Last Thursday the Illinois Supreme Court struck down a special property tax exemption for a single aeronautical services company operating out of the Quad City International Airport. As noted in the July 2015 FR Alert discussing the Appellate Court decision, Moline School District No. 40, which stood to lose more than $150,000 in property tax revenue as a result of the exemption, challenged the constitutionality of the statute. The school district argued the exemption violated the Illinois Constitution’s prohibition on “special legislation” because it benefitted only a single taxpayer. After three years of litigation, the state Supreme Court agreed.
Elliot Aviation is a “fixed base operator” or FBO that leases property at the Quad City International Airport. FBOs provide fuel, hangars, pilot resting areas, weather briefings, fight planning, aircraft maintenance and other services to private aircraft operators. In order to keep Elliot Aviation from relocating to another state, the Illinois General Assembly adopted P.A. 97-1161. P.A. 97-1161 created a new property tax exemption only for FBOs leasing space and providing aeronautical services at Quad City International Airport. Not only is Elliot Aviation the only FBO leasing space and providing aeronautical services at Quad City International Airport, no other FBO at any other airport in Illinois was provided with the same exemption.
The special legislation clause of the Illinois Constitution prohibits the General Assembly from conferring a special benefit or privilege upon one person or group of persons and excluding others that are similarly situated. A two-part test is used to determine if a law violates this constitutional provision. First, a court looks at whether the law benefits a select group. If it does, then a court must consider whether the benefit is rationally related to a legitimate state interest.
The Court found that the law clearly benefits only one entity. The real question was whether this was rationally related to a legitimate state interest. According to the General Assembly, the purpose of the exemption 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. However, the law did not require Elliot Aviation to use any of its tax savings to expand in Illinois. More importantly, the Court found there was no reasonable basis for limiting the exemption to just this particular type of business at this particular facility in this particular part of the state.
Like the exemption, the direct impact of this decision may be limited to those involved. It does, however, illuminate two larger themes. First, economic development programs that promise tax savings only to certain businesses can not only deprive school districts and other taxing agencies of revenue, they can also create winners and losers among private businesses. And as a result, such programs can go beyond what the law allows. Second, sometimes these programs need to be challenged, and the only institutions that can or will challenge them are school districts who have the most property tax dollars to lose.