The Illinois Appellate Court recently upheld a trial court’s ruling that property tax refunds from a dissolved TIF District must be paid by the municipality, