Understanding the Property Tax Assessment
by George N. Reveliotis
"The property tax equation is the basis and formula used to ascertain the taxes you will pay."
In Cook County, the tax equation is as follows:
Assessed Value x Equalization Factor x Tax Rate = Property Tax
The assessed value is the value upon which a property is taxed. However, in Cook County, pursuant to a county ordinance, the Assessor classifies real estate for assessment purposes. In determining which classification is applicable, the Assessor looks to the actual use of the property.
In Cook County, the Assessor classifies properties into five general assessment levels. (There are more which will be covered by subsequent newsletters, but for purposes of this article, I will discuss the five main classification levels. The classifications are:
- Commercial (5-17, 5-92, etc.) @ 38%
- Industrial (5-93) @ 36%
- Multi-Unit 7 or more Units (3-15) @ 24%
- Vacant Land (1-00) @ 22%
- Most Residential and Farmland (receives honorable mention) @ 16% but not subject to the equalization factor
The way the classification model functions is to realize also that behind the assessed value hides a fair market value. In essence, what the County Assessor does when he proposes an assessed value for a property is he is indicating his opinion of fair market value. To figure the fair market value is to divide the assessed value by the assessment level percentage assigned to that property. For example, if a commercially classified property has an assessed valuation of $67,893, the fair market value is $178,666 ($67,893 divided by 38%). The same is done with other types of properties except the assessed value would be divided by its own assessment level percentage (i.e. industrial @ 35%; multi-unit @ 24%; vacant land @ 22%; and residential @ 16%).
One can surmise from the above examples that different tax burdens fall on different types of properties. For example, if there are five properties each as enumerated in the above classification model and each worth $100,000 fair market value, the commercial property will be assessed at $38,000, the industrial at $36,000, the multi-unit at $24,000, the vacant land at $22,000, and the residential at $16,000.
The reason behind the different classifications may lie in politics. Because Cook County is so well populated by a numerous and diverse property base, the politicians, when devising these classifications, might have wanted to provide their constituents the extra benefit of a lower classification for their residential properties.
The equalization factor is the tool used by the State to adjust average assessment levels in various counties to the same percentage of full value. Statutory law dictates that the assessment valuations should mirror the percentages outlines listed above. However, if the State determines that a county is under assessing properties by an average of 50%, then the State Department of Revenue has the right to impose an equalization factor of 2. For example, if the County's policy in assessing residential homes is10%, even though the statutory assessment is 16%, the State will be required to impose an equalization factor of at least 1.667% (that is, 16% divided by 10% = 1.667). For 2005 taxes, the State Department of Revenue assigned an equalization factor of 2.732.
The tax rate is the rate formulated by the County Clerk's Office after the local taxing agencies have levied their budgetary amounts. The Equalized Assessed Valuations (Assessed Values of the properties multiplied by the Equalization Rate) multiplied by the tax rate equals the budgetary amounts. Thus, the tax rate is calculated by dividing the levied budgetary amounts in any given area by the equalized assessed value in the subject area.
Tax rates may differ in different areas because their property tax bases differ quantitatively and qualitatively. For example, when the City of Chicago is compared with a much smaller suburb (which may be experiencing economic hardship), the tax rate in Chicago may be much smaller. This happens because Chicago has an increased quantity property tax base (number of properties) and a much richer and diverse property classification list.
Contact our office to learn more about these specific issues.
