July 14, 2015

Landlords benefit from loose law; save millions in taxes

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A view of houses on Hedge Road. Several rental properties here are owned by companies that receive the homestead exemption.

Darrell Hoemann/CU-CitizenAccess.org

A view of houses on Hedge Road. Several rental properties here are owned by companies that receive the homestead exemption.

Champaign County landlords are reaping more than $20 million in tax exemptions a year by taking advantage of a loosely written state law and an interpretation of that law by the county supervisor of assessments.

The law, known as the General Homestead Exemption, allows homeowners to deduct up to $6,000 from their annual property assessment if they live in their homes. That means homeowners can each save several hundred dollars in taxes each year.

But landlords in Champaign County, operating under company names or their own names, have claimed the exemption for multiple properties even though they do not live in the homes.

The state law does allow for multiple exemptions if landlords have their tenants sign a lease that includes language stating the rent will go toward taxes and the renters will be responsible for unpaid taxes on the property.

But other counties make it tougher to get those exemptions.

“I know Champaign County does it different,” said Matthew Long, supervisor of assessments in Vermilion County. “As a result, everyone and their brother has come in and requested it.”

A computer-assisted analysis of property data by CU-CitizenAccess.org found 960 property owners claimed more than one exemption for a total of about $23 million over each of the past five years. In total, the owners claimed homestead exemptions for nearly 3,600 properties. Under the law, co-ops and life-care centers can also claim homestead exemptions. The analysis found that 12 businesses claimed an additional $3.7 million in exemptions. (See related story)

Some of the exemptions may be homes that property owners live in and so those exemptions would not involve leases. Even so, the exemptions could total about $1.5 million if 960 properties were not included, according to the analysis.

In addition, the county assessor has said there were about 3,600 exemptions for leased properties last year and that there would be about 4,000 this year.

Exemptions could have saved the landlords $7 million or more in taxes over the past five years, according to conservative estimates based on the tax rates for the properties.

Interviews with other county assessors show that many other counties in the state interpret the law differently and often are more rigorous in handling applications for exemptions.

For example, Vermilion County Assessor’s Office estimates that fewer than 50 rental properties receive the homestead exemption.

Homestead exemptions were enacted in the 1970s to offset the impact of inflation on residential homes. Indeed, about 42,000 property owners, who live in their homes, claim the exemption each year in Champaign County.

At the time of the legislation, residential homes bore the brunt of the tax burden as the value of homes collectively were the largest portion of total assessed value. The exemptions were meant to help ease that.

A review of legislative documents indicate that the leaseholds were included in the law because some property owners had long-term leases with tenants.

But over the past decade, assessment officials say, more and more landlords have realized they can claim multiple exemptions.

In recent years, questions about the exemptions have arisen, especially after the Chicago Tribune did a story in 2011 on public officials claiming multiple exemptions.

In 2013, a Daily Herald investigation found that Bruce Rauner, now the Illinois governor, claimed three homestead exemptions. He reimbursed Cook County for two of his exemptions.

Other counties more rigorous

The requirements in other counties range from asking for notarized documents to cross-checking the application with property records or sales documents to limiting exemptions to homes that are under a lease-to-buy or contract sale.

“Mark my word, if you check all of a hundred and something counties in Illinois, I bet you each one of them is doing it differently,” Long said.

Champaign County requires that landlords file a copy of a rental agreement that follows the law in stating the rent will go toward taxes and the renter is liable for the taxes.

It also requires landlords to file an application.

Stan Jenkins, the supervisor of county assessments in Champaign, said he is following the law.

“Personally, I do not agree with certain aspects of the Illinois Property Code or with certain exemptions,” he wrote in an email. “But my job isn’t to agree with the property tax bills the Illinois General Assembly has passed and that the Governor has signed into law. My job is to fairly and evenly apply those laws to all taxpayers and to make various exemptions available to those who qualify for them.”

Jenkins also shared a 1996 attorney general opinion that supported a landlord’s argument that rental property can qualify for a homestead exemption as well as a 2010 court case that ruled in favor of a landlord seeking the exemption for rental property.

Supervisor of Assessments since 2008, Jenkins formerly served on the county board of review, which deals with appeals by homeowners about their assessments.

Jenkins, who makes about $72,000 a year, oversees assessments of about 75,000 properties.

Jenkins himself has a second exemption for a St. Joseph property, which he said is under a contract for sale.

Jenkins acknowledged that the exemptions shift tax burdens to other property owners.

“Anytime there’s an exemption, what that particular owner is not paying, someone else is picking up the difference on their property, minute though it may be,” he said.

Jenkins estimated there would be about 4,000 rental properties that would qualify for the exemption this year.

While the savings for landlords can be significant, Champaign County Treasurer Dan Welch downplays the loss of tax revenue. He said it has little impact across the numerous taxing districts in Champaign County.

