Property Tax Litigation - Iicle

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Property Tax Litigation

ARES G. DALIANIS SCOTT R. METCALF Franczek Radelet P.C. Chicago

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©COPYRIGHT 2013 BY IICLE .

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REAL ESTATE LITIGATION

I. [12.1] Introduction II. [12.2] Legal Foundation of Property Tax Assessments A. [12.3] Federal Constitutional Issues B. [12.4] The Illinois Constitution C. [12.5] The Property Tax Code 1. [12.6] Assessment Procedures 2. [12.7] Township Assessors 3. [12.8] Cook County Assessor III. [12.9] Assessment Appeals A. [12.10] Board of Review B. [12.11] Property Tax Appeal Board 1. [12.12] Process and Procedure at the PTAB 2. [12.13] Issues of Note Involving Appeals at the PTAB a. [12.14] Use of the Sales Comparison Approach to Value in Appraisal Evidence b. [12.15] Preclusive Effects of Filing a PTAB Appeal c. [12.16] Treatment of “Open Space” C. [12.17] Circuit Court D. [12.18] Developing Evidence of Value IV. [12.19] Tax Rate Objections A. [12.20] Filing of Tax Rate Objections B. [12.21] Examples of Tax Rate Objections 1. [12.22] Excess Accumulation 2. [12.23] Violation of the Property Tax Extension Limitation Law V. [12.24] Exemptions from Taxation A. [12.25] Types of Property Exempted from Taxation B. [12.26] Process and Procedure for Obtaining an Exemption C. [12.27] Commonly Litigated Exemptions 1. [12.28] Charitable Organizations 2. [12.29] Hospitals 3. [12.30] Religious Organizations 4. [12.31] Taxing Bodies

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PROPERTY TAX LITIGATION

VI. [12.32] Certificates of Error VII. [12.33] Interest on Property Tax Refunds VIII. [12.34] Conclusion IX. [12.35] Appendix — Recommended Resources

ILLINOIS INSTITUTE FOR CONTINUING LEGAL EDUCATION

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§12.1


I. [12.1] INTRODUCTION The real property tax is the largest source of tax revenue in the State of Illinois. In 2010, the statewide total of property taxes was approximately $25.9 billion. Table 2, Illinois Department of Revenue. This compares to the 1989 total property taxes of $8.86 billion. Id. The increase in property taxes from 1989 to 2010 was 192.5 percent, or an annual average rate of increase of 5.24 percent. Id. The property tax is the major funding source for over 6,000 units of local government in Illinois. Table 5, Illinois Department of Revenue. Approximately 45 percent of all property taxes are collected in Cook County, with 31 percent in the suburban collar counties, and only 24 percent for the rest of the state. Table 1, Illinois Department of Revenue. School districts collect the largest share of all property taxes — approximately 62 percent in 2010. Table 13, Illinois Department of Revenue. Since the state’s organization and the adoption of its Constitution in 1818, the Illinois Constitution has always included a provision for the taxation of real property in relation to its value. The 1970 Constitution is no exception, with Article IX, §4, providing the authority to assess and levy a tax on real property. (NOTE: The tax tables cited above are available at http://tax.illinois.gov/aboutidor/taxstats/propertytaxstats/2010/index.htm.) The property tax has long been a mainstay for local governments. It tends to be very stable, with reassessments occurring every three or four years, and annual adjustments, if any, rarely reflecting dramatic swings — up or down — in value. See 35 ILCS 200/9-215, 200/9-220. The property tax is also considered highly productive, with an efficient enforcement mechanism in the form of the annual sale of unpaid taxes by local county treasurers. The tax is viewed as simple in its implementation, although there has been some erosion of this benefit with the plethora of exemptions to politically favored groups and special incentives or treatment for certain property types. Last, the property tax allows for a close match between the tax being assessed and paid and the units of local government receiving and spending those tax dollars. This chapter provides an overview of the law governing property tax litigation, with a focus on the rights and remedies available to both property owners and units of local government. Property owners will often seek to challenge an assessment or tax. Local governments may seek to defend their revenue interest in a particular property to avoid or mitigate the effect of a large refund payment. The property tax is one of the largest expenses of property ownership (after debt service), and for most units of local government, it is the largest source of funding for governmental operations. An understanding of the process of how an assessment is established and reviewed and how it may be challenged or defended is essential information for Illinois practitioners.

II. [12.2] LEGAL FOUNDATION OF PROPERTY TAX ASSESSMENTS Property tax assessment litigation is governed almost exclusively by state law. The Illinois Constitution and the Property Tax Code, 35 ILCS 200/1-1, et seq., provide exceptional detail and guidance for real property taxation in Illinois. A. [12.3] Federal Constitutional Issues At the outset, it should be noted that property tax litigation, particularly assessment appeals, can give rise to equal protection claims under the Fourteenth Amendment to the United States

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§12.4

Constitution and 42 U.S.C. §1983. See, e.g., Allegheny Pittsburgh Coal Co. v. County Commission of Webster County, West Virginia, 488 U.S. 336, 102 L.Ed.2d 688, 109 S.Ct. 633 (1989). However, the Tax Injunction Act, 28 U.S.C. §1341, provides that “district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.” The Seventh Circuit Court of Appeals concluded that the Illinois property tax system, although not perfect, continues to offer a plain, speedy, and efficient remedy for taxpayers. Heyde v. Pittenger, 633 F.3d 512 (7th Cir. 2011). See also Rosewell v. LaSalle National Bank, 450 U.S. 503, 67 L.Ed.2d 464, 101 S.Ct. 1221 (1981). The effect of the Tax Injunction Act is that almost all assessment litigation is pursued under state law. B. [12.4] The Illinois Constitution Article IX, §4, of the Illinois Constitution, entitled “Real Property Taxation,” establishes the constitutional authority to assess and levy a tax on real property. This section provides: (a) Except as otherwise provided in this Section, taxes upon real property shall be levied uniformly by valuation ascertained as the General Assembly shall provide by law. (b) Subject to such limitations as the General Assembly may hereafter prescribe by law, counties with a population of more than 200,000 may classify or continue to classify real property for purposes of taxation. Any such classification shall be reasonable and assessments shall be uniform within each class. The level of assessment or rate of tax of the highest class in a county shall not exceed two and one-half times the level of assessment or rate of tax of the lowest class in that county. Real property used in farming in a county shall not be assessed at a higher level of assessment than single family residential real property in that county. (c) Any depreciation in the value of real estate occasioned by a public easement may be deducted in assessing such property. ILL.CONST. art. IX, §4. Of particular note, ILL.CONST. art. IX, §4(a), establishes a requirement of uniformity of assessments and that the assessing authorities establish a value for real property. The uniformity provision “does not . . . call for a mathematical equality. . . . A practical uniformity, rather than an absolute one, is the test.” Apex Motor Fuel Co. v. Barrett, 20 Ill.2d 395, 169 N.E.2d 769, 773 (1960). ILL.CONST. art. IX, §4(b), establishes the authority for classifying real property by type and setting forth what is commonly referred to as the “21/2:1” requirement. This requirement has been the source of much litigation concerning Cook County assessments over the years. See In re Application of Rosewell, 106 Ill.2d 311, 478 N.E.2d 343, 88 Ill.Dec. 28 (1985); Cook County Board of Review v. Property Tax Appeal Board, 339 Ill.App.3d 529, 791 N.E.2d 8, 274 Ill.Dec. 212 (1st Dist. 2002); Cook County Board of Review v. Property Tax Appeal Board, 345 Ill.App.3d 539, 803 N.E.2d 55, 280 Ill.Dec. 825 (1st Dist. 2003).


