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Types of Property Tax

“Don’t tax you, don’t tax me, tax that fellow behind the tree”.
Senator Russell Long, 1977

The ad valorem property tax is the primary revenue source for local government in the United States. Some states tax real estate heavily and exempt personal property. Others tax both. Still, others rely more on income tax, sales/use tax or they tax sins. Then there are those who boast of their low property taxes and instead tax intangible property. A very important advantage of the property tax over the sales tax or income tax a tax is that the revenue always equals the tax levy, unlike the other taxes, which can result in shortfalls producing budget deficits. The property tax always produces the required revenue for municipalities’ tax levies.

The fact is that running any government costs money. It doesn’t really matter where you are located. Government costs about the same everywhere, subject only to minor variations.

Nationwide, local governments are are looking to increase revenues from constant sources such as the property tax. As a result, property taxes will be increasing at double-digit rates again during 2018.

In Illinois, there is pressure on the local assessors to increase tax revenues. This pressure is political in nature and is resulting in higher assessments and a search for alternative sources of revenue. Even if assessments remain stable, rates will increase at a substantial rate because local goverments continue to resist spending cuts.

Real Estate Tax
Real estate tax, also known as property tax, is a tax levied on real property, usually in an ad valorem manner (i.e. in proportion to the value of something). Generally, real property refers to land, buildings and their structural components.

Historically, the American real estate tax has its origins in old England where funds were raised for the purpose of supporting military expeditions. The tax known as Danegeld was equivalent to 2 shillings per each 100 acres. It was first imposed during the year 868. From that time on, it was imposed whenever someone needed to be conquered. The property tax became so important that the concept was addressed in the Magna Carta. From England to the Colonies, the concept eventually came to be looked upon favorably as a stable and predictable source of revenue. The property tax has been referred to as the price of civilization.

Illinois does tax real estate and they do so quite aggressively. Revenues generated by the real estate tax are used to fund local government, particularly education.

Examples of real estate which is taxed are:

  • Manufacturing facilities
  • Shopping centers
  • Leaseholds
  • Mineral rights
  • Air rights
  • Pipelines
  • Single family houses
  • Apartment buildings and Condominium developments

The state of Illinois, Cook County and numerous municipalities levies a tax upon sale of real estate. Consult with local counsel for details.

Intangible Property Tax
Intangible property tax is a tax levied on intangible property that is generally a property interest other than real or personal property and with no intrinsic value. Its value lies in the rights themselves.

Examples include:

  • Stocks/Bonds
  • Goodwill
  • Patents
  • Copyrights
  • Customer Lists

Illinois does not tax intangible property. The city of Chicago does impose a tax on the sale and lease of software.

Personal Property Tax
Personal property tax is a tax levied on tangible property other than real estate. (The state of Illinois does not tax personal property while the state of Indiana does tax personal property).

Examples include:

  • Business inventory
  • Equipment
  • Machinery
  • Vehicles
  • Aircraft
  • Boats

Property Transaction Tax
In many jurisdictions, a tax, based upon the sale price, is levied and collected at closing.

The state of Illinois, many counties and most municipalities impose such a tax. Consult with local counsel for applicability.