The ability to tax property in Illinois was included in the State of Illinois’ first constitution in 1818. The Illinois constitution of 1818 was unique in that it established: “…That the mode of levying a tax shall be by valuation so that every person shall pay a property tax in proportion to the value of the property he or she has in his or her possession.” Basically, this established an “ad valorem” tax, which in Latin means “according to value”. Thus, an ad valorem tax is a tax that varies with the value of the property. All property, personal and real, was taxed under this system.
When property tax began, land (and improvements) was the primary form of wealth, so it was much nearer to being a duty on prosperity than it is today. Many of the other federal taxes, such as taxes on electrical energy and telephone calls were for nominal amounts and often unknown to consumers.
Property taxes, on the other hand, required taxpayers to make an unequivocal tax payment of considerable size from which the taxpayer could not avoid without losing what was often their most significant piece of property and wealth.Originally property taxes were collected and used only by the State government. The first significant change in property taxes came in 1839, when growth and political pressure broadened the definition of taxable property, narrowed the scope of exemptions, and identified personal property subject to taxation. In addition, counties were provided the ability to tax personal property.
The Revenue Code of 1853, also allowed for taxation by townships, eliminated double taxation, included stocks and bonds in the tax base, and established a system of utilizing local assessors and created oaths for assessors mandating true and accurate assessments at true full value in money. A State Board of Equalization was established in 1867 and additional provisions concerning assessment practices were established in the Illinois Constitution of 1870.
The property tax system remained fundamentally the same until the Depression of the 1930’s. The first basic change came with the collapse of personal income during the Depression. The State last levied a property tax in 1932 and replaced the loss in revenue with a State sales tax the next year. Local governments continued to levy and collect tax on property as their main source of revenue. This transition was brought about in large part due to a loose knit but national property taxpayer revolt.
Chicago assumed a leadership role in this revolt. Its citizens, enraged over corrupt practices in property tax assessments discovered before the Depression, and stressed in their ability to pay the toll joined together and refused to pay taxes.An amendment to the 1870 Constitution, following the passage of the Illinois Income Tax of 1968, eliminated taxes on personal property for individuals and as provided by the 1970 Constitution, corporate personal property taxes were eliminated in 1979. They were replaced by a corporate income tax and a tax on the invested capital of public utilities.
Over time many local governmental units also reduced their reliance on the property tax share in total revenue as they increased user fees, licensing fees and local sales taxes. Dependence on state and federal aid also increased.
But in the 1950s and 1960s the role of property tax expanded dramatically at the local level as it became the major source of school funding during a period when education spending was increasing to meet the demands of the baby boomers.
Later in the 1970’s, due to inflation, prices of homes accelerated faster than other types of property. As a result, residential homes comprised a large proportion of the total assessed value of real property in Illinois. The State then enacted homestead exemptions for owner occupied residential properties, and in Cook County allowed for the institution of a system of property classification.
By the 1980's the baby boomers had passed through the public school system. Rural communities began losing their schools due to declining or stagnating population and tax bases. Property values would often decline with the loss of schools. Rising property values in the large cities led to suburban sprawl as parents became willing to commute to work in exchange for lower housing costs and better funded schools. Property tax rates are usually lower in urban cities but the out-of-pocket taxes are generally higher than in rural communities with lower property values. Moving to adjacent communities meant bigger homes for less money and even if taxed at a higher rate they felt their children received a bigger bang, in terms of quality education, for their property tax dollars.
Soon the rural school districts began crying foul because of the mounting funding inequities. State governments, including Illinois, tried to balance the gap by reducing the amount of state aid to the wealthier (in property value) school districts.
The state governments simply could not keep up with the rate property taxes was increasing. The percentage of overall school revenues from the state dwindled lower and lower.
Because funding inequities exist both within and between states and because many rural communities felt shortchanged by legislators their arguments were brought to the courts. After all, doesn’t the Constitution guaranty equal rights for education?In 1981, the State changed the basis of assessing farmland from that of the actual market value of the land to the farmland’s agricultural economic value. Basically, the land was valued at its’ ability to produce, which was based upon its’ soil type, drainage and other agricultural economic factors. The need for this change was due to the conversion of farmland for development, which was artificially inflating the value of the land and placing an unfair tax burden on the owners of land still being used for strictly agricultural purposes.
In 1991, the Property Tax Extension Limitation Law (PTELL) provided that non-home rule taxing districts in the collar counties were restricted from increasing property tax extensions by more than 5% or the change in the Consumer Price Index, whichever is less, when property values and assessments increase at a rate that exceeds the rate of inflation. As of 2000, 34 counties were subject to PTELL.
We are funding increases every year on a system built for a babyboomer "surge" which ended long ago, simply because it's perceived as easy to tax property!
Finally, in 2004, Public Act 93-715 amends the tax code to provide a residential property tax assessment cap and a variety of increased exemptions. The new law provides that counties may opt to provide a 7% cap on assessment increases on owner-occupied residential property up to a total of $20,000 in assessed valuation. The Homestead Exemption for owner-occupied residential property was increased to $5,000 statewide. The Senior Citizens Homestead Exemption was increased to $3,000 statewide and removes the requirement (except for Cook County) for the homeowner to annually re-apply for the exemption. The Senior Citizens Assessment Freeze Exemption income threshold was increased from $40,000 to $45,000 statewide. The Homestead Improvement Exemption limit was increased from $45,000 in improvements to $75,000 in improvements.
Who Collects and Uses Property Tax?
Since 1932, Illinois does not have a State property tax. Local government taxing bodies, such as counties, cities, townships, schools, park districts, fire districts, library districts and hospitals, administer and use property tax revenues. Illinois has more local taxing districts than any other state. There are over 6,000 such local taxing bodies.
According to the Illinois Department of Revenue, the following is a breakdown of property tax extensions in Illinois for the year 2000:
Taxing Body % of Total Revenue ($ in millions)
Schools 58.0% $9,271
Cities 12.7% $2,021
Counties 8.9% $1,420
Parks 4.2% $ 673
Community Colleges 3.9% $ 624
Townships 2.7% $ 436
TIF Districts 2.7% $ 430
Other Special Districts 4.4% $ 708
Who Pays Property Tax?
Basically anyone who owns real property in Illinois pays property tax. There are a number of exemptions, which include, The United States, the State of Illinois, schools, religious institutions, most charitable organizations and governmental subdivisions. According to the Illinois Department of Revenue, the following is a breakdown of who pays property taxes:
Property Type % of Total
It is generally recognized that any tax should have a basis in an "ability to pay". The property tax has little or no relationship to "ability to pay".
Real estate ownership is a measurement of wealth as an asset. It is also a primary source of debt for most homeowners. Failure to pay property tax, voluntary or involuntary, results in the loss of all money invested. A decline in income due to loss of job or spouse can result in the loss of a home for someone who cannot afford their property tax bill.
Rising property values increases long term wealth and shorter term borrowing power. It can also increase out-of-pocket property taxes even if taxing bodies reduce their tax rate. The damaging results are families and seniors stressed to meet housing costs in mortgages, rents and taxes.
One reason school officials are reluctant to their funding shifting from property tax to income tax is that the former offers a much more stable source of revenue than the latter. What is good for the goose is a burden to the gander.
Perhaps those who truly want education finance reform would be served well by studying the tax revolts of the 1930s.
Sources and additional resources:
• Illinois Economic and Fiscal Commission
Property Taxes in Illinois, January 2001 Update
• Illinois Department of Revenue
A General Guide to the Local Property Tax Cycle
• Illinois Association of Realtors® & Taxpayers’ Federation of Illinois
Practical Guide to Illinois Property Taxes, 2004 Edition