New Cook County Ordinance for 6B Real Estate Tax Incentives

Transcription

1 New Cook County Ordinance for 6B Real Estate Tax Incentives By: Joseph F. Locallo III Attorney at Law Cook County s Board of Commissioners recently passed Ordinance with the intention of reducing the impact of vacant industrial real estate and establishing an emergency relief program creating new opportunities for owners to qualify. The Class 6B incentive reduces Cook County s ordinance level of assessment industrial property from 25% to 10% of fair cash value. Reductions in real estate taxes for qualifying properties are significant. Generally, there are three circumstances that can lead to qualification of industrial property for the 6B incentive. Newly constructed properties, properties under substantial rehabilitation and occupation of abandoned properties are still the pre-qualification circumstances. The new ordinance now allows for a shorter time span to qualify on vacant property and has created a new circumstance for occupied property showing evidence of hardship. Prior to the new ordinance, an industrial building had to be vacant for 24 months in order to qualify if there was no purchase for value. The new ordinance created the Temporary Emergency Economic Recovery Modification (TEERM) Program. This program allows for a building to qualify for the incentive if there has been no purchase for value and the property has remained vacant for at least 12 months. In this scenario, the local municipality can pass a resolution in support based on special circumstances justifying the property is deemed abandoned. It also requires validation from the Cook County Board of Commissioners. This program eases the burden on property owners with a vacant property. Now owners that do not want to sell will not have to wait 24 months to qualify for the incentive. It will allow these owners to competitively lease their properties when real estate taxes are reduced because of the ordinance level change. The new ordinance also created the Sustainable Emergency Relief (SER) Program. This program creates another qualification for the 6B incentive. Now a building that is not vacant can qualify for the incentive. If a property has been occupied by the same industrial enterprise for at least ten years and the occupant can show evidence of hardship and demonstrate that participation in the program is necessary to continue operations at the current location and maintain staff, it is possible to qualify for the incentive. The local municipality must pass a resolution and the County Board must approve it. Applications for both new programs must be filed by November 30,

2 Different levels of assessment exist within and without Cook County The State of Illinois Property Tax Code (35 ILCS 200/9-145) states that counties with more than 200,000 in habitants, which classify property for purposes of taxation, are required to assess property, generally, at 33.33% of fair cash value (Market Value) If the Market Value is $100,000 The Level of Assessment is 33.33% The Assessed Value is 33,333 By local ordinance 1, Cook County has established a different, more complex system, for assessment of its properties by classifications 2. Here is a general breakdown of the classification system in Cook County. Property Type Level of Assessment Residential Property 10.00% Vacant Land 10.00% Apartment Buildings 10.00% Commercial Buildings 25.00% Industrial Buildings 25.00% Equalization among counties in Illinois As prescribed by state law, through a process called equalization, the Illinois Department of Revenue applies a countywide multiplier to each properties assessment to bring the counties total assessment on average to reflect 33.33% of fair cash value. In 2012, the state multiplier was Market Value of a residential property $100,000 Level of Assessment 10.00% Assessed Value 10,000 State Multiplier Equalized Assessed Value 28,056 1 Chapter 74 Taxation, Article II Real Property Taxation, Division 2, Classification System for Assessment Sections and of the Cook County Code ILCS 200/9-150: Classification of property. (Source: P.A ; ) 2

