By James W. Chipman

Although the Illinois tax on personal property was eliminated nearly four decades ago, the approach to classifying real and personal property remains controversial.

Before Illinois’ personal property tax was abolished, both real and personal property were assessed and taxed the same. Nobody cared if property was called “real” or “personal.” But when the tax on individuals was eliminated in 1970 and its corporate counterpart was phased out nine years later through a constitutional amendment, classifying property as real or personal suddenly became a big deal. Since then, only real property has been taxed.

BEATING A DEAD HORSE

The personal property tax, however, has died a very slow death. After its elimination, the courts and Property Tax Appeal Board (PTAB), a quasi-judicial state agency that reviews local assessment disputes, began hearing multi-million dollar appeals where businesses claimed assessors were arbitrarily switching property classifications from personal to real to replace lost tax revenue generated by the old tax. The practice still occurs today.

A 40-year track record of these appeals suggests a subtle erosion of the personal property exemption and raises the question of whether the tax really was eradicated. Throughout its history, the tax was regarded by many as burdensome, unfair and even scandalous. Personal property returns were often not filed or grossly understated, and little effort was made by assessing officials to verify figures or ensure that all taxable property was accounted for.

Before the personal property tax on corporations was repealed, lawmakers had to come up with a replacement tax. They chose to impose a corporate income tax surcharge and an invested capital tax on regulated public utilities that would be state collected and, it was thought, have a far greater annual growth rate than its predecessor tax.

STATUS QUO UNIFORMITY

The replacement tax, however, only solved part of the problem. Because there was no statewide classification scheme when the personal property tax was eliminated, the legislature decided to preserve or freeze the pre-1979 assessment practices of assessors in each county over time to prevent widespread reclassification of property. Essentially, each county’s 1979 classifications of property as real or personal would control current and future classifications.* This preservation of the status quo meant there would be uniform treatment of property within a county, but not across county lines, meaning it was legal to have different classifications for the same type of property from one county to the next.

During the past four decades, classification disputes have focused mainly on process machinery and equipment, which were once listed among 36 classes of personal property in an old state law and assessor manuals.

Litigation over reclassification began shortly after the tax was eliminated in 1979 and continues to this day. Many of the lawsuits were decided based on agreements made by the taxpayer and the assessor** or on the pre-1979 assessment policy of the disputed property in a county.***

BE VIGILANT

Today, some assessors may occasionally engage in selective reclassification when a new business locates in their jurisdiction or machinery and equipment are upgraded in an existing manufacturing plant. Whether acting in good faith or not, assessors must interpret and apply the law, however confusing. As time passes, historical classification practices from the 1970s are difficult to ascertain as participants change and business records are destroyed.

As assessments are reviewed and updated every four years, businesses should be on guard for signs of reclassification, particularly in 2019 when the entire state will experience a reassessment. If your business’s property assessment rises significantly in just one year, call a property tax attorney to help you pinpoint the cause and advise you on how best to proceed.

Sources:
*35 ILCS 200/24-5
**Central Illinois Light Co. v. Johnson, 84 Ill.2d 275 (1981)
***Commonwealth Edison Co. v. Property Tax Appeal Board, 219 Ill.App.3d 550 (2d Dist. 1991), appeal denied; Oregon Community Unit School District #220 v. Property Tax Appeal Board, 285 Ill.App.3d 170 (2d Dist. 1996)

By James W. Chipman

Any corporate taxpayer contemplating an appeal should call a property tax attorney sooner rather than later.

A corporation is considered a person under the law, albeit an artificial one. It sounds like an odd concept, but it’s been around for a while. Odder yet is that corporate personal rights exist and are expanding. Pro se or self-representation is a right that’s as old as our Constitution. In the property tax appeal process, an individual can always represent themselves, but does the same rule apply to a corporation? It depends.

UNSETTLED LAW

Illinois has a multilevel property tax appeal system. The taxpayer must file locally with the county board of review. They also have the option to go the state Property Tax Appeal Board (PTAB). These two administrative bodies decide most of the appeals that are filed statewide each year. Because administrative agencies are considered quasi-judicial bodies and not courts, they aren’t bound by strict rules of procedure. They can write their own rules of practice and enforce them as long as they comply with the law.

The PTAB hears appeals from the boards of review and is the final arbitrator in the administrative process before court. The PTAB bans corporations, limited liability companies (LLCs) and other similar entities from appearing on their own behalf at any stage of a board appeal.* That rule was put into effect based on the assertion that the representation of anyone other than themselves constitutes the practice of law that can only be done by a licensed attorney. There’s also the matter of conflicting interests—attorney representation of a corporation ensures that a company’s legal interests come first and don’t conflict with the interests of a director, officer or agent.

While many boards of review have taken the PTAB’s lead and required a corporate taxpayer to be represented by an attorney, the rules vary from county to county. Some boards allow a corporation to be represented by other parties but may require the company to sign an authorization form. Other boards don’t even address representation in their rules.

The question of whether corporate representation by an attorney is required in an administrative hearing was considered by the Illinois Supreme Court just last year. The case involved a limited liability corporation represented by a non-attorney in the City of Chicago’s department of hearings over what constitutes due process in an administrative hearing. The court declined to answer the representation question, finding it wasn’t necessary for a resolution of the case.**

THE SAFE HARBOR APPROACH

Deciding to appeal your company’s property tax assessment can be a complicated undertaking that requires a great deal of time and expertise. Companies shouldn’t attempt to represent themselves at any board of review hearing, even if the practice is allowed.

It’s always wise to engage the services of a property tax attorney, whether or not it’s required, because while some mistakes can be fixed, others can’t. Proceeding on your own could mean missing a deadline, not knowing what evidence to submit or lacking a detailed understanding of the rules of practice and procedure. These elements are often challenging for any person—natural or artificial—to navigate, thus having an experienced property tax attorney on your side is the way to go.

Sources:
*ILL. ADMIN. CODE tit. 86, §1910.70 (c)
**Stone Street Partners, LLC, v. The City of Chicago Department of Administrative Hearings, 2017 IL 117720