Misapplied Property Tax Economics
Mistake in Administering Property Taxes Results in a 1200 Percent Increase?
This reads like something in a tabloid. However, it is occurring in an Illinois county. Montgomery County Assessor Kendra Niehaus discovered the assessment was being calculated incorrectly. A tract of woodland should have a tax rate applied to 33.33% of its fair market value. That seems rather steep in my opinion as it is woodland and has no real value till sold. Then what comes into play is the zoning of the land. If there is a plan to build on the land, then the zoning is changed to allow for it. This is much like farm land.
“According to Montgomery County Assessor Kendra Niehaus, the spike in property taxes is due to a 2007 state law that requires woodland tracts to be taxed like homes. Up until this year, the law wasn’t correctly implemented in Montgomery County, so each tract of woodland must now pay a tax rate of 33.33% of its fair market value. Lentz told 5 On Your Side.
“I have a confirmation email from the Montgomery County Assessor that tract of land is going up due to a woodland assessment,” Lentz told 5 On Your Side.
Niehaus says that any residents who believe their assessment is higher than the 33.33% rate can file complaints with the Board of Review. But Beeler says resolution isn’t likely. Beeler told 5 On Your Side.
‘We’re being denied due process in Montgomery Co. The majority of our parcels do not have a township assessor. We don’t have township assessors in most of our townships.’”
The assessor is assuming the fair market value is greater than what it is due to the “possibility of it being built upon . . . housing, industrial, etc. You could make the same assumption with farm land also. Some of the land has been owned by the same owner for years, decades. or generations such as homesteading. You can find your own definition in any one of those.
I believe the assessor is wrong in his actions. The County Board should correct his misunderstanding or ordinance.
‘People are going to lose their property’: This Illinois woman’s property tax is poised to pop from $756 to over $10,000. MoneyWise
The linked article and this article are a little misleading in that it sounds as if the tax is 33.3% of the property value. However the property tax rate in Illinois is applied to 33.3% of the fair market value of the property. See https://tax.illinois.gov/questionsandanswers/answer.318.html
Then the actual property tax rate is applied to this 33.3% value. More can be found here although it doesn’t give the actual tax rate. https://tax.illinois.gov/content/dam/soi/en/web/tax/research/publications/documents/localgovernment/ptax-1004.pdf
The typical property tax rate is around 2.08% of assessed value which would make it around 6% of fair market value. That seems quite steep. See https://states.aarp.org/illinois/state-taxes-guide
In California property taxes typically start at 1% of fair market value at time of sale and then increase at 2% per year. Much less.
Cambrian:
If the wording is correct as presented, then there is an issue with the amount of tax being paid with a reassessment of the property as residential, industrial, etc. The County is claiming it can be such so it is taxing it as such. Having been on a County and Township board determining taxes, we would not tax a piece of land until such land was determined to be such. For example a new residential or manufacturing site. She is saying the resulting tax was $10,000 on undeveloped land.
First, I made an error in my calculation. 2% on 33.3% valuation is only 0.66% on the fair market value. It is somewhat unclear however if everyone is using the same terms (between the State of Illinois and AARP). My wife is from Chicago and taking into account her mother’s property tax, 2% of fair market value seems more likely.
Second, responding to Bill’s comments, I would say each state has different property tax laws. It sounds as if the assessor is only trying to follow the mandate of the law that requires the parcel to be assessed and taxed at its “highest” use. The best solution is to change the law not to ignore it. The law seems unwise since it promotes development and discourages conservation. In California we have what is called the Williamson Act, which allows the property to be taxed on its income not its value. One must sign up the property in at least ten year increments. If developed prior to that one must pay all the back taxes. It is for agricultural land only, not empty residential lots or industrial parcels.