TAX NEWS - JUNE 2010

Illinois Tax: A property tax break designed to confuse

by PHIL KADNER, 03 June 2010 -- There's nothing that better symbolizes how screwed up this state is than the Cook County property tax system.

It's such a maze of exemptions, 7 percent solutions and multipliers that few people can explain it.

And so the other day, a woman who works at a bakery asked me why the Cook County assessor would need to know personal details about an individual's income.

"He deals with property taxes," she said. "What has that got to do with a person's pension or how much stock he has, and why does he need to know someone's Social Security number?"

James Houlihan, the county assessor, was indeed asking for all of that information and more from a homeowner. The reason is something called the Long-Time Occupant Homeowner Exemption.

That is not to be confused with your standard homeowner exemption, your senior homeowner exemption, your senior tax freeze or your veterans exemption, to name just a few.

It all sounds like a Marx Brothers movie designed to confuse and amuse, but this is serious business folks.

And it's politics - just as slimy, deceitful and corrupt as the stuff you're likely to hear at the trial of Rod Blagojevich but in an entirely different way.

"The property tax system is complicated, and you are absolutely right, it is too confusing for the average person to understand," Eric Herman, a spokesman for Houlihan, told me. "The problem is that the state has tried to fund education on the backs of homeowners, and that's wrong and has resulted in an unfair system of taxation."

The Long-Time Occupant Homeowner Exemption was passed by the Legislature in 2007 in response to Houlihan's request for an extension of the 7 percent solution, which places a cap on the property tax in Cook County, sort of.

House Speaker Michael Madigan wanted to phase out the 7 percent solution, but Houlihan screamed that property owners in Cook County would see drastic increases in their property tax bills if he did that.

Madigan, in part, said yuppies were benefitting from the 7 percent solution, so the House passed the Long-Time Occupant Exemption to demonstrate that its members had a heart.

But not everyone who lived in a home for 10 years was eligible.

"A homeowner with a total household income of $75,000 or below will have an increase limited to 7 percent over the prior year's taxable value, with no maximum exemption amount," Houlihan's letter to homeowners states.

"A homeowner with a total household income greater than $75,000, but not exceeding $100,000, will have an increase limited to 10 percent over the prior year's taxable value, with no maximum exemption amount."

If you don't understand that, hire a property tax attorney, preferably one in Madigan's law firm.

But there's more.

"The Long-Time Occupant Exemption cannot be received with the 7 percent Expanded Homeowner Exemption or the Senior Freeze Exemption. The most beneficial exemption will be applied to the property," Houlihan's letter says.

I was wrong about the Marx Brothers. This is more like Monty Python's Bureau of Silly Property Taxes.

To qualify for this Long-Time Exemption, the homeowner has to provide the assessor's office with information about Social Security benefits, Railroad Retirement benefits, civil service benefits, other pensions and annuities, wages, salaries and tips from work, interest, dividends, rental income, capital gains, etc.

Of course, the homeowner could simply refuse to apply for the exemption and keep all of his personal information private ... and possibly pay a much higher property tax bill.

Not everyone gets mailed a Long-Time Exemption application, only those folks who might benefit due to a skyrocketing tax bill.

According to the assessor's office, 294,096 such applications were sent out for tax year 2009 (42,231 in the Southland).

Typically, I was informed, 30 percent of the people who are mailed the Long-Time Exemption application actually fill it out and return it. Last year, about 80,000 people responded and got the exemption.

The thing is that the property tax is skyrocketing largely because it is used to fund the public schools, but the state has the primary responsibility to do that.

Because the Legislature has decided not to raise the income tax, however, it can't fund much of anything any more. But for 20 years or more it allowed the property tax to climb, long before the current economic collapse began.

No matter how often I write about this, people still don't get it.

The property tax is the unfairest of all taxes. Most people have no access to their property wealth unless they sell their home.

An income tax is a much better way to fund government. It actually taxes the money a person has coming in.

So now the politicians play games with the property tax system, trying to make people believe they're getting some sort of special break.

It stinks. It's unfair. It's simply bad government. But that's the way things are done in Illinois.