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§12.5


C. [12.5] The Property Tax Code The Property Tax Code sets forth the statutory law governing real property assessment and taxation. The Code establishes real property assessment procedures to be followed by local assessing officials, outlines the process to appeal assessments, defines those properties that are exempt from taxation, and provides a mechanism to correct assessment errors. These items are addressed in detail in §§12.6 – 12.8 below. 1. [12.6] Assessment Procedures The Property Tax Code requires that real property be assessed as of January 1 of each year. 35 ILCS 200/9-155. In all counties that do not classify real property for tax purposes, all real property is assessed at 331/3 percent of its “fair cash value.” 35 ILCS 200/1-55, 200/9-145. “Fair cash value” is defined as “[t]he amount for which a property can be sold in the due course of business and trade, not under duress, between a willing buyer and a willing seller.” 35 ILCS 200/1-50. “Fair cash value” is synonymous with “fair market value” for property tax purposes. Kankakee County Board of Review v. State of Illinois Property Tax Appeal Board, 337 Ill.App.3d 1070, 787 N.E.2d 865, 272 Ill.Dec. 679 (3d Dist. 2003). As mentioned in §12.4 above, Article IX, §4, of the Illinois Constitution allows counties with a population of more than 200,000 to classify real property for purposes of taxation. Cook County is the only county in Illinois that classifies real property for taxation purposes. Cook County uses the classification system to assess different property types at different percentages of fair cash value. The Cook County Board of Commissioners adopted significant amendments to the Cook County Real Property Assessment Classification Ordinance, Cook County Code of Ordinances §74-64, which were effective beginning in the 2009 tax year. Cook County Ordinance No. 08-O-51 (Sept. 17, 2008). For the 2011 tax year and beyond, assessments in Cook County will be either 10 percent or 25 percent of the fair cash value of the property. Cook County Code of Ordinances §74-64. The following chart details the new and old levels of assessment: Class

Property Type

1 2 3

Vacant Land Residential Apartments

New Level of Assessment (%) 10 10 10

4 5a 5b Incentives

Nonprofit Commercial Industrial Various

25 25 25 10

Old Level of Assessment (%) 22 16 20 (2008) 16 (2009) 13 (2010) 30 38 36 16

The ability to redistribute the property tax burden via assessment classification is unavailable in counties that do not classify real property for taxation purposes and assess all property at 331/3 percent of fair cash value. See 35 ILCS 200/1-55, 200/9-145.

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§12.7

The property tax assessment process begins with the local assessor’s office. Each county in Illinois is divided into a number of townships. In counties other than Cook County, each township elects a township assessor to conduct the initial valuation of property. See 35 ILCS 200/2-45. In Cook County, a countywide assessor is elected to value real property in all of the county’s townships. See 35 ILCS 200/3-50. Whether it is the township or county assessor, the Code directs the assessor in general assessment years “in person or by deputy [to] actually view and determine as near as practicable the value of each property listed for taxation as of January 1 of that year. . . . The assessor or deputy shall set down, in the books furnished for that purpose the assessed valuation of properties in one column, the assessed value of improvements in another, and the total valuation in a separate column.” 35 ILCS 200/9-155. In non-general assessment years, assessors “shall list and assess all property which becomes taxable and which is not upon the general assessment, and also make and return a list of all new or added buildings, structures or other improvements of any kind, the value of which had not been previously added to or included in the valuation of the property on which such improvements have been made.” 35 ILCS 200/9-160. Assessors during non-general assessment years may also raise or lower assessments “to equalize assessments.” 35 ILCS 200/9-205. The details of what constitutes a general assessment year, how assessors assess property, and how assessors adjust assessments in non-general assessment years depend significantly on whether the property is located in Cook County. The general practices of township assessors are discussed in §12.7 below, followed by a discussion of the practices of the Cook County Assessor in §12.8 below. 2. [12.7] Township Assessors The responsibilities of the township assessor vary depending on whether the tax year in question is a general assessment year. The Property Tax Code defines a “general assessment year” for counties with less than 3 million inhabitants (i.e., all counties other than Cook County) as tax year “1995 and every fourth year thereafter.” 35 ILCS 200/9-215. It is worth noting that “[i]n counties having the commission form of government and less than 3,000,000 inhabitants, the general assessment years shall be 1994 and every fourth year thereafter.” Id. In addition, counties may divide their territory into four assessment districts so that one district is generally assessed every year rather than the whole county being generally assessed once every four years. Id.; 35 ILCS 200/9-220, 200/9-225. During a general assessment year, the township assessor will review all property within the township, determine the value of each parcel of real estate within the township, and assess each parcel “at 331/3% of its fair cash value” (which is synonymous with “fair market value”). 35 ILCS 200/9-155. In non-general assessment years, the county supervisor of assessments, who is responsible for equalizing assessments among all the townships within a county, derives and applies to all assessments an “equalization factor” that is designed to keep the assessments for all property within the township at 331/3 percent. 35 ILCS 200/9-210. The township assessor’s duty during non-general assessment years is to value new properties that are not yet on the assessment rolls and to adjust assessments for properties valued during the general assessment year to


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§12.8


equalize assessments when appropriate. 35 ILCS 200/9-205. Whether the tax year is a general assessment year, the assessments for each tax year must be completed on or before June 1. 35 ILCS 200/9-155, 200/9-160. The township assessor typically begins the assessment process in the spring of each year. If a property owner is concerned about his or her property assessment, the property owner may schedule a meeting with the township assessor’s office to discuss the assessment of his or her property during the assessment process. Upon completion of the assessment process, notice of a change in the assessment of a property must be provided to the property owner, unless the change is caused by the chief county assessment officer applying an equalization factor. In general assessment years, a list of all property assessments must be printed in a public newspaper published in the county. 35 ILCS 200/12-10. In the years between general assessments, a list of only those assessments that have been changed is published. Id. Property owners must also be mailed notices if their real property assessments change from the preceding year’s assessments. 35 ILCS 200/12-30. On or before June 1 of each year, the assessor will certify the assessments for the applicable tax year to the county supervisor of assessments, who also serves as the clerk of the board of review. 35 ILCS 200/9-155, 200/9-160. 3. [12.8] Cook County Assessor Unlike township assessors, the duties of the Cook County Assessor do not vary from year to year because every year is a general assessment year in Cook County. The county is divided into three assessment districts: (a) the City of Chicago; (b) that portion of the county outside the City of Chicago and north of Illinois Route 64 (North Avenue); and (c) that portion of the county outside the City of Chicago and south of Illinois Route 64 (North Avenue). 35 ILCS 200/9-220. Each assessment district is subject to a general assessment every three years so that one district is reassessed each year. Id. As the Cook County Assessor is responsible for the valuation of all property in the county, the Assessor is engaged in general assessment activities in one assessment district and non-general assessment activities in the other two assessment districts every year. Similar to township assessors, the Cook County Assessor performing a general assessment is charged with “actually view[ing] and determin[ing] as near as practicable the [fair cash] value of each property listed for taxation as of January 1 of [the general assessment] year.” 35 ILCS 200/9-155. However, not all property in Cook County is assessed at the same percentage of fair cash value (called the “level of assessment”). As discussed in §12.6 above, the Cook County Real Property Assessment Classification Ordinance provides that properties are assessed at one of two levels of assessment: either 10 percent or 25 percent, based on property use. Cook County Code of Ordinances §74-64. Furthermore, the Cook County Assessor is not required to complete assessments by a statutory deadline. The Property Tax Code provides that the Cook County Assessor must complete assessments “as soon as he or she reasonably can.” 35 ILCS 200/9-155. The Cook County Assessor’s non-general assessment year duties, like those of the township assessors, include valuing new properties that are not yet on the assessment rolls and adjusting assessments for properties valued during the general assessment year to equalize assessments when appropriate. 35 ILCS 200/9-205. However, while supervisors of assessments in other counties apply an equalization factor to all assessments during non-general assessment years (thus

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§12.9

altering the assessments for all properties in a county on an annual basis), most assessments in Cook County remain static during non-general assessment years. Again, the Assessor has no definitive deadline by which to complete assessments for non-general assessment years. 35 ILCS 200/9-160. The Cook County Assessor’s assessment process is more formal than that of the township assessors. The Cook County Assessor typically launches the general assessment process by sending notice to all property owners in the district being reassessed, advising them of the proposed assessment for their property. The notice of the change in assessment provides a date, generally 30 days from the date of the notice, before which the property owner may file an appeal. 35 ILCS 200/14-35. In the two years during which the property is not reassessed, notice is required only if the property’s assessed value is increased. 35 ILCS 200/9-85, 200/12-55. All property owners within a township may appeal their assessment every year, regardless of whether they received notice of a change, as long as the appeal is filed during the period of time their township is “open” for the filing of appeals. Legal representation is not required to appeal an assessment at the Cook County Assessor’s Office. The property owner’s evidence will be reviewed to determine whether there is sufficient evidence to show an error and warrant a change in the property’s assessed value. As the appeals process is completed for each township, the Assessor certifies all the assessments for the applicable township and tax year to the Cook County Board of Review. 35 ILCS 200/14-35.

