By James P. Regan

As published in Real Estate Chicago, July/August 2002

Previously, I reported that the Illinois Property Tax Appeal Board had set the stage for potentially significant reductions in real estate tax assessments for commercial, industrial and vacant land parcels in Cook County (see Nov/Dec 2000 Real Estate Chicago, p.51).  These decisions resulted from the Illinois General Assembly’s recent expansion of the PTAB’s jurisdiction into Cook County.

Once the PTAB commenced doing business here, its historical use of the Department of Revenue’s sales ratio studies outside of Cook County came into direct conflict with Cook County’s equally lengthy history of applying its own ordinance levels of assessment under the Cook County Real Property Classification Ordinance, which classified properties based on use at fixed ordinance levels of assessment.  The PTAB could have applied the existing Cook County ordinance levels of assessment in tax assessment appeals involving local properties (38% of fair market value for commercial properties, 36% for industrial properties and 22% for vacant land parcels).  Instead, the board applied the substantially lower levels of assessment contained in the Department of Revenue’s studies (31.03% for commercial property, 34.34% for industrial property and 11.97% for vacant land).

As a result, the Cook County Board of Review immediately appealed these decisions to the Illinois Court of Appeals.  On March 12, 2002, the parties presented their oral argument sto the Illinois Appellate Court.  The court must now decide whether or not the Cook County Ordinance levels of assessment, or the substantially lower levels of assessment reflected in the Department of Revenue’s sales ratio studies, should apply to Cook County.

In the meantime, the PTAB has taken an even bolder step by relying upon the express language of the Illinois Constitution.  In The Lurie Company decision (rendered on August 2, 2001), the PTAB initially determined the fair market value of an older Loop office building to be $14.45 million.

To arrive at the appropriate assessment based on this market value, the PTAB applied neither the Cook County Ordinance level nor the Department of Revenue’s significantly lower levels.  Instead, the PTAB refers to Section 4(b) of Article IX of the 1970 Illinois Constitution, which imposes the following limitation on any county that chooses to classify real property for tax assessment purposes:  “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.”

According to the PTAB, this section of the Illinois Constitution imposes a clear constitutional limitation on all counties that classify real estate for purposes of property taxation.  In Cook County, the residential class of property (consisting of single-family homes, condominiums, cooperatives, townhouses and multifamily housing with up to six units) receives the lowest level of assessment.  Under the Cook county Classification Ordinance, these residential properties are assessed at 16% of their fair market value.

However, the PTAB asserts in the Lurie decision that the actual or “de facto” level of assessment for residential properties in Cook County is only about 10% of fair market value.  The PTAB once again points to Department of Revenue sales ratio studies indicating de facto levels of assessment for residential properties in Cook County ranging from 9.38% to 10.26% over a 10-year period.  Finding that the level of assessment for the lowest class of property in Cook County is about 10%, the PTAB then invokes the Illinois Constitutional limitation of two and one-half times that amount, to effectively limit the Loop office building’s assessment to only 25% of its fair market value.

Under the PTAB’s latest decision, the highest possible level of assessment for these properties could not exceed 25% of their fair market value.  If upheld by the courts, this would amount to a huge (35%) reduction in the level of assessment for commercial properties and a similarly large (30%) reduction in the level of assessment for industrial properties.  Naturally, the Cook County Board of Review has appealed this new decision to the Illinois Court of Appeals.