3 The equalized assessment of an industrial building in Cook County is oftentimes noted to be much higher than an assessment of an industrial building in a neighboring Collar County. And because local tax rates are applied to the equalized assessed values, Cook County industrial properties oftentimes carry a higher real estate tax burden. Comparing equalized assessments of two industrial properties one in and one outside Cook County To illustrate, here is an assessment comparison between an industrial building in Cook County with an assessment level of 25% and an industrial building in a Collar County with an assessment level of 33.33%. Cook County A Collar County Market Value of an Industrial Property $1,000,000 $1,000,000 Levels of Assessment 25.00% 33.33% Assessed Value 250, ,300 State Multiplier Equalized Assessed Value 701, ,300 Cook County s Chief Assessing Officers reacted to this disparity by creating the 6B real estate tax incentive for industrial properties. The 6B real estate tax incentive was enacted to encourage industrial development throughout Cook County. The goal is to attract new industry, stimulate expansion and retention of existing industry and increase employment opportunities. The 6B incentive reduces the level of assessment from 25% to 10% for a period of ten (12) years. Comparing real estate taxes of two industrial properties one in and one outside Cook County Compare two industrial buildings that are identically assessed and located in the same local taxing districts. As shown below, the building without the 6B incentive will generate a tax bill over 250% higher than the building with the incentive. Cook County Comparison With 6B Without 6B Value of Industrial Building $1,000,000 $1,000,000 Level of assessment 10.00% 25.00% Assessed Value 100, ,000 State Multiplier Equalized Assessment 280, ,400 Tax Rate 5.50% 5.50% Real Estate Taxes $15,430 $38,577 3

4 Comparing real estate taxes of two industrial properties in Cook County and one outside of Cook County Cook v. Collar Comparison With 6B Without 6B Collar County Value of Industrial Building $1,000,000 $1,000,000 $1,000,000 Level of assessment 10.00% 25.00% 33.33% Assessed Value 100, , ,300 State Multiplier Equalized Assessment 280, , ,300 Tax Rate 5.50% 5.50% 5.50% Real Estate Taxes $15,430 $38,577 $18,331 As illustrated above, the 6B incentive can be extremely beneficially to property owners in Cook County. The new ordinance enhances the application of the incentive but did not change the former availability to qualify with newly constructed industrial property. Prior to construction, a 6B eligibility application must be filed with the Cook County Assessor s incentive department. The application must include a resolution that was passed by the local municipality supporting the incentive. If timing did not permit the local municipality to pass a resolution when the application was submitted a letter in lieu of the resolution must be attached to the application stating that a request for a formal resolution has been made. Most municipalities are willing to support because they want to bring in new development, revenue and job opportunities into their village. The application process is very similar when substantial rehabilitating a building. The difference between a new construction qualification and a substantial rehabilitation qualification is the way the 6B incentive is applied. For new construction, the incentive will apply to the land and the building. For substantial rehabilitation, the incentive will apply to the extent the rehabilitation has added to the value of the building, including qualified land related to the rehabilitation. Land qualifies when the rehabilitation adds vertical or horizontal square footage to the improvements. The incentive is not applied in a dollar-for-dollar calculation. Rather, after the rehabilitation, the Assessor will revalue the property. Only the added market value resulting from the rehabilitation, as determined by the Assessor, will qualify for the incentive. Occupation of an abandoned property is more complicated for a building to qualify, mainly because of the exceptions to the general rules. 4

5 An abandoned property is defined as a building that has been physically vacant with no rent collected for over 24 months. Generally, if an abandoned building is purchased, it can qualify for the incentive. The buyer will need to request support from the municipality for the incentive. The eligibility application must be filed at the Assessor s office prior to occupation. The application must include a resolution in support from the local municipality or a letter in lieu of the resolution stating that a request for resolution has been made. It is still possible to obtain the 6B incentive if there is a purchase for value of a building that is vacant for less than 24 months but, in order to do so, the local municipality must find special circumstances exist to declare the property abandoned and validated by the Cook County Board of Commissioners. An example of a special circumstance might be the physical obsolescence such as the ceiling height or numbers of docking stations are inadequate. Some municipalities have been known to declare the property abandoned in order to qualify for the incentive. The 6B incentive program in Cook County is still a viable means to defer real estate tax and most recently added opportunity for industrial owners trying to maintain a competitive edge in the market place. There are some limitations to be noted. This is an important incentive to know and understand, not only for property owners, but also for investment owners, members of acquisition teams, brokers, tenants and transactional attorneys. Our firm has extensive experience assisting clients in the application process for the 6B incentives in Cook County. We are always available to discuss these matters and welcome the opportunity. Please call or visit us at either of our locations. Chicago Office Bloomingdale Office 734 N. Wells Street 236 W. Lake St. Chicago, Illinois Bloomingdale, Illinois