III. [12.9] ASSESSMENT APPEALS The process for establishing real property assessments does not stop with the assessor’s office. This process contains many layers and can require years of litigation before a final assessment is determined. Those dissatisfied with the assessor’s assessment may appeal that assessment to an entity called the “board of review.” An assessment may then be appealed to either an administrative agency called the “Illinois Property Tax Appeal Board” (PTAB) or directly to the circuit courts. The decisions of either of these bodies may then be appealed either through the administrative review process or directly to the appellate court. The chart below shows the structure of this process.


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§12.10


Local Assessor

Board of Review

PTAB

Circuit Court

Administrative Review

Appellate Court

In addition to the multiple forums in which assessments are adjudicated, the requirement that property be assessed as of January 1 of each year can give rise to new appeals and litigation for the same property every year. See 35 ILCS 200/9-155. A. [12.10] Board of Review Each county has a board of review, which is charged with hearing and deciding appeals of property assessments based on property owners’ complaints of overvaluation and taxing districts’ complaints of undervaluation. 35 ILCS 200/16-25, 200/16-30, 200/16-95. In addition, boards of review, on their own motion, may revise any assessment provided that the assessment may be increased only if the property owner is given notice of the proposed increase and an opportunity to be heard. 35 ILCS 200/16-30, 200/16-95. In all cases, the board sets assessments as they appear to it to seem just. 35 ILCS 200/16-30, 200/16-95. Boards of review provide notice of their decisions. Any party seeking to invoke the jurisdiction of either the Property Tax Appeal Board or the circuit court must first have filed a complaint before the appropriate board of review and have appeared before the board for any hearing. 35 ILCS 200/16-160, 200/23-10. If a property owner fails to exhaust its administrative remedies at the board of review, and none of the specific exceptions created by statute or caselaw apply, then a court has no jurisdiction over a tax objection complaint, and a judgment entered in favor of the property owner is void. Baker v. Harper, 2012 IL App (3d) 110343, 967 N.E.2d 346, 359 Ill.Dec. 616. Similarly, the PTAB has no jurisdiction over an appeal when the property owner did not exhaust its administrative remedies at the board of review. 35 ILCS 200/16-160.

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§12.11

Boards of review outside Cook County are typically comprised of three members who are appointed by the county board. 35 ILCS 200/6-5. These boards of review convene on or before the first Monday in June of each year and must adjourn no later than March 15 of the following year. 35 ILCS 200/16-30, 200/16-35. During the board of review’s annual session, it considers all written overvaluation and undervaluation complaints. 35 ILCS 200/16-55. In addition, the boards of review provide notice to affected taxing districts of “all cases where a change in assessed valuation of $100,000 or more is sought.” Id. In these cases, taxing districts have a right “to be heard on the complaint.” Id. Once a board of review outside Cook County completes its work, it must deliver certified copies of the assessment books to the county clerk and the chief county assessment officer (whether the county assessor or the county supervisor of assessments). 35 ILCS 200/16-90. The three members of the Cook County Board of Review are elected to alternating terms of two and four years. 35 ILCS 200/5-5(c). The Board convenes annually on the second Monday in September (35 ILCS 200/16-105) and adjourns “60 days after the date of the last delivery to it of the assessment books for any township or taxing district” (35 ILCS 200/16-150). The Board reviews assessments by township. 35 ILCS 200/16-125. As the Board completes its review of each township, the Board transmits its decisions to the Cook County Assessor. Id. Unlike other boards of review, the Cook County Board of Review is not required to give notice of any complaints to the affected taxing districts. At the end of the review cycle, the Board orders the Assessor to make those changes found by the Board to be just. 35 ILCS 200/16-150. The Board and the Assessor jointly file certified assessment books with the Cook County Clerk. Id. The assessment books are certified prior to the extension and collection of property taxes. Property tax bills are calculated and paid based on the assessments established by the boards of review. In other words, a decision by a board of review will increase, decrease, or leave unchanged the amount of taxes a property owner pays, but the decision will not result in a property tax refund. A property owner dissatisfied with a decision of a board of review may either appeal such a decision to the PTAB or file a tax objection complaint in the county circuit court. 35 ILCS 200/16-160, 200/23-5. Filing an appeal at the PTAB precludes a property owner from also filing a tax objection complaint in circuit court. 35 ILCS 200/16-160. Taxing districts involved in an appeal before a board of review are limited to appealing to the PTAB. See 35 ILCS 200/16-160, 200/23-5. The extension and collection of real estate taxes are not delayed by assessment appeal proceedings before either the PTAB or the circuit court. 35 ILCS 200/16-180, 200/23-5. When an assessment is reduced by the PTAB or the circuit court, the party seeking the reduction is awarded a property tax refund with statutory interest. 35 ILCS 200/16-185, 200/23-15, 200/23-20. B. [12.11] Property Tax Appeal Board The Property Tax Appeal Board is charged with hearing assessment appeals from the various boards of review and determining correct assessments. LaSalle Partners, Inc. v. Illinois Property Tax Appeal Board, 269 Ill.App.3d 621, 646 N.E.2d 935, 940 – 941, 207 Ill.Dec. 101 (2d Dist. 1995). The PTAB hears all appeals de novo, meaning that parties may submit to the PTAB evidence not previously submitted to or considered by a board of review. 35 ILCS 200/16-180. The PTAB also is not bound to give any deference to the decision of the board of review.


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§12.12


1. [12.12] Process and Procedure at the PTAB Parties appealing a decision of a board of review to the Property Tax Appeal Board must file the appropriate petition form “within 30 days after the date of written notice of the decision of the board of review.” 35 ILCS 200/16-160. The petition must set “forth the facts upon which [the party] bases the objection, together with a statement of the contentions of law which [the party] desires to raise, and the relief requested.” Id. Each appeal is “limited to the grounds listed in the petition filed with the Property Tax Appeal Board” (35 ILCS 200/16-180), and amendments are allowed only to correct technical defects (86 Ill.Admin. Code §1910.31(a)). No amendments to the petition form that are prejudicial to a party are permitted. 86 Ill.Admin. Code §1910.31(a). Once a party’s filing is accepted by the PTAB, the Clerk of the PTAB mails a copy of the filing to the local board of review. 35 ILCS 200/16-180. In those cases in which a party seeks an assessment reduction of $100,000 or more, the board of review serves a copy of the party’s “petition on all taxing districts as shown on the last available tax bill.” Id. Once a taxing district receives notice of such a petition, that district may intervene in the assessment appeal before the PTAB by filing a request to intervene within 60 days of the postmark of the board of review’s notice of the petition. 86 Ill.Admin. Code §1910.60(d). The PTAB reviews all cases according to an informal procedure that “eliminate[s] formal rules of pleading, practice and evidence” (35 ILCS 200/16-180) and decides cases “based upon equity and the weight of evidence” (35 ILCS 200/16-185). The party challenging an assessment bears the burden of going forward and the burden of proof. 86 Ill.Admin. Code §1910.63(b). When an assessment is challenged at the PTAB based on market value, “the value of the subject property must be proved by a preponderance of the evidence.” 86 Ill.Admin. Code §1910.63(e). When a party alleges that it received unequal treatment in the assessment process (e.g., a claim that an assessment is nonuniform), “the inequity of the assessments must be proved by clear and convincing evidence.” Id. If a party successfully demonstrates that its property is overvalued, that party may be able to file what is commonly referred to as a “rollover appeal.” Essentially, a rollover appeal is an option for a party when the PTAB “renders a decision lowering the assessment of a particular parcel after the deadline for filing complaints with the board of review . . . or after adjournment of the session of the board of review . . . at which assessments for the subsequent year are being considered.” 35 ILCS 200/16-185. Under these circumstances, a party may “appeal the assessment for the subsequent year directly to the [PTAB]” by filing a written notice with the PTAB within 30 days of the PTAB’s decision. Id. A party dissatisfied with a decision of the PTAB may appeal the decision under the Administrative Review Law, 735 ILCS 5/3-101, et seq., to the Illinois courts. On administrative review, the court reviews “all questions of law and fact presented by the entire record before the court.” 735 ILCS 5/3-110. However, the court may consider “[n]o new or additional evidence in support of or in opposition to any finding, order, determination or decision of the [PTAB].” Id. While questions of law are reviewed by the courts de novo, “[t]he findings and conclusions of the [PTAB] on questions of fact shall be held to be prima facie true and correct.” Id.

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§12.14

The venue for administrative review of a PTAB decision varies depending on the change in assessed value that was sought. While all decisions from other administrative agencies are typically appealed to the circuit court (735 ILCS 5/3-104), those cases in which a change in assessed value of $300,000 or more is sought are appealed directly to the Illinois appellate court (35 ILCS 200/16-195). 2. [12.13] Issues of Note Involving Appeals at the PTAB The Property Tax Appeal Board makes available on its website (www.state.il.us/agency/ptab) representative decisions from each year involving all the different types of properties that come before it. A review of these decisions can provide a practitioner with the key issues in appeals of residential, farm, commercial, and industrial properties. A summary of those decisions is beyond the scope of this chapter. Instead, the discussion in §§12.14 – 12.16 below highlights issues of note involving practice before the PTAB. a. [12.14] Use of the Sales Comparison Approach to Value in Appraisal Evidence Appraisal evidence at the Property Tax Appeal Board should include a sales comparison approach to value when market data is available. Under Illinois law, absent a recent arm’s-length sale of a property, an analysis of the sales of similar properties is the preferred method for determining the value of a property. Cook County Board of Review v. Property Tax Appeal Board, 384 Ill.App.3d 472, 894 N.E.2d 400, 323 Ill.Dec. 633 (1st Dist. 2008). See also United Airlines, Inc. v. Pappas, 348 Ill.App.3d 563, 809 N.E.2d 735, 284 Ill.Dec. 169 (1st Dist. 2004). In Cook County Board of Review, supra, the property owner’s appraisal used only the incomecapitalization approach to value because the appraiser opined that there were no properties similar to the subject property. The court examined other cases that had created exceptions for special purpose properties, but it noted those exceptions are limited to properties that are so unique as to not be saleable. The court went on to state that, when market data is available, a property owner’s appraisal must contain the sales comparison approach for the property owner to meet its burden of going forward and its burden of proof. Therefore, when the market value of a property is being challenged and the appraisal does not include the sales comparison approach to value, a property owner’s evidence will be insufficient as a matter of law. If the property is truly unique and there is no reliable market data available, however, the sales comparison approach to value may be properly excluded from a property owner’s appraisal. Board of Education of Meridian Community Unit School District No. 223 v. Illinois Property Tax Appeal Board, 2011 IL App (2d) 100068, 961 N.E.2d 794, 356 Ill.Dec. 405. In the Meridian Community Unit School District No. 223 decision, the subject property was a landfill that sold three years prior to the tax year at issue. But the sale was part of a bulk transaction involving multiple properties ordered by the U.S. Department of Justice. Thus, it was not considered an arm’s-length transaction. Further, the PTAB made findings of fact, based on the testimony of multiple appraisal experts, that the sales of landfills are unreliable indicators of value. Such sales, according to the testimony, include the going-concern value of the business and the license to operate the business. Also, sales prices vary based on local regulations concerning waste disposal. The court concluded that because of these factors, the property was unique, and the sales comparison approach to value was properly excluded from the property owner’s appraisal.


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§12.15


b. [12.15] Preclusive Effects of Filing a PTAB Appeal When a property owner files an appeal at the Property Tax Appeal Board and a taxing body intervenes, the property owner may be prevented from voluntarily withdrawing its appeal. Minooka Community High School District No. 111 v. Illinois Property Tax Appeal Board, 397 Ill.App.3d 823, 925 N.E.2d 1199, 339 Ill.Dec. 78 (3d Dist. 2010). In Minooka Community High School District No. 111, the property owner’s appeal, which was filed first, prevented the taxing body from filing its own appeal claiming the property was undervalued. As a result, the court determined that the property owner could not voluntarily dismiss its appeal before the intervening taxing district had the opportunity to submit the evidence it was in the process of obtaining. The basis for preventing a property owner from withdrawing its appeal in these circumstances is that the PTAB is charged with determining the correct assessment based on equity and the weight of evidence, whether that requires a decrease or an increase in the assessed value, and an intervening party must be given the opportunity to prove its claim concerning the value of the property. Another effect of filing an appeal at the PTAB is that it bars a party from seeking a change in the assessment in other forums. As noted in §12.10 above, filing an appeal at the PTAB precludes a property owner from also filing a tax objection complaint in circuit court. 35 ILCS 200/16-160. According to an opinion issued by the Illinois Attorney General, filing an appeal at the PTAB also prevents a party from filing for a certificate of error. Op. Att’y Gen. (Ill.) No. S-1307 (1977). A certificate of error, described in more detail in §12.32 below, is a written acknowledgment from the local assessor and board of review that a mistake or error in an assessment has occurred. According to the Attorney General’s Opinion, allowing the board of review to revise an assessment after the filing of an appeal at the PTAB “would make a mockery of the review process provided by law.” Op. Att’y Gen. (Ill.) No. S-1307, p. 3 (1977). c. [12.16] Treatment of “Open Space” In Onwentsia Club v. Illinois Property Tax Appeal Board, 2011 IL App (2d) 100388, 953 N.E.2d 1010, 352 Ill.Dec. 329, the court addressed the extent of property considered “open space” under 35 ILCS 200/10-155. Section 10-155 of the Property Tax Code defines “open space” as land of more than ten acres that, among other things, “conserves landscaped areas, such as public or private golf courses.” The issue presented to the court in Onwentsia Club was whether the improvements (including a swimming pool, tennis courts, stables, and a horse riding area) at a private golf club should be granted the “open space” designation. The result of such a designation would be a reduction in assessed value of the improvements to zero. The court found that to “ ‘[c]onserve’ means ‘to keep in a safe or sound state.’ ” 2011 IL App (2d) 100388 at ¶10. As a result, the court viewed the legislative intent behind the statute as providing the “open space” classification not only to landscaped areas, but also to land that facilitates the existence of the landscaped areas. The court held that the improved areas of the Onwentsia Club could be classified as open space as long as the improved areas conserve the landscaped areas and contribute to the nature of the land as a landscaped area. The case was then remanded to the Property Tax Appeal Board to determine if the facts support the conclusion that the improvements actually conserve a landscaped area. In remanding the case, the court noted that without the golf course, there would be no landscaped areas, and without the other improvements, there would be no golf course.

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§12.17

C. [12.17] Circuit Court In the alternative, a property owner has the option to challenge the decision of a board of review by filing a complaint in circuit court. 35 ILCS 200/23-15. Assessment complaints filed directly with the circuit court are called “tax objection complaints.” In tax objection complaints, the court (without a jury) hears and determines assessment objections. 35 ILCS 200/23-15(b)(1). Unlike the Property Tax Appeal Board, the court presumes that assessments are correct and legal. 35 ILCS 200/23-15(b)(2). However, this presumption may be rebutted if the property owner proves a different assessment by clear and convincing evidence. Id. In addition, courts hear tax objection complaints de novo and “without regard to the correctness of any practice, procedure, or method of valuation followed by the assessor . . . or board of review in making or reviewing the assessment.” 35 ILCS 200/23-15(b)(3). A property owner wishing to file a tax objection complaint must first timely pay all property tax due. 35 ILCS 200/23-5. Once a property owner timely pays its taxes, it may file a tax objection complaint to challenge the assessment on which its taxes were calculated. Id. In Cook County, such a complaint must be filed “within 165 days after the first penalty date of the final installment of taxes for the year in question.” 35 ILCS 200/23-10. In all other counties, a property owner must file a tax objection complaint “within 75 days after the first penalty date of the final installment of taxes for the year in question.” Id. A tax objection complaint names the county collector as the defendant and specifies the objections raised by the property owner. 35 ILCS 200/23-15(a). The collector is not required to file an appearance or answer in response to the tax objection complaint. Id. Unlike PTAB appeals, tax objection cases are subject to the more formal rules of civil procedure, including discovery. See Cook County Circuit Court Rule 10.8, §2-120. Another distinction between PTAB appeals and tax objection complaints is that taxing districts do not typically receive notice of tax objection complaints. (While §23-10 of the Property Tax Code suggests that taxing districts located outside Cook County receive notice of tax objection complaints from the clerk of the circuit court, tax objection complaints are relatively scarce outside Cook County, and therefore this portion of §2310 is rarely applicable.) A taxing district may intervene in tax objection complaint litigation as long as it demonstrates in its petition to intervene that the requirements for intervention in §2-408 of the Code of Civil Procedure, 735 ILCS 5/1-101, et seq., are met. Madison Two Associates v. Pappas, 227 Ill.2d 474, 884 N.E.2d 142, 318 Ill.Dec. 587 (2008). A practitioner filing, defending, or intervening in a tax objection complaint in Cook County should review Cook County Circuit Court Rule 10.8. The form of a tax objection complaint is set forth in Rule 10.8, §1-20. Rule 10.8 requires the complaint to be filed in triplicate and identify the taxpayer as the plaintiff, the county collector as the defendant, and the year of the taxes to which objection is made. Id. Pursuant to §2-20, all cases are inactive until the scheduled casemanagement call is held. Cook County Circuit Court Rule 10.8, §2-20. The case-management call brings the plaintiff before the court to commence the presentation of the case and ensure the plaintiff has complied with the required initial production of documents, which must be completed two months prior to the case-management call. Cook County Circuit Court Rule 10.8, §2-50. The documents to be produced are identified in Rule 10.8, §2-50, and include the tax bills for the year at issue; a description of the size, age, condition, and use of the property during the


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year at issue; a description of any improvements to the property during the year at issue; contracts and closing statements for any sale of the property during the year at issue; copies of complaints submitted to the Assessor’s Office or the Board of Review; and any appraisals of the property with a date of value within two years prior to the year at issue. Id. At the case-management call, an order will be entered establishing the schedule of events leading to trial. Cook County Circuit Court Rule 10.8, §2-45. Five months after the case-management call, a trial-management call will be scheduled. Id. At that time, discovery will open. The deadline for identifying all opinion witnesses will be set ten months after the case-management call. Id. The cutoff date for all discovery will be the fourteenth month following the case-management call. Id. Fifteen months following the case-management call, the matter will be set for trial assignment. Id. As with other forms of litigation, any party dissatisfied with a decision of the circuit court may appeal the decision under the Supreme Court Rules. D. [12.18] Developing Evidence of Value The ultimate question in nearly all assessment litigation is “What is the fair cash value of the subject property?” From the very beginning of the assessment process, attorneys rely on appraisers to provide the data and analysis necessary to support a valuation of a property as well as information to challenge the valuation conclusion of another party. Attorneys rely on appraisers not only to provide appraisal reports and expert testimony, but also to guide them through the complicated world of real estate valuation. It is important that an attorney choose his or her appraisal expert with care and continually strive to develop a good working relationship with the appraiser. These goals are best accomplished by having a firm understanding of the services that an appraiser can provide. Real estate appraisers provide far more than appraisal reports. While appraisal reports often constitute the primary evidence in valuation litigation, it is hardly the only evidence that an appraiser can develop. Instead, an attorney should consult with an appraiser to obtain crucial information that guides the attorney through each step of valuation litigation. Typically, the first interaction between an attorney and an appraiser in the course of valuation litigation should be for obtaining a preliminary opinion of value. If the ultimate question is what the fair cash value of the property is, the attorney’s first order of business is to ascertain a preliminary answer to this vital question without incurring significant costs. The attorney needs to know at the earliest possible moment whether a claim has validity. An appraiser can provide a preliminary valuation at a fraction of the cost of an appraisal report, and many appraisers will roll their fees for a preliminary valuation into the fees for a complete appraisal report if such a report is requested at a later time. The preliminary valuation is usually expressed as a value range, relies on general market information, and may reveal major issues at the earliest stages of litigation. The preliminary valuation route is particularly useful for attorneys defending assessment litigation, as these attorneys usually have an appraisal report from the opposing party before they engage an appraiser. If an attorney receives a preliminary valuation that suggests that litigation should proceed, the attorney should resist the reflex merely to order a full appraisal report. Appraisers can select and provide relevant real estate market data, including comparable sales and rents and data from

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§12.18

publications used by real estate brokers and leasing agents in doing real estate transactions, and provide insight into appraisal methodologies. The attorney should analyze the case and determine what type of evidence is needed to successfully pursue the litigation. It may be that comparable sales data is sufficient evidence of value. Or it may be that exploiting a significant methodological flaw in an opponent’s evidence is enough to effectively defend a case. There are many types of evidence, short of an appraisal report, available for use in valuation litigation. Once the decision is made to commission an appraiser to prepare an appraisal report, the attorney should not expect to simply await the final product. Whenever possible, the attorney should provide to the appraiser access to the property he or she is valuing and all pertinent information and documentation about that property. The appraiser will provide guidance about what he or she needs to review in the course of valuing the property. It is also important to maintain contact with the appraiser throughout the appraisal process. Adverse facts about the property may emerge that will force the attorney to reevaluate the merits of pursuing the litigation further. It is better to learn about such facts before a costly final appraisal report is complete. Finally, it is important to ensure that the appraiser completes a final report that conforms to the expectations set by Illinois courts. For example, the First District Illinois Appellate Court has ruled that a taxpayer’s appraisal that failed to include a sales comparison approach despite the existence of comparable sales was insufficient as a matter of law. Cook County Board of Review v. Property Tax Appeal Board, 384 Ill.App.3d 472, 894 N.E.2d 400, 323 Ill.Dec. 633 (1st Dist. 2008). In addition to providing an appraisal report valuing a particular property, appraisers also provide technical assistance in rebutting an opponent’s appraisal evidence. This assistance may include a report called a “technical appraisal review report.” However, similarly to valuation services, appraisers can provide the market data or appraisal methodological information to effectively challenge an opponent’s valuation report without completing a written report. If the attorney elects to have a written report prepared, it is advisable to select a separate appraisal expert to prepare the review and to direct the separate expert not to prepare an opinion of value. If a case goes to hearing or to trial, it is better to have one witness testify as to the value of the property and another witness testify concerning the deficiencies of the opponent’s appraisal evidence. Finally, when a valuation case is scheduled for trial or an administrative hearing, it is critical to carefully prepare the appraisal expert for testimony. Some appraisers have been testifying as experts longer than many attorneys have been litigating, and these appraisers may have definitive ideas about what questions should be asked and how they should be answered. The attorney should welcome advice from the experts but should never surrender the attorney’s role in developing the theory of his or her case. By understanding the services that an appraiser can provide, the attorney is able to effectively and efficiently bring the appraiser’s expertise to bear on valuation litigation. An attorney who works closely with his or her appraisal expert will receive invaluable guidance from the appraiser, will avoid surprises, and will receive appraisal evidence that the attorney understands and will be able to use with maximum effectiveness.


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§12.19


IV. [12.19] TAX RATE OBJECTIONS The other type of tax objection complaint filed in circuit court concerns complaints against a taxing body’s property tax levy. This type of tax objection complaint is commonly called a “tax rate objection” to distinguish it from a valuation objection. A. [12.20] Filing of Tax Rate Objections Tax rate objections must be filed by individual taxpayers, but they may be consolidated for administrative purposes. Class action lawsuits challenging tax rates are specifically prohibited by the Property Tax Code. 35 ILCS 200/23-15. Further, the doctrine of representation may not be used in an attempt to include all taxpayers in a single tax rate objection. In re Objection to 2005 Tax Levy of LaSalle County, Illinois, 393 Ill.App.3d 999, 914 N.E.2d 1139, 333 Ill.Dec. 327 (3d Dist. 2009). B. [12.21] Examples of Tax Rate Objections A wide range of tax rate objections can be filed against a taxing body’s levy. A discussion of all the various types is beyond the scope of this chapter. Two types of tax rate objections do, however, provide an overview of this type of property tax litigation. Those two types of tax rate objections involve excess accumulation of tax dollars and violation of the Property Tax Extension Limitation Law (PTELL), 35 ILCS 200/18-185, et seq. 1. [12.22] Excess Accumulation The Illinois Supreme Court established the framework for evaluating excess accumulation claims in Central Illinois Public Service Co. v. Miller, 42 Ill.2d 542, 248 N.E.2d 89 (1969). The decision in Miller was the culmination of decades of caselaw concerning excess accumulation claims. People ex rel. Harding v. Chicago & N.W. Ry., 413 Ill. 93, 108 N.E.2d 22 (1952); People ex rel. Leaf v. Roth, 389 Ill. 287, 59 N.E.2d 643 (1945); People ex rel. Nash v. Westminster Bldg. Corp., 361 Ill. 153, 197 N.E. 573 (1935); People ex rel. Schaefer v. New York, C. & St. L. R.R., 353 Ill. 518, 187 N.E. 443 (1933); People ex rel. Bracher v. Millard, 307 Ill. 556, 139 N.E. 113, 115 (1923). The court determined that it is the fixed policy in Illinois not to permit the unnecessary accumulation of money in the public treasury. Thus, while taxing bodies have reasonable discretion in establishing the amount of property taxes to be collected, the courts will interfere to prevent a clear abuse of their discretionary powers. Whether a taxing body abuses its discretion through an excess accumulation of tax dollars involves comparing the amount of money available to the amount of the anticipated expenditures. In Miller, supra, the court determined that the total amount available to any given fund of a taxing body at the start of a fiscal year should be computed by augmenting the fund balance at the beginning of the fiscal year with the amount of taxes remaining to be collected from the prior year’s levy for that fund. The court then divided this total by the average annual expenditure of the fund for the previous three fiscal years. In Miller, the total funds available were 2.84 times the average annual expenditure for the past three fiscal years and 3.24 times the amount expended in the last fiscal year. Using this analysis, the court concluded that the additional levy at issue in that case resulted in an unlawful excess accumulation.

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§12.24

The Illinois Second District Appellate Court applied this framework for analyzing excess accumulation claims in In re Application of People ex rel. Anderson, 279 Ill.App.3d 593, 665 N.E.2d 521, 216 Ill.Dec. 461 (2d Dist. 1996). Initially, the court noted that a taxing body has broad discretion in estimating the amount of money necessary to carry out its lawful objectives. Id. This discretion creates a presumption that a taxing body has not abused its discretion in making its property tax levy. Id. To overcome this presumption, an objector must make a prima facie case that a taxing body’s levy for a fund created an unlawful accumulation of assets. Objectors can make a prima facie case only by showing that the assets available to the fund at the end of the fiscal year preceding the levy exceeded two to three times the taxing body’s foreseeable expenditures for that fund. Anderson, supra; Miller, supra. In Anderson, the court found objectors failed to meet their burden of making a prima facie case because the total funds available to the taxing agency were only 1.80 times the average annual expenditures for the past three years and 1.61 times the previous year’s expenditures. If, on the other hand, an accumulation exceeds two to three times a taxing body’s foreseeable expenditures, the burden shifts to the taxing body to demonstrate the need for the additional tax levy. Allegis Realty Investors v. Novak, 379 Ill.App.3d 636, 885 N.E.2d 325, 327, 319 Ill.Dec. 54 (2d Dist. 2008). 2. [12.23] Violation of the Property Tax Extension Limitation Law The Property Tax Extension Limitation Law includes the requirement that if a tax rate or rate increase “is authorized by statute” and may be imposed without a referendum or is subject to a backdoor referendum, then the taxing district must submit the new rate or rate increase to a frontdoor referendum. 35 ILCS 200/18-190. In 1997, Will County decided to levy for the first time a property tax to fund a detention home. It did not conduct a referendum. It continued to levy that tax each year thereafter. Four years later, the plaintiffs objected to the taxes levied in 2001 and each subsequent year. The trial court ruled in favor of the county, holding that if statutory authorization for a levy pre-dated the PTELL, then no referendum was required. The appellate court affirmed, but on the narrow basis that taxpayers could not object to the levy for the first time four years after it was first adopted. The Illinois Supreme Court took up the issue in Acme Markets, Inc. v. Callanan, 236 Ill.2d 29, 923 N.E.2d 718, 337 Ill.Dec. 867 (2009). The court found that, under the plain language of the statute, §18-190 of the Property Tax Code applies to tax statutes that predate the PTELL. According to the court, the term “new rate . . . authorized by statute” referred to a tax rate that was new to the taxing body, not a tax rate that was authorized by a newly enacted statute. 923 N.E.2d at 721. Additionally, the court found that if no referendum was held, taxpayers could object to the levy after the first year that the tax was levied because the PTELL’s protection of taxpayers is ongoing. The court did, however, recognize that only those who paid taxes under protest were authorized to recover payment.

V. [12.24] EXEMPTIONS FROM TAXATION Exemption from property taxation is derived from the Illinois Constitution. Article IX, §6, of the Constitution empowers the General Assembly to “exempt from taxation only the property of the State, units of local government and school districts and property used exclusively for agricultural and horticultural societies, and for school, religious, cemetery and charitable purposes. The General Assembly by law may grant homestead exemptions or rent credits.”


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§12.25


Article 15 of the Property Tax Code specifies numerous exemptions. See 35 ILCS 200/15-35 through 200/15-185. These include various types of homeowner exemptions as well as complete exemptions from taxation. Because homeowner exemptions are not litigated, §§12.25 – 12.31 below focus on complete exemptions from taxation. A. [12.25] Types of Property Exempted from Taxation The following list identifies the non-homestead exemptions under the Property Tax Code. In each instance, the particular statute creating the exemption also places limitations on the exemption. Reference to each statutory provision is therefore necessary to determine if a particular property actually qualifies for the exemption. 1. schools (35 ILCS 200/15-35) 2. religious institutions, parochial schools, and orphanages (35 ILCS 200/15-40) 3. property of the United States (35 ILCS 200/15-50) 4. property of the State of Illinois (35 ILCS 200/15-55) 5. county and municipal property (35 ILCS 200/15-60) 6. property of charitable organizations (35 ILCS 200/15-65) 7. libraries (35 ILCS 200/15-66) 8. property used for fire protection purposes (35 ILCS 200/15-70) 9. municipal public grounds (35 ILCS 200/15-75) 10. property purchased by a public body through an installment contract (35 ILCS 200/15-80) 11. agricultural and horticultural societies (35 ILCS 200/15-85) 12. hospitals (35 ILCS 200/15-86) 13. military schools (35 ILCS 200/15-90) 14. housing authority property (35 ILCS 200/15-95) 15. public transportation systems (35 ILCS 200/15-100) 16. property owned by a bistate development agency (35 ILCS 200/15-103)