Collectively, he said, the lost revenue makes up a very small percentage of the total $311 million collected from property taxes.

The benefit to a landlord, he said, was “greater than the loss to the taxing districts.”

Landlords and multiple exemptions

Among the Champaign County landlords claiming the most exemptions last year were Mojo Properties, Jones Property Management and Tuscany Ridge LLC, according to the review of property records.

Some companies have the same developers or property owners involved, according to a review of state corporate records.

For example, developer Chris Saunders is associated with several companies getting exemptions, according to Illinois Secretary of State records. Those companies include Mojo Properties LLC, Fast Track Realty LLC, MCJ Holdings LLC and Illini Rental Properties. He also claimed exemptions for about a dozen properties under his name.

Saunders did not respond to several requests for comment.

Some landlords said the exemptions allow them to keep rent lower, while others said it is not a factor.

Melody Pinks, who has multiple exempt properties in Champaign, said in an email that the exemption does not encourage her to lease out more properties.

She added, “I believe the homestead exemption is fair and does not cost taxpayers.”

Some counties more restrictive

The review of other counties’ homeowner exemptions found more restrictions for those wanting to claim the homestead exemption for multiple properties.

“It’s my understanding that through the statute renting is not eligible,” said Rena Cain, supervisor of assessments in Douglas County, where the exemptions are limited to properties that are lease-to-buy or under contract sale.

She said without some kind of limitation, it leaves the exemption open for many houses in the county and could severely reduce tax revenue and “hurt the taxing districts.”

In contrast to Champaign County, McLean County has only about 30 rental properties with homeowner exemptions, according to the county assessor’s office. Tax bills go to the renter, not the landlord, like they do in Champaign County.

Other counties in the state are even stricter. For example, Rock Island County does not allow corporations to receive the exemption, which has led to litigation against the county by landlords.

Larry Wilson, the chief county assessor for Rock Island, said that the Illinois Supreme Court ruled that corporations are not entitled to homestead exemptions.

“That’s what I am following,” he said.

In Vermilion County, there is a yearly application with a notarized form signed by both the owner and lessee that states the lessee is responsible for taxes. Misuse of that form led to prosecution of a Vermilion landlord in 2009.

The county state’s attorney charged Kevin Flynn, a local landlord, with 20 counts of forging tenants’ names on tax exemption cards to get homestead exemptions. Flynn pleaded guilty to one felony and received 18 months of probation and a fine of $1,420.

Cook County began cracking down on the multiple exemptions after the Chicago Tribune reported in 2011 that public officials were getting those exemptions under questionable circumstances.

The 2011 Chicago Tribune story estimated that 13,000 properties in Cook County were receiving the homestead exemption improperly and saving owners $7 million in taxes.

State legislation passed in 2013 allowed for audits of properties and recovery of some tax money in counties with 3 million or more residents.

Esther Patt, director of the Champaign-Urbana Tenant Unit, said the practice of multiple homestead exemptions is of no benefit to tenants.

“Rents still go up as much as the market allows, regardless of the owner saving money on property taxes,” Patt wrote in an email. “This law does help prove the point that tenants, through their rent, are property taxpayers but so many people still view tenants as second-class citizens just because they don’t own land.”

Breakdown of other counties

Champaign County:

  • – Requires copy of lease that includes language rent is going to pay for property taxes to be filed with assessor’s office
  • – Total number of parcels is 75,000 parcels; estimated 3,500 — 4,000 rentals with homestead exemption

 

Douglas County:

  • – Only gives out exemption for a lease-to-buy or contract sale , not renting
  • – Requires sales contract to include ending date
  • – Does not have to be recorded or notarized
  • – Total number of parcels is 14,800 parcels; estimate of exemption on rental properties not available.

 

Edgar County:

  • – Verify that the grantee has a tax-paying interest in the property via the language in the lease
  • – Wording in the lease that the leasee is paying the taxes
  • – Updated every year with copy of lease attached to application for homestead exemption with wording highlighted
  • – Total number of parcels is 18,100; estimated less than 20 leased properties with homestead exemptions

 

McLean County:

  • – Not required to be notarized
  •  Reviews the lease on an annual basis
  • – Tax bill goes to leasee, doesn’t matter who pays for it
  • – Total number of parcels is 71,000; estimated 30 rentals with homestead exemptions

 

Piatt County:

  • – If leasehold agreement states renter is responsible for taxes either directly or through the rent, then exemption is granted
  • – Lease has to be on file and updated yearly
  • – Total number of parcels is 11,300; estimated less than 30 rentals with homestead exemptions

 

Vermilion County:

  • – Yearly application notarized form by both owner and leasee that states leasee is responsible for taxes
  • – Fill out new paperwork each year; if not , then pulled exemption
  • – Total number of parcels is 71,200; estimated rentals with homestead exemption is less than 50
  • Charles

    So…. is this going to change?