A property tax exemption designed to benefit a single aviation company was recently found unconstitutional by the Illinois Appellate Court. The exemption was only for fixed base operators (FBOs) providing aeronautical services at the Metropolitan Airport Authority of Rock Island County. The decision finds the exemption unconstitutionally serves as special legislation that arbitrarily discriminates in favor of a select group and has no legitimate state interest.
This case has its origins in the passage of Public Act 97-1161, which amended the Property Tax Code in 2013. The purpose of the legislation as revealed in the transcript of the debates in the Illinois General Assembly was to create an incentive for Elliot Aviation to expand in Illinois, rather than Nebraska, Missouri, or Iowa where FBOs do not pay property taxes. This in turn would presumably result in job creation and economic growth.
Moline School District No. 40 filed a complaint seeking injunctive relief and challenging the constitutionality of the statute, alleging that the exemption would cause irreparable harm to the District through the diversion of approximately $150,000 per year in property taxes. The District argued that the exemption violates the prohibition on special legislation in the Illinois Constitution because there were twenty other airport authorities in the State and the legislation singled out only one FBO for the exemption while other similarly situated entities were not provided the same benefit. The District also argued that the language of the legislation did not tie the exemption to job creation or economic growth. The trial court sided with Elliot Aviation finding no violation of the Special Legislation clause because Elliot Aviation is uniquely situated near Iowa and had the option of expanding there without paying any property taxes.
The Appellate Court disagreed. It reviewed the Special Legislation clause which provides in relevant part that “the General Assembly shall pass no special or local law when a general law is or can be made applicable.” This clause prohibits the legislature from conferring a special benefit or exclusive privilege on a person or group of people to the exclusion of others similarly situated, unless the benefit is rationally related to a legitimate state interest. The Court found P.A. 97-1161 was not rationally related to any legitimate state interest because, while economic development is an important state interest, Elliot Aviation was not required to invest the money it saved as a result of the exemption in Illinois job creation. The Court also found that Elliot Aviation is not uniquely situated. First, any future FBO that leases property from the airport authority would also be exempt from paying property taxes. Second, all other FBOs in Illinois are similarly situated in that they too must compete with businesses based in other states that do not have to pay property taxes.
This opinion affirms the longstanding view that property tax exemptions cannot be provided to advance the interest of one particular property owner at the expense of others. It also serves as a reminder of the important role school districts can play in ensuring a fair and equitable property tax system.