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§12.26

17. park and conservation district property (35 ILCS 200/15-105) 18. municipal building corporation property (35 ILCS 200/15-110) 19. municipal power agency property (35 ILCS 200/15-115) 20. municipal natural gas agency property (35 ILCS 200/15-120) 21. parking areas associated with an exempt property (35 ILCS 200/15-125) 22. municipal railroad terminals (35 ILCS 200/15-130) 23. school and community college district property (35 ILCS 200/15-135) 24. public water and water drainage district property (35 ILCS 200/15-140) 25. property of the Metropolitan Water Reclamation District (35 ILCS 200/15-143) 26. property of veterans’ organizations (35 ILCS 200/15-145) 27. forest preserve property (35 ILCS 200/15-150) 28. Joliet Arsenal Development Authority property (35 ILCS 200/15-151) 29. port district property (35 ILCS 200/15-155) 30. airport authority property (35 ILCS 200/15-160) B. [12.26] Process and Procedure for Obtaining an Exemption To apply for an exemption for the first time (other than a homestead exemption), a property owner must file an application with the county board of review when the board is in session. 35 ILCS 200/15-5. In cases in which the exemption sought would reduce the assessed valuation by more than $100,000, the property owner must serve a copy of the exemption application on “any municipality, school district, community college district, and fire protection district in which the property is situated.” 35 ILCS 200/16-70. (But note that in Cook County, the exemption application need not be served on a fire protection district under 35 ILCS 200/16-130.) While such taxing districts are entitled to an opportunity to be heard by the board of review concerning exemption applications, the failure of taxing districts to receive notice of such applications does not invalidate any exemption. 35 ILCS 200/16-70, 200/16-130. The board of review does not grant or deny exemption applications. The board of review gathers evidence regarding the exemption application and makes a recommendation to the Illinois Department of Revenue as to whether the application should be granted or denied. 35 ILCS 200/16-70, 200/16-130. The Department will then review the evidence given to the board of review to determine whether the property tax exemption applies. 35 ILCS 200/8-35.


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A party dissatisfied with the decision of the Department of Revenue may file an application for a hearing before the Department. 35 ILCS 200/8-35(b). The applicant for a hearing must “state concisely the mistakes alleged to have been made or the new evidence to be presented.” Id. Upon the filing of a petition for a hearing, the Department will reconsider the exemption application, provide a hearing, and issue a written decision. Prior to the issuance of a decision, taxing districts may intervene in the proceedings. 86 Ill.Admin. Code §110.115(h)(3). A party dissatisfied with the Department’s written decision may file a written request for a rehearing. Id. The final decision of the Department of Revenue is subject to the Administrative Review Law. However, a party may not appeal a determination by the Department “unless the party commencing the action has filed an application for a hearing and the Department has acted upon the application.” 35 ILCS 200/8-35. A taxing district that does not intervene in the administrative proceedings may not later intervene in an administrative review action in circuit court. Housing Authority of County of Marion, Illinois v. Department of Revenue of State of Illinois, 389 Ill.App.3d 1005, 907 N.E.2d 889, 330 Ill.Dec. 76 (5th Dist. 2009). The Administrative Review Law states that necessary parties are those who were parties of record before the administrative agency. 735 ILCS 5/3-107. The Property Tax Code specifically allows districts to become parties of record at the board of review proceedings (35 ILCS 200/16-70, 200/16-130), and the Department of Revenue’s regulations specifically state that intervention by districts must occur prior to the Department’s decision. 86 Ill.Admin. Code §110.115(h)(3). Therefore, taxing districts are not allowed to wait and see the results of the Department’s decision before intervening in tax exemption litigation. It is important to note that the courts construe exemption statutes very narrowly. The property owner bears the burden of showing that its property falls squarely within a statutory exemption. Metropolitan Water Reclamation District of Greater Chicago v. Department of Revenue of State of Illinois, 313 Ill.App.3d 469, 729 N.E.2d 924, 246 Ill.Dec. 273 (1st Dist. 2000). If there is doubt as to the applicability of an exemption statute, the doubt will be resolved in favor of taxation. C. [12.27] Commonly Litigated Exemptions While there are many types of exemptions, most are very specifically targeted to a limited number of property types. Four exemptions, however, encompass the vast majority of both the property tax exemptions that are granted and instances of litigation. Those exemptions involve charitable organizations, hospitals, religious organizations, and taxing bodies. 1. [12.28] Charitable Organizations Property of charitable organizations, certain nursing homes and health maintenance organizations, free public libraries, and historical societies is exempt from property taxation “when actually and exclusively used for charitable or beneficent purposes, and not leased or otherwise used with a view to profit.” 35 ILCS 200/15-65. The Illinois Supreme Court reaffirmed the longstanding factors for determining whether an organization qualifies as a charity under §15-65 of the Property Tax Code. As expressed in Provena Covenant Medical Center v.

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Department of Revenue, 236 Ill.2d 368, 925 N.E.2d 1131, 339 Ill.Dec. 10 (2010), citing Methodist Old Peoples Home v. Korzen, 39 Ill.2d 149, 233 N.E.2d 537 (1968), an organization seeking a charitable property tax exemption must demonstrate that a. it has no capital, capital stock, or shareholders; b. it earns no profits or dividends but rather derives its funds mainly from private and public charity and holds them in trust for the purposes expressed in the charter; c. it dispenses charity to all who need and apply for it; d. it does not provide gain or profit in a private sense to any person connected with it; and e. it does not place any obstacles in the way of those who need and would avail themselves of the charitable benefits it dispenses. In Provena Covenant Medical Center, the Illinois Supreme Court reviewed the charitable property tax exemption application of a hospital. At the time, a charitable property tax exemption was the only form of exemption available to hospitals. The court found that a charitable property tax exemption was unwarranted because the hospital failed to meet its burden of proof with regard to factors b, c, and e. The court’s decision resulted in legislative activity culminating in the creation of a property tax exemption for hospitals. 2. [12.29] Hospitals Effective June 14, 2012, P.A. 97-688 added a section to the Property Tax Code dealing specifically with property tax exemptions for hospitals. 35 ILCS 200/15-86. Prior to the addition of this section, hospitals were eligible for a property tax exemption only if they could demonstrate that they were institutions of public charity. Now, if the total value of a hospital’s charitable services or activities meets or exceeds the hospital’s estimated property tax liability, the hospital may claim the exemption. The statute identifies seven types of hospital services and activities that constitute charitable activities: a. free and discounted hospital care for the indigent; b. financial or other support of healthcare programs or services for the indigent; c. subsidization of physicians treating low-income persons; d. disease management and prevention for low-income persons in the community; e. financial support of government programs providing healthcare for low-income persons, such as Medicaid;


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§12.30

f.


