Illinois Leaks | Rental property taxes for dummies –
Shelby County, IL. (ECWd) –
the Property tax code is clear: tenants are responsible for paying property taxes on property they rent to an entity (local government) that is otherwise tax-exempt.
We covered property taxes on exempt property in a previous article (here).
See Shelby County State’s Attorney’s comment at a recent legislative hearing on leasing county-owned farmland. See top of page 6 of this document (here).
However, when we mentioned the tenants paying taxes at the last county board meeting, the state attorney responded by saying that since previous leases were not properly drafted, the county was obligated to pay property taxes on the farm.
See the video:
We think she is wrong on this point, here is why:
The Constitution is clear in Article VIII, Section 1when it states that:
- Public funds, property or credits should only be used for public purposes
- . . . local government units. . . incur payment obligations or make payments out of public funds only as permitted by law or prescription
We find no provision in any statute or ordinance authorizing Shelby County, or any county, to incur liability to pay property taxes on public property leased to others. Regardless of the lack of authority to lease farmland, this article focuses on property taxes.
The Illinois Department of Revenue has consistently issued rulings stating that leases of exempt (public) property are taxable where there is no public purpose connected with the lease.
Illinois is also a Dillon’s Rule state, which means local governments must possess the power to do whatever they plan to do, and when coupled with the Constitutional restrictions on the use of public funds, it there is no power for a county to pay these actual property taxes.
Some may say that if it’s written in the lease, a county could pay them, which is an argument for another day because no provision for Shelby County to pay these taxes was in previous leases. Compare the county code and property tax code, with no express or implied permission given to a county to pay property taxes on rental property, to the property tax code where there is implied permission for a municipality to pay, except if it is written in the Contract (here).
What happens if neither the tenant nor the municipality pays the property taxes?
We know that the property cannot be sold (during a tax sale) for non-payment of taxes; “no tax lien is attached to the exempt property“(the real estate remains exempt, it is the long lease on the exempt real estate that is not exempt), and we believe that it would be the responsibility of the State prosecutor or the public entity levying the taxes to bring a civil action against the tenant to force his payment of the taxes due.
Illinois Property Tax Code Sec 9-195:
Second. 9-195. Rental of exempt property.
(a) Except as provided in Articles 15-35, 15-55, 15-60, 15-100, 15-103, 15-160 and 15-185, where tax-exempt property is leased to a other whose property is not exempt and whose rental does not make the property taxable, the leasehold and outbuildings are listed as the property of the lessee thereof or its assignee. Taxes on these goods are levied in the same way as on non-exempt goods, and the lessee is liable for these taxes. However, no tax lien attaches to the exempt real estate. The amendments made by Public Law 90-562 and by Public Law 91-513 are declaratory of existing law and should not be construed as a new enactment. The amendments made by Public Laws 88-221 and 88-420 which are incorporated into this section by Public Law 88-670 are declarative of existing law and do not constitute a new promulgation.