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Illinois General Assembly Approves Refund Recapture Levy for Certain Property Tax Refunds

K-12 Education Property Tax

Yesterday  the Illinois General Assembly passed Senate Bill 508 (SB 508).    SB 508 creates a new Section 18-233 in the Property Tax Code amending the Property Tax Extension Limitation Law (PTELL) to allow taxing districts to increase their extensions in an amount equal to the refunds from assessment reductions granted in the prior 12-month period.   Section 18-233 provides that beginning with the 2021 levy year, a taxing district’s levy “shall be increased by a prior year adjustment” whenever there is an assessment decrease due to certificates of error, a court order in a tax objection complaint (TOC), or a final decision of the Property Tax Appeal Board (PTAB).  SB508 now heads to the Governor for his consideration.

The additional extension amount will be the result of a supplemental or refund recapture levy applied automatically by the county clerk to recapture the property tax revenue lost by assessment-related refunds issued by the taxing district.  The supplemental levy may not exceed the aggregate amount of refunds from the taxing district for the 12-month period prior to November 1 of each year.  On or before November 15 of each year, the county treasurer will be required to certify the aggregate amount of refunds paid by each taxing district during that 12-month period.

SB 508 presents an opportunity for taxing districts to recapture the financial impact of property tax refunds caused by post-extension assessment appeals.  It also raises a number of new considerations for those in charge of property tax levies.  First, it remains to be seen how this new process will be implemented by local county clerks.  Given the mandatory language used in SB 508, the degree of discretion taxing districts will have to increase their levies is not clear.  It is also not clear how the supplemental levy will be added to a property tax levy since levies must be itemized by individual funds, such as the educational fund, transportation fund, operations and maintenance fund, etc.  The process outlined in SB 508 will operate one year in arrears before the lost revenue can be recaptured.

Second, taxing districts will now need to consider how a supplemental levy will impact taxpayers.  The additional revenue generated by the supplemental levy will increase both the overall tax rate and individual tax bills.  Likewise, large commercial and industrial taxpayers are the property owners primarily seeking the significant property tax refunds.  Other taxpayers will ultimately be paying for the refunds issued to the property owners that appeal their assessments from prior tax years.  As a result, the supplemental levy will have a tax burden shift component that will need to be considered by the governing boards of the taxing districts. 

Finally, taxing districts will need to monitor the impact of this legislation on the defense of assessments.  Not every claim for an assessment reduction is warranted and indeed, many claims are not even based on credible evidence.  However, the ability of taxing districts to recapture refunds may weaken the resolve of the statutory defenders of assessments (such as the local State’s Attorney or Board of Review) to oppose questionable taxpayer claims.

The concept of a refund recapture levy has been entertained by the General Assembly for several decades without success.  Section 18-233 would make the recapture levy an automatic step undertaken by the local county clerk during the tax extension process.   

SB 508 now moves to the Governor for his consideration. We will continue to monitor this bill and update you on any developments.  Please contact any Franczek P.C. attorney with questions.