financial or in-kind subsidies to state or local government healthcare programs; or

g. any other activity provided by the hospital that the Department of Revenue determines relieves the burden of government or addresses the health of low-income or underserved individuals. The statute also specifies how to estimate a hospital’s property tax liability. A hospital will calculate its estimated property tax liability by multiplying the lesser of the actual assessed value placed on the property by a local assessing official or the estimated assessed value of the exempt portion as determined by the hospital by the state equalization rate and the applicable tax rate. To maintain a property tax exemption, the property owner must file an affidavit with the chief county assessment officer on or before January 31 of each year, accompanied by an exhibit showing (a) the value of its qualifying charitable services or activities and (b) the value of its estimated property tax liability. See 35 ILCS 200/15-10. 3. [12.30] Religious Organizations Property used exclusively for religious purposes, school and religious purposes, or as an orphanage is exempt as long as it is not used with a view to a profit. 35 ILCS 200/15-40. Additionally, property owned by a church and used as housing for a minister is also exempt. Id. The requirement that the property be used exclusively for religious purposes precludes the use of that property for profit. Franciscan Communities, Inc. v. Hamer, 2012 IL App (2d) 110431, 975 N.E.2d 733, 363 Ill.Dec. 707. The decision in Franciscan Communities involved a continuing-care retirement community owned and operated by the Franciscan Sisters, an undoubtedly religious organization. The court upheld the denial of the property tax exemption because, regardless of the religious motivations behind the use of a property, an applicant must demonstrate that the actual day-to-day use of the property is for religious purposes. Based on the facts in the record, the court concluded that the property was purchased and operated with a view to profit. Parsonages are also subject to close scrutiny. For example, a private residence is not entitled to an exemption as housing for a minister unless the minister is required to live there as a condition of his or her employment with the church. Armenian Church of Lake Bluff v. Department of Revenue, 2011 IL App (1st) 102249, 956 N.E.2d 479, 353 Ill.Dec. 617. 4. [12.31] Taxing Bodies Usually, property owned by taxing bodies is exempt from taxation as long as the property is not leased or used for profit. For example, property of school districts and community college districts is exempt as long as it is “not leased by those districts or otherwise used with a view to profit.” 35 ILCS 200/15-135. What constitutes “use for profit” has been the subject of much litigation over the years. See, e.g., Turnverein “Lincoln” v. Board of Appeals of Cook County, 358 Ill. 135, 192 N.E. 780 (1934); Franklin County Board of Review v. Department of Revenue, 346 Ill.App.3d 833, 806 N.E.2d 256, 282 Ill.Dec. 281 (5th Dist. 2004); Northern Illinois

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§12.33

University Foundation v. Sweet, 237 Ill.App.3d 28, 603 N.E.2d 84, 177 Ill.Dec. 303 (2d Dist. 1992); DePaul University, Inc. v. Rosewell, 176 Ill.App.3d 755, 531 N.E.2d 884, 126 Ill.Dec. 257 (1st Dist. 1988). Sometimes, the terms of the agreement may affect the exemption. The Illinois Supreme Court addressed the distinction between a taxable leasehold interest and a nontaxable license of exempt property in Millennium Park Joint Venture, LLC v. Houlihan, 241 Ill.2d 281, 948 N.E.2d 1, 349 Ill.Dec. 898 (2010). The court found the principal difference between a lease and a license to be that a lease confers the right to exclusively possess and control property, but a license merely confers a right to use property for a specific purpose, subject to the licensor’s control. Based on the facts before it, the court concluded that the agreement was a license due to the owner retaining control of the property. In other instances, compensation for the use of the property may be the determinative factor. The Fourth District Appellate Court also addressed the provision of the Property Tax Code exempting property owned by a school district that is “not leased . . . or otherwise used with a view to profit.” 35 ILCS 200/15-135. The court held that when a lease of school district property results in a substantial profit to the school district, the Department of Revenue may properly deny an exemption. Springfield School District No. 186 v. Department of Revenue of State of Illinois, 384 Ill.App.3d 715, 893 N.E.2d 1042, 323 Ill.Dec. 568 (4th Dist. 2008).

VI. [12.32] CERTIFICATES OF ERROR A “certificate of error” is a written acknowledgement that a mistake or error in an assessment has occurred. Typically, certificates of error are issued for properties that were recently declared exempt because property owners who seek an exemption for their property must continue to pay property taxes until the exemption is granted. See 35 ILCS 200/14-25. In counties outside Cook County, certificates of error are issued upon the application of the property owner to the board of review or upon the board’s own motion and must be endorsed by the county’s chief assessment official. 35 ILCS 200/14-20, 200/16-75. In Cook County, certificates of error are initiated by the County Assessor and endorsed by the Board of Review. 35 ILCS 200/14-10, 200/14-15. A party seeking a certificate of error due to a claim for exemption may seek such a certificate for the three tax years preceding the year in which the certificate is sought. 35 ILCS 200/14-25. As noted in §12.15 above, the Illinois Attorney General has issued an opinion stating that filing an appeal with the Property Tax Appeal Board precludes a party from also filing for a certificate of error. Op. Att’y Gen. (Ill.) No. S-1307 (1977).

VII. [12.33] INTEREST ON PROPERTY TAX REFUNDS Prior to January 1, 2006, the statutory interest rate added to property tax refunds was 5 percent per year from the date of payment of the taxes. Effective January 1, 2006, P.A. 94-558 amended §23-20 of the Property Tax Code by changing the rate of interest on property tax refunds from 5 percent per annum to “the annual rate of the lesser of (i) 5% or (ii) the percentage increase in the Consumer Price Index [CPI] For All Urban Consumers during the 12-month


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calendar year preceding the levy year for which the refund was made, as published by the federal Bureau of Labor Statistics.” 35 ILCS 200/23-20. The Cook County Treasurer interpreted the amended statute to apply retroactively so that all interest would be calculated using the CPI rate for interest earned both before and after January 1, 2006. Taxpayers receiving refunds with interest calculated in this manner took the position that interest should be calculated at 5 percent for any objection filed before January 1, 2006, arguing they had a vested right in the higher interest rate. The Illinois Supreme Court addressed the issue in General Motors Corp. v. Pappas, 242 Ill.2d 163, 950 N.E.2d 1136, 351 Ill.Dec. 308 (2011). The court agreed with the bifurcated interest rate approach. The court noted that the interest rate applied to property tax refunds is a creature of statute that the General Assembly can change at any time as long as the change does not interfere with any vested rights. The court found that the prospective application of the new interest rate after January 1, 2006, did not interfere with any vested rights. Also before the court was the question of whether the taxpayers that challenged the Cook County Treasurer’s use of the CPI interest rate on all refunds issued after January 1, 2006, were entitled to a 6-percent judgment interest under the Code of Civil Procedure on the difference between the interest they received under the Treasurer’s approach and what they were entitled to under the hybrid, bifurcated interest approach. The court found the taxpayers were entitled to judgment interest on that difference. For certificates of error, a taxpayer is entitled to 0.5 percent interest per month. 35 ILCS 200/20-178. The interest is to be calculated starting 60 days after the certificate of error is issued by the chief county assessment official. Sears Holdings Corp. v. Pappas, 391 Ill.App.3d 147, 908 N.E.2d 556, 330 Ill.Dec. 368 (1st Dist. 2009).

VIII. [12.34] CONCLUSION Property tax litigation requires a practitioner to have a firm understanding of Illinois property tax law. The practitioner must keep the sequence and timing of the assessment process in the forefront of his or her mind and understand the role of each of the agencies with which he or she will interact. These skills will allow the practitioner to effectively litigate in the fast-paced and fluid field of property taxes.

IX. [12.35] APPENDIX — RECOMMENDED RESOURCES We recommend the following Internet resources for use by an assessment litigation practitioner: Illinois Property Tax Appeal Board — www.state.il.us/agency/ptab Illinois Department of Revenue — www.revenue.state.il.us Local Assessing Officials (Northeastern Illinois) Cook County Assessor’s Office — www.cookcountyassessor.com

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DuPage County Supervisor of Assessments — www.dupageco.org/soa Kane County Chief County Assessment Office — www.co.kane.il.us/soa Will County Supervisor of Assessments — www.willcountysoa.com Boards of Review (Northeastern Illinois) Cook County — www.cookcountyboardofreview.com DuPage County — www.dupageco.org/soa/1470 Kane County — www.co.kane.il.us/soa/bor.htm Lake County — www.co.lake.il.us/boardofreview McHenry County — www.co.mchenry.il.us/departments/assessments/pages/boardofreview.aspx Property Tax Policy & Research: The Civic Federation — www.civicfed.org Taxpayers’ Federation of Illinois — www.iltaxwatch.org The Lincoln Institute — www.lincolninst.edu Also recommended are the following print sources: Appraisal Institute, THE APPRAISAL OF REAL ESTATE (13th ed. 2008). Appraisal Institute, THE DICTIONARY OF REAL ESTATE APPRAISAL (4th ed. 2002).


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