third. “Errors” in determining this multiplier have been known to be made for political reasons.
For reasons of cost and time, only one-third of Cook County is reassessed every year. Even so, the reassessments are done using “a computer-assisted mass appraisal method,” based on statistical formulas, the prior assessment and any data from actual sales. There’s plenty of room for errors and inequities. Also, room for political influence and bribe-passing, at least in the past.
Wailing and Gnashing of Teeth
2006 was the City of Chicago’s turn in the triennial reassessment. Chicago is where the biggest value increases have occurred in Cook County, and taxpayers’ anguished screams have been loud. Increases of 40 or 50 percent were not uncommon in Lakeview and Lincoln Park.
This is where the process starts to bog down. Property owners who believe their property is overassessed have up to three levels of appeal: one inside the Assessor’s office, a Cook County Board of Review, and a state-wide Illinois Property Tax Appeal Board. Each takes time, and assessed valuations are not final till all appeals have been exhausted. As I explain a little later, this means the property tax bills cannot be calculated until all appeals for all properties in the county have been settled.
More and more people have been appealing assessed values in recent years, for several reasons. Fighting a one percent increase is not worth the trouble; fighting a 40 or 50 percent increase is. Second, the Internet has made data about comparable properties readily accessible. And third, more people know it’s possible to appeal, and do so on a “nothing ventured, nothing gained” basis. Even a meritless appeal often gets at least a token reduction.
If you live in the city, the time to do your appeal with the Cook County Board of review is right now. (The time for the first, internal appeal has expired for most of the city.) There are three grounds available. One is lack of uniformity: similar buildings in the neighborhood have been given lower values. Another, overvaluation, is subtly different and harder to prove. The uniformity rule allows values to be wrong, as long as they are consistent. The last is that the Assessor has incorrectly described your property, listing it perhaps as bigger than it is, or having more bathrooms, or being masonry when it’s really frame construction.
Giving A Rating
In other states, each taxing body levies a rate, so many mills per hundred dollars valuation. (“Mill” is an otherwise obsolete word for one-tenth of a cent.) The levy generally must be done before the assessed values are fully known, so the governing body has only an educated guess about how much tax money will eventually come in.
Illinois does it differently. Here, each governing body passes an ordinance saying how many dollars they want rather than what tax rate. The theory is that this provides a degree of certainty and allows the government to plan its cash flows. Sometimes, that’s true.
The problem is that there are legal limits on tax rates. If the assessed value of the property in a jurisdiction is too low, the calculated rate may be above the legal maximum. Since the assessed valuation is not firmly known till long after the levy ordinances are passed, we have once again arrived at “educated guess.”
Some few jurisdictions are prosperous enough not to worry about these limits: they can meet their needs with a tax way below the maximum. Most, however, need the maximum or something close to it. Many solve the problem by asking for amounts larger than they ever hope to collect, just to be sure they reach the maximum legal rate.
Rolling It Up
Cook County alone has more than 1,200 taxing districts. Mercifully, everything gets combined onto a single tax bill, but doing so is quite a chore.
Once the county treasurer’s office has determined that the levies from all jurisdictions have been received in legally appropriate form, they must wait for the assessment process to finish. And wait. And wait.
Eventually, the treasurer’s staff calculates a tax rate for each fund of each jurisdiction by simple division of the levy and assessed valuation, and determine whether it is within the relevant legal maximum. Any government whose levy is reduced has the opportunity to review and confirm the calculation, causing still more delays.
Finally, all that’s left is the mere task of printing and mailing almost 800,000 tax bills, and processing the payments. Compared to the rest, that’s easy.
Remember this when you next complain about how complex the income tax system is. The property tax is no better, just less visible.
Are there money or tax questions you would like to see discussed in this column? Let me know, at 2835 N. Sheffield, Suite 311, Chicago, IL 60657, or call 773/525-1778 (888/525-1778 toll-free outside the Chicago area) or e-mail greg@gregmermel.com.
Greg Mermel is a certified public accountant whose clients in the arts range from individual performers to major theatre companies and suppliers. He has also been known to produce theatre.