Remember several years ago when we all complained about the uncontrolled annual increases in our Real Estate Taxes. Well, the state responded, and enacted the “Property Tax Extension Limitation Act”. The famous “Tax Cap” rule.

Well . . .

What happened . . . our taxes still keep going up. It seems like it didn't work. The “Tax Cap” law states that our real estate taxes cannot go up more than the “consumer price index” (CPI), or 5%, whichever is lower. The “Tax Cap” law says that if a taxing body, i.e. a school district, a municipality, a township etc, needs more than the 5% or CPI, they must ask the taxpayers through a referendum.

Well, if there has been no referendum, and our tax bill still went up more than 5% or the CPI, as it surely did, the question still remains . . . what happened?

The Black Box

If you read the Northwest Herald, you have noticed the dreaded “Black Box” that is required to be published by any taxing body if their tax levy will exceed 5%. The “Tax Cap” statute requires this “Notice of Proposed Property Tax Increase” to be published in a “Black Box” approximately 3½ x 7½ with a heavy black boarder indicating the increase of taxes over the previous year. This notice is required only if the levy exceeds last year's by more than 5%.

How can this be??? We now know that the “Tax Cap” statute does not permit real estate taxes to go up more than the lesser of 5% or the CPI unless there is a referendum where we all get to vote on the proposed increase. So how can a taxing body (school district, municipality etc) by simply publishing a Black Box notice, increase our taxes by any amount. We often see in the newspaper that some local government taxing body is proposing an increase of 10, 15, 20 or even 30%!!!

Well, if you have read this far, you deserve an answer. There is a “loop hole” in the “Tax Cap” statute. An exception to the rule.

NEW CONSTRUCTION IS EXEMPT FROM THE TAX CAP STATUTE

In calculating the Annual Tax Levy, each taxing body, e.g. the township, simply divides next years revenue requirements (the “levy request”) by the entire Equalized Assessed Valuation (EAV) of the township, to produce a Tax Rate.

This tax rate is “Extended”, or charged by the County Clerk to each property owner. That is; this tax rate is multiplied by the assessed valuation of your house to calculate your tax bill.

If this “Tax Rate” exceeds last years rate by more than 5%, then the County Clerk will tell us at the township to lower our levy request enough to produce a tax rate that will not exceed 5%.

In making this calculation, the new construction exemption comes into play. The EAV of the entire township must first be reduced by the value of the new construction. This reduction of the EAV mathematically drives up the resulting rate when making the simple calculation referred to above. This new resulting rate has no limit. It can be 10, 15, 20% or any increase over last year. That new, and higher tax rate is charged, or applied to the assessed valuation of your house and every other existing house in the township. This is the same in every township, school district, municipality, park district etc.

So, did the tax cap legislation control your tax bill and hold it to an increase of the lesser of 5% or the CPI? No, it did not. Especially in an area of rapid growth and new construction. In fact, existing homeowners are subsidizing the new construction in that first year. Does growth “pay its way? Now you know.

John