Effects of Cook County Property Taxes on Business

Joel Byron, 51, was hunched over tiny numbers in the back office of his business property, a one-window storefront in the northwest suburbs. Surrounded by stacks of papers, the small business owner thumbed his way through records of correspondence with the Cook County Tax Assessor’s Office like pages in a family photo album.

“Here’s a letter from October,” he said. “Oh, wait! Here’s the one from November. … This one is mine again. … And here’s the follow-up response two weeks later.”

To small business owners like Byron, the amount they owe in property taxes each year is not just one more line item in their operating budget. Due to the complex tiered system unique to Cook County, it can single-handedly cripple them. Part of the reason is because in Cook County, unlike in the rest of the state, businesses shoulder a disproportionate amount of the tax burden while residential properties pay considerably less. And while businesses of every size are assessed at the same rate in the county, small businesses often have a harder time absorbing that rising cost.

Byron, who rents out his Skokie storefront to a hairdresser for $1,350 a month, keeps the back office to run his sign-making business. The otherwise monochromatic room, kept dim by scarce windows, is speckled with random advertisement signs. Yet, Byron says, the signs on the wall may come down, depending on the writing on the wall for his property taxes.

“Business is slow like everyone else,” he said. “It’s very difficult to meet the tax bill.”

Why the system matters

Using something called the “classified” tax system, Cook County determines how much each property owners should pay in taxes. It is the only county in the state that does not use a 33.3 percent assessed value to tax all business and residential owners. Instead, Cook County uses a tiered system to appropriate the costs as either a business or a home. While residential properties are taxed at 10 percent of their assessed value, business properties are hit with a 25 percent assessed value.

While these numbers both appear to be below the statewide, standardized 33 percent assessed value, it doesn’t include another factor unique to Cook County, the state equalizer. The equalizer is a number that is multiplied by a residence or business’s assessed value in order to determine what the owners owe in taxes, or the equalized assessed value (EAV). The equalizer, which is just over three now, pops most Cook County tax bills over the level they’d be at if they stuck with the state’s flat rate.

Cook County’s disproportionate taxing of residences and businesses is maintained by the rationale that businesses can pass on the tax burden to customers in their prices. The unpublicized reason is that businesses don’t vote but residents do, according to several taxing officials who didn't want to go on record saying that.

State law requires that all properties be assessed at 33.3 percent of market value. If the sum of the assessed value of Cook County properties does not equal the state-mandated 33.3 percent of total market value, then the state interjects the “state equalizer.” If you live in Cook, the assessed value of your property is automatically multiplied by this state equalizer to get your value closer to the 33.3 percent benchmark.

The end result, when you add in the state equalizer, and in light of the 10 percent and 25 percent differential, is that businesses are paying almost three times as much as residents in property taxes.

“The property tax bill is just crippling my business,” said Byron, who said that more than 95 percent of the income from the property (i.e. rent) goes to paying his taxes. “In December I dipped into my personal savings to pay the second installment of my property tax bill.”

Why the equalizer matters

Given that the state equalizer started in 1973 at 1.4813 and more than doubled to 3.3701 in 2009, the equalizer increases – rather than decreases – the disproportionate tax burden on businesses, according to Robert Porter, a former Cook County employee who now works as liaison for Township Officials of Cook County and the county.

“You’re paying astronomic property taxes if you’re a commercial or retail business in Cook County,” said Porter. “The multiplier comes along and moves the homeowner’s taxes closer to 33.3 percent. But for businesses it increases astronomically [so] you can save hundreds of thousands of dollars if you just move a quarter of a mile and just get across the Cook County line.”

Take a property valued at $100,000: If it is a home, you multiply it by 10 percent to arrive at the dollar percentage of your property value that is taxable by Cook County ($10,000); if it is a business, you multiple it by 25 percent ($25,000). Then multiply by the equalizer of 3.3 and you have your equalized assessed value: $33,000 for homes and $82,500 for businesses.

“Under the current property tax structure in Cook County, one of adverse impacts is that businesses pay a much higher percentage of property tax relative to residentials,” said Scott Bagnall, the Niles Township tax assessor. “Nearly three times as much.” He added that all businesses fall into the same taxing bracket, though it’s harder for small businesses than for larger businesses to front the cost.

Why assessments matter

For Byron, this kind of calculation hurts. Add on shifting assessments for Byron’s business (from about $40,000 in 2008 to about $80,000 in 2009 to about $84,000 in 2010) by the county assessor, and you’ve really got a headache.

Byron paid about $9,000 for 2008 taxes and about $22,000 for 2009 taxes. For 2010, the first installment is due April 1, and Byron owes about $12,000.

Bagnall said that Byron is just one of many businesses he advises in his township office.

“How do you rationalize, in a poor business climate and economic situation, a residential property value decreasing 20 percent juxtaposed by assessor-stated, market-value increases in business property?” said Bagnall, who noted also that property value for homes has decreased since the housing market crash a few years ago.

So Byron did one of the few things taxpayers can do. He appealed the number the county office has set for his property value. He said he spent at least 15 hours sorting through the appeal process. Byron began at the Niles Township Tax Assessor’s Office in October, which deals with properties in Skokie, Niles and Morton Grove. Bagnall helped him submit forms to the Cook County Tax Assessor’s Office. The county denied him an appeal.

A few weeks later in November, Byron submitted another appeal form to see if he might make his case stronger. This time, his wish was granted, and the assessor’s office lowered the property’s assessed value from $84,000 to $80,000.

Meanwhile, Byron also hired in January an outside appraiser to examine the property, who determined the 2010 property value at $154,000, and therefore the assessed value at $38,500 (Take $154,000 and multiply by .25, the assessment rate for businesses). Translation: That’s less than half what Cook County determined for the same year.

“I think it is arbitrary assessment,” said Byron. “It shows you how broken the system is … and all I can think is that the squeaky wheel gets the grease. … It’s not how it should be. It’s not fair.”

 Why it's confusing

Bagnall goes one step further.

“The Cook County system is insanely complicated, and it took years and years to get that way," he said. "It didn’t just happen overnight...whether it’s designed intentionally to confuse or not, it still confuses the taxpayer."

Oftentimes people avoid contesting their property tax bill for this very reason.

But that’s exactly what you should not do if you think your bill is unfair. The next step to understanding your property tax bill is a deeper understanding of . Patch will tackle that topic tomorrow.