Classified For Complexity

<div class="body"><p>It’s a critique of both economists and tax advocates alike that the Cook County property tax system infringes on some of the basic principles of taxation: simplicity and equitability.</p><p>When a county taxes properties, Illinois statute requires the total equalized assessed value (EAV) of each property comes to 33 1/3% of the property’s fair market value. All counties except for Cook use the straightforward approach of assessing real property at the rate of 1/3 of the property’s market value, with a few minor equalization adjustments to adhere to the statute.</p><p>Any county with over 200,000 inhabitants may classify property for purposes of taxation; Cook is the only Illinois County that uses the classification system to assess commercial and industrial properties at a higher percentage to market value than residential properties. Residential properties are assessed at 10% of the market value while commercial and industrial properties are assessed at 25%.</p><p>Policy makers justify their classification method by arguing that businesses are able to shift the tax burden to their consumers through the products and services they sell and therefore are able to pay more. By contrast, the homeowners absorb the whole tax cost without those same capabilities. While lower taxes for homeowners can be viewed as noble, the practice backfires. Small, family owned businesses suffer under the increased tax burden while major chains and financially capable businesses hire tax attorneys who push the tax burden right back to homeowners, using the argument of equitability as outlined in our state constitution. This becomes a circular battle that costs Cook County and taxpayers millions of dollars in time and energy by processing roughly 400,000 assessed valuation disputes each year. The collar counties have a fraction of this volume in appeals on a per capita basis.</p><p>In addition, this system creates an equalization multiplier of 2.9109 (in 2018)—the county’s method of correcting inequitable errors in residential assessment. Every other county in Illinois uses a multiplier of roughly 1.0. This means that instead of your tax bill being off by $100, now it’s off by $291. So why not eliminate the classification system and simplify the process? Even though experts tend to agree that the classification system is detrimental to the long-term viability of our community, the obvious result of eliminating the system is that more property taxes would be shifted to individual taxpayers -- prompting political resistance.</p><p>Basic economic principles suggest that eliminating the classification system would reduce commercial and industrial property tax rates in many communities making them attractive for investment and development and offsetting the increased tax burden placed on residential property owners. While our policy makers find it politically advantageous to create tax incentives and special exemptions that complicate the property tax system, homeowners continue to need tax attorneys to decipher the law.</p></div>