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During summer and fall 2018, ILA’s Public Policy Committee heard from a number of libraries in the state concerned that they are not receiving all the revenue due to the library from local property taxes. ILA takes very seriously the issue of tax revenues due to public libraries, and the Committee worked with ILA staff and the ILA legislative consultant to research remedies. There does not appear to be a simple legislative solution since there are a great many strands of law in the Illinois Compiled Statutes that address various aspects of taxation, units of local government, and the rights of citizens who live within them. In addition, while the concern over tax revenue was common to all situations, each situation differed in the specifics of the nature of the problem.
Illinois is complex in the number of different types of municipal organizations defined in our state, including the different types of public libraries: district, village, town, township, city, etc. Also, while some municipal libraries are concerned they are not receiving tax revenue they are due, we’ve heard from others who enter into satisfactory formal or informal arrangements with their home municipalities with regard to such expenses as snow removal, payroll processing, and others of that nature that a municipality may provide on behalf of the library, ideally at a lower cost than at which a library could purchase the service independently. The most effective solutions are negotiated and implemented locally, but how can you begin to do that if you don’t know where to start? ILA’s goal in compiling and sharing this information is to give library staff and trustees the foundational knowledge and confidence you need in order to look again at your situation, or open the conversation with your fellow local government officials and local elected leaders about library financing.
District libraries in Illinois have the most direct relationship with the tax that is collected on their behalf and the revenue they receive, but all library types need to understand the basics of Illinois tax law, so we are pleased to offer “Introduction to Property Taxes 101,” addressing two topics: Budgets & Property Taxes, and Personal Property Replacement Tax.
Please remember ILA cannot provide legal advice to its individual members. It is essential to work with legal counsel, financial advisors, and boards who know best the library’s individual situation, given the differing ways public libraries are structured in the state.
Budgets & Property Taxes
Arguably the most important revenue source for the vast majority of taxing districts is the property tax levy generated by real estate taxes. Every unit of local government that seeks property tax revenue must pass its annual tax levy ordinance. That ordinance must comply with the Illinois Truth in Taxation statute.
An appropriation ordinance acts as a ceiling as to the legal maximum amount of money on what a public body may spend during its fiscal year if sufficient funds are available to fully fund line items contained and adopted within the budget. There are numerous types of property taxes requiring voter referendum approval to be established and levied, including but not limited to:
- A community building tax at a .075% maximum rate;
- A cultural centers tax at a .25% maximum rate; and
- A library tax at a .15% maximum rate without referendum, and a .60% maximum rate with voter referendum.
With the exception of Cook County, the county clerk ultimately determines the tax rate that applies to each taxing district by applying a formula that is found in statute—the calculation result is the actual tax rate for a taxing district. The Cook County Clerk uses the equalized assessed valuation for the immediately preceding year.
Every year, homeowners and other property owners file property tax appeals with the appropriate local office contesting the property tax assessment on those home and buildings. Outside of Cook County, whenever an assessment complainant requests a reduction in the assessed value in excess of $100,000, all taxing districts are notified of that appeal by the county assessor or its board of review. To the extent appeals are successful, the amount of property tax revenue available to and received by all taxing districts may fluctuate.
State law currently provides for a statute of limitations for the collection of back taxes that are owned to units of local government and overpayments and duplicate payments to taxing districts. Under law, taxpayers have the right to seek no less than four years of overpaid taxes unless a local government adopts a shorter statute of limitations.
Personal Property Replacement Tax (PPRT)
Replacement taxes are revenues collected by the state of Illinois and paid to replace money that was lost when its powers to impose personal property taxes on corporations, partnerships, and other business entities were taken away. The 1970 Illinois Constitution directed the legislature to abolish business personal property taxes and replace the revenue lost by local government units and school districts. In 1979, a law was enacted to provide for statewide taxes to replace the monies lost to local governments. Only districts that collected personal property taxes for the 1977 tax year, 1976 for Cook County, are eligible to receive a share of the money. Districts created after 1977 do not receive replacement tax money since they did not experience a loss in revenue.
Proceeds from these taxes are placed into the Personal Property Replacement Tax Fund to be distributed to local taxing districts. The total collections are divided into two silos. One portion (51.65 percent) goes to Cook County. The other portion (48.35 percent) goes to all other counties in the state. The Cook County portion is then distributed to county taxing districts on the basis of each district’s share of personal property tax collections for the 1976 year.
The other counties’ portion is distributed similarly, except that the collections from the 1977 tax year are used to calculate each district’s share of the distribution. This percentage is called the district’s “allocation factor.”
If part of the former personal property tax money was used to pay off “debt service,” a comparable proportion of the replacement tax money received must go toward this purpose. The same holds true for pension or retirement obligations previously supported by personal property taxes. After these obligations have been satisfied, the remaining money can be used for the same purposes as the money the district raised through real estate taxes.
Because of these factors, personal property replacement tax is an extremely volatile revenue source and cannot be depended upon for constant or stable revenue by units of local government. Information on total fiscal year and current month-by-month PPRT disbursements is published on the Illinois Department of Revenue website.