Shelbyville – Public Property and Tax obligations when leased for private use

Shelby Co. (ECWd) –

The Shelby County State’s Attorney, Nichole Kroncke, has asked the Illinois Attorney General for their legal opinion on several matters dealing with public property and tax obligations for both the city and the County.  Letter 1, Letter 2.

While we greatly appreciate the State’s Attorney seeking such opinions, we must note the prior State’s Attorney did nothing to resolve the issues raised in the County Farm case even though the matter was raised in February of last year.  Had she actually taken the same steps as the current State’s Attorney did, the County would be further down the road on getting an opinion from the Attorney General which may take as much as 4 years to get.

As it relates to the City of Shelbyville, it appears there is a consensus the farm ground in question is taxable.  The question is, who pays that tax.  The answer is found in the publications from the Illinois Department of Revenue (IDR), the law, and case law pertaining to the issue of public purpose.

We must begin with one key fact that ties to all the rest of the provisions we are going to mention.  As it relates to municipal property, the law is crystal clear.

35 ILCS 200/15-60 -“Also exempt are” – (c) all property owned by any municipality located within its incorporated limits.

While a County Assessor’s office may not show such property ever being listed as exempt, that does not mean it is not exempt.  It may be an indication of local Township Assessors not doing their job, thus property never getting listed as exempt as it should.

So if it’s exempt, what triggers taxation on such property?

(35 ILCS 200/9-265) – Sec. 9-265. Omitted property; interest; change in exempt use or ownership.

A municipality that leases its property to a private entity would be a change in exempt use.

Public Property is Tax exempt with specific exceptions- (35 ILCS 200/15-60) – Sec. 15-60. Taxing district property. All property belonging to any county or municipality used exclusively for the maintenance of the poor is exempt, as is all property owned by a taxing district that is being held for future expansion or development, except if leased by the taxing district to lessees for use for other than public purposes.

Leasing farm ground to a private entity or person, if legal to do, is a change in exempt status because such property is being used for private purposes, not a public purpose.

The Illinois Department of Revenue publication (see page 6), – “Leaseholders pay property taxes on real property leased from an owner whose property is exempt (e.g., the state owns the agricultural property and leases it to a farmer).”

The key to taxation relies on the primary use of the property.  In Children’s Development Center, “the court determined that it was the primary use to which the property was devoted after the leasing which determined whether the tax-exempt status continued. (Childrens Development Center,52 Ill. 2d at 336.)”  There is numerous case law on the primary use application and public purpose question. 

If there is any confusion or doubt about who is to pay the property tax of public property being used for a private purpose we urge the State’s Attorney to ask the Illinois Department of Revenue to chime in on the matter, as they have in the past. We suspect an answer would be provided much faster than can be expected from the Attorney General.

We will address the second letter regarding the County Farm lease and taxation in a separate article.