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Lifting the Veil on Chicago and Cook County Real Estate Taxes

It seems like politics watchers and the news media like to establish a veil of mystery around Cook County tax assessments. And although it sells papers and conjures an atmosphere of the unknown, the most important thing to know about tax relief in Cook County is the role of market value in assessments and how taxes are calculated.

On June 13, taxing entities announced that tax rates in the City of Chicago would be going up approximately 10 percent. The second installment 2016 tax bills were scheduled to be published around July 1 with a very short payment deadline of Aug. 1, 2017. Those bills will reflect all changes to assessments, as well as the new tax rates.

Jeffrey Brown, Fisk Kart Katz and Regan

Jeffrey Brown, Fisk Kart Katz and Regan

Tax increases make good headlines, but the increases were not a real surprise. The large anticipated property tax increases arise from a local ordinance designed to recapture a portion of the City of Chicago’s and Chicago Public Schools’ large budget deficits and pension plan deficits. This local real estate tax increase resulted from the absence any current resolution of the continuing budgetary stalemate between the general assembly and the governor’s office in Springfield, Illinois.

The table below illustrates the potential real estate tax increase that could result from the projected 9.3 percent 2016 tax increase from the previous year’s tax bills. It addresses a commercial property in Chicago which had a $10 million assessor’s fair market value in 2015, considering the projected 2016 property tax increase of about 10 percent.

Projected Tax Bill

$10 million commercial property

                                                                                   2015                               2016

Market value                                                          10 million                          10 million

x 25 percent assessment ratio

Assessed value                                                     2.5 million                         2.5 million

Equalization factor                                                 2.6685                              2.8032

Equalized assessment                                           $6,671,250                      $7,008,000

Tax rate                                                                  6.867 percent               7.145 percent

Tax bill (increase 9.3 percent)                                $458,114.74                   $500,721.60

News outlets made a splash over the approximate 10 percent increase in the tax rate. However, to satisfy the needs associated with funding police, fire and schools, it is likely that there will be future tax increases over and above that initial 10 percent.

Kieran Jennings, Siegel Jennings Co.

Kieran Jennings, Siegel Jennings Co.

What to do? First, understand that a tax challenge is not surrounded by intrigue. Individuals can very easily appeal their assessments to the assessor. Taxpayers that present good facts and arguments following sound appraisal theory will often find some tax relief. Property owners can take a further appeal to the board of review and beyond. However, at the board level, corporate taxpayers require an attorney.

There are a number of practical arguments to consider. One is to pursue an argument based solely on the assessment as compared to the actual market value of the property, considering the contract rents in place.

Another is taking what appears to be the opposite approach. When arguing about uniformity, taxpayers look toward the general market. In short, assessments should reflect current market rents and not necessarily the actual contract rent at the subject property.

Taxpayers should also consider market occupancy with an eye toward the limitations of the subject property. These arguments work best when submitted to the board along with reliable appraisal evidence as supporting material. From a practical standpoint, a uniformity argument hits close to the response that most taxpayers want, which is to be taxed in a similar manner as their neighbors or competitors in similarly situated properties.

Most assessments are sub-arguments to the income, sales and cost approaches to determining value. The assessors and boards heavily favor the income approach for commercial properties.

Thus by understanding the limitations of the subject property, the taxpayer can argue his own case or be better able to assist tax professionals in establishing the most accurate assessment for the property. There are no smoke and mirrors required, just sound judgment.

By Jeffrey Brown, Partner, Fisk Kart Katz and Regan LTD, and Kieran Jennings, Partner, Siegel Jennings Co. LPA. 

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