Navigating the Illinois commercial property tax appeal process can be complex, but understanding key strategies can help property owners minimize their tax burden. Attorney Nora Divine, a seasoned property tax attorney with years of experience, shares her insights on how property owners can approach the appeal process to ensure they are not overpaying on taxes. With a practice that spans across the state, Nora represents a variety of property classes in Illinois, and in this episode, she offers expert advice on the steps property owners should take when appealing their commercial property tax assessments.
Why File a Property Tax Appeal?
For property owners in Cook County, it’s almost a given that an appeal should be filed every year. The trend in Cook County is that if a property owner does not appeal, they could end up with the highest assessed property value in the area. Property owners who do not appeal risk being at a disadvantage, as there is an ongoing push-pull between residential and commercial property tax assessments. The goal is often to shift the tax burden from residential to commercial properties, leading to higher assessments for commercial properties if appeals are not filed.
For those outside of Cook County, the approach can vary, but generally, commercial properties in the Chicagoland area—particularly in Cook County and the surrounding collar counties—make up the vast majority of the equalized assessed value in Illinois. For income-producing properties, it is critical to have a good understanding of the income stream to support a tax appeal.
Gathering Documentation for a Strong Appeal
When filing an appeal, property owners must ensure they provide a comprehensive set of data. Assessors will want to understand the types of rents being collected and the property’s expenses. They will compare the actual income and expenses to the market income. For example, if a retail building is renting for $10 per square foot while other similar buildings in the area are renting for $20, the assessor may question why the subject property is earning less than the market rate.
In certain cases, like with big-box retailers, landlords may negotiate above-market rent in exchange for a long-term lease, which could skew the assessment. In these instances, the assessor is expected to disregard the actual rent and instead use the market rent as a basis for valuation.
Understanding the Role of Comparable Sales
For commercial property owners, it is essential to be aware of the rents and values of comparable properties in the area. Keeping track of asking rents for vacant space in the neighborhood helps ensure the property is assessed fairly. Assessors will consider the income potential and the risk associated with the property, often using the capitalization rate to determine its value.
If there is a significant amount of vacant space around a property, the assessor may consider this when making an assessment. For instance, if a property has a 50% vacancy rate but nearby properties have a vacancy rate of only 15%, the assessor may inquire about the cause of the higher vacancy rate, potentially leading to a lower assessment to reflect the economic realities of the market.
The Importance of Rent Rolls and Operating Expenses
The rent roll is a critical piece of documentation in any property tax appeal. It must be detailed enough to clearly show the rent breakdown, including base rent, common area maintenance fees, and contributions to real estate taxes. Without this level of detail, the assessor may not fully understand the property’s income-generating potential. It is important for property owners to provide comprehensive and accurate data to ensure the assessor sees the full picture, especially in complex leasing situations like build-to-suit properties.
Challenges with Recent Purchases and Over-Assessment
In Illinois, when a property is purchased for a price higher than the assessor’s valuation, it can be challenging to reduce the assessment in the short term. Assessors often cling to the purchase price for several years before considering other factors. Property owners who buy a property for a higher price may struggle with significantly higher tax bills, which could double or triple in the first few years following the purchase. This situation can be frustrating for clients who expected lower taxes based on the asset’s initial market value.
What Assessors Consider During the Appeal Process
When reviewing a property tax appeal, assessors and the Illinois Property Tax Appeal Board (PTAB) will first consider the sale price of the property. If the property was sold for more than the assessed value, the sale price can carry significant weight. However, if the assessor simply increased the property’s assessment to match the purchase price without considering the assessments of similar properties in the area, this could be considered illegal “sale chasing.” Property owners can challenge this practice by demonstrating that the sale was an arm’s length transaction, which means it was between unrelated parties acting in their own best interests without duress.
Strengthening Your Case with Proper Evidence
To make a compelling case, property owners must present evidence that the sale of the property was conducted at arm’s length. This includes proving that the buyer and seller were unrelated, the property had sufficient exposure in the market, and both parties were adequately advised. In some cases, detailed broker affidavits, showing how the property was marketed and sold, can strengthen an appeal by demonstrating that the sale price reflects the true market value.
For properties that were sold by banks or through foreclosure (OREO properties), assessors may assume the sale was distressed, which could lead to an over-assessment. In these cases, it’s essential to show the sale was still an arm’s length transaction despite the bank’s involvement.
Conclusion
The property tax appeal process in Illinois is multifaceted, and understanding the details of income, expenses, market conditions, and recent sales is critical for property owners. By preparing thorough documentation, providing clear evidence, and understanding the legal standards that assessors must follow, commercial property owners can improve their chances of a successful appeal. It’s important to work with an experienced attorney who can guide you through the complex system and help manage expectations, especially when dealing with over-assessments and sale prices that seem too high.