10-07-09 New Business Classification System Could Be Devastating by Sandy Cruz

During a recent meeting of the Chicago Southland Chamber of Commerce Real Estate Banking Council Bill Sandrick from the Sandrick Law Firm LLC discussed the impact of the change in assessments for business owners; a bigger tax bill due to a change in classification on properties.

While the assessments may look almost identical, businesses will see a 15 percent or more property tax increase. Up until this year vacant land in Cook County was assessed at 22%, residential was assessed at 16% and commercial and industrial were assessed at 38% and 36%.

The Illinois Constitution gives counties with a population of 200,000 or more the ability to classify for purposes of taxation. Only Cook has exercised that privilege. Sandrick said the Constitution states that if you have a classification system there cannot be a differential of more than 2-1/2% between the lowest assessed class and the highest assessed class. The General Assembly requires fair cash value to be the basis for assessment and the assessed valuation must be 33% of the fair cash value except for Cook County which has its own system. The classification system is strictly the decision of the county board. The courts ruled that the total assessment in the county has to equal 33% of the total (fair) market value so you can have varying levels of assessment. Sandrick said the Cook County multiplier is an algebraic adjustment to ensure compliance with the 33-1/3% requirement. FMV x assessment x multiplier x tax rate = tax dollars needed.

The problem is that 2/3 of the assessment base in Cook County is residential. “If 2/3 of your tax base is assessed at 16%, you have a problem. The problem driving the changes is that the defacto assessment for residential in reality is 10% vs. the statutory requirement of 16%. The difference is made up in the multiplier. The undervaluation of Class 2 properties results in a higher multiplier,” Sandrick said. “One solution would be to slowly assess residential property back up to 16 percent to bring the multiplier down and ease the burden on commercial and industrial business owners and prevent the flight of business to Will County. The undervaluation is the biggest problem and that’s why the changes were enacted. Since 2002 the multiplier in Cook County has gone from 2.4689 to 2.9786 in 2008. That is a 21 percent increase. Even if your assessment hasn’t changed, your taxes went up 21 percent as a result of the multiplier going up.”

This is the reason why businesses are running like hell out of Cook County; Cook County is taxing their pants off.

In recognition of the problem Sandrick said the assessor’s office devised a way to eliminate the great disparity in classifications. The 2009 assessments are 10 percent for vacant land and 10% for Class 2 residential. Class 3 apartments will be at 16% in 2009, 13% in 2010 and 10% in 2011. Commercial and industrial will be at 25%.

“The state mandates all property must be assessed at 33% and now because there are five major classes and none of those assessment levels are 33% what will happen to the multiplier? If you choose to do nothing in about 13 months your taxes will jump” Sandrick said.

He explained that as a result of your level of assessment going from 36% to 25% and the assessor’s office making the transition from the assessor’s value which is typically lower, to real value this boosted the market value of your property. That is a 52% increase in market value for commercial property and 44% for industrial. “As tax attorneys we argue market value,” Sandrick said. “The assessor is pushing market values up while we all know that they are dropping.”

What should businesses do? Sandrick’s answer is appeal, appeal, appeal until you have exhausted all efforts. “I can’ stress enough that you have to appeal in 2009. You have to attack the market value,” Sandrick said. Market value can be appealed through the Cook County Assessor’s office and then through the Cook County Board of Appeals and Circuit Court.

“The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing”

 Jean Baptiste Colbert (from the Sandrick Law Firm LLC website.)

Don't get plucked.