If you rent or have a mortgage and an escrow account from which your property taxes are paid by the bank, you may not have studied a property tax bill in great detail. I can’t think of any way more amusing to spend my time (LOL).
Yet, with a county-wide referendum on the April 1st ballot which will be asking for a 1% sales tax that would shift some of the funding of K-12 schools from property taxes to sales tax, it may be helpful to better understand the more complex of the two types of taxes, the property tax.
Sales tax is pretty straightforward and since we see it all the time, we are more or less familiar with how it is calculated. Locally, we pay sales tax on most items we buy, including online purchases.
A 1% tax is calculated as one cent on each dollar spent; for example $.05 on a $5.00 item or $5.00 on a $500.00 purchase. Just for context here I will note that both Bloomington and Normal currently charge sales taxes totaling up to 8.75%. In Normal this is 6.25% for the state, 2.5% for Normal and 1% for Normal on groceries items. There are different sales tax schedules for restaurant meals and for fuel.
Property tax, or Illinois Real Estate Tax, is a whole different animal. Property tax taxes land, including farmland and anything permanently attached to it1. Although it is more complicated than this, your tax bill is essentially based on an equation which takes the value (estimated market value) of your land and home (or building) multiplied by a rate (percent) which is developed from the revenue requested by each of the individual units of government combined. In general, the higher the property is valued, the more taxes the owner will pay. If you rent, your landlord is paying property tax on their investment whether it is a house, a condo or an apartment building. The landlord is most likely passing the cost of that tax on to you through your rent.
A key point about property tax is that even when local governments and schools do a good job of controlling their budgets, your property taxes may increase. And right now, those property taxes are increasing due to the increase in property values. This is one reason officials talk about controlling tax rates rather than the tax amount. The tax rate can be kept steady but you may still pay higher taxes since the property is worth more. Of course, if property values decrease governments may increase rates just to maintain the same revenue.
Let’s dig into this.
Taxable Value
Property tax assessments are one side of the property tax equation. The County Assessor, who under state law must be a trained professional, estimates the fair market value of each property. Once a property value assessment is made, 33.34% of that value is used in the calculation of the owed tax. That one-third amount is called the taxable value.
Assessments are a technical process and the State of Illinois and the county assessor may from time to time place adjustments on them in an effort to ensure uniformity and fairness within and between counties.1 After these adjustments are applied, the resulting figure is called the Equalized Assessed Value or EAV. In reality, properties other than farmland are only reassessed every four years for smoothing which can help to ease wide short term swings.
Tax Rate
The other side of the property tax calculation begins with individual units of government developing their budgets. During this process they look at all their potential revenue sources and how each is able to be utilized under law, and they then attempt to fill in where possible and necessary with property taxes. The amount that each government unit is asking for from property tax is called the levy. A calculation is then made to obtain a tax rate. The calculation for the rate is based on the EAV (anticipated adjusted value of all taxable property in the jurisdiction) and how much the unit of government is requesting. The tax rate is the percentage to be charged on each assessed $100 of property value to achieve the required levy amount.
Tax Amount Calculation
The calculation of a tax amount for an individual property is essentially: Tax amount = tax rate x taxable value, taking into consideration any other adjustments which may apply.1 The final tax bill is the sum of the calculations for each individual taxing body (each rate x net taxable value).
Let's Put It All Together
What this means is that even if the governmental body requires a higher levy (more revenue) than the previous year, they may be able to achieve this by keeping the tax rate the same if the overall assessed value of property in the county increases.
So, despite having no increase to a tax rate, you could be paying more in taxes because your property is worth more. Good news/bad news, if you are the property owner. We are, of course, currently experiencing property assessment increases.
Each unit of government such as McLean County, the town and city, the school districts, the library district, etc. have different needs, sources of potential funding and limits to how they can use property taxes. While the county collects property taxes, it distributes the funds to the other units of local government for their use.
To see which units of government receive a portion of your taxes and how much, check your tax bill or look it up here in Parcel Search. What you will see in a tax bill is a listing of all the taxing bodies (units of local government) that will receive a portion of your property tax. These vary by location throughout the county. Mine includes nine different bodies but several have two listings, one for pension costs and one for other budget items.
You will also see that among the various bodies there are very different tax rates being applied to the property value (assessment). This results in very different tax amounts being levied among the taxing bodies. On my tax bill the lowest rate is being charged by the Bloomington-Normal Airport Authority (0.12297% in total) and the highest by Unit 5 (5.29164% in total). Different missions and different budget needs account for the variations. On average, the local school districts in McLean County received 61.6% of all property taxes collected in 20242.
One Final Observation Here
Property tax rates are derived directly from the budgetary process of governmental bodies and school districts. This is a careful and heavily scrutinized process able to be observed in full public view. In contrast, sales taxes are consistently applied from year to year and generally without reference back to budget needs.
1 ”
Property Assessment and Equalization”, Illinois Department of Revenue, Publication 136, April 2016.
2 “
McLean Property Tax Statistics”, McLean County Treasurer and Tax Collector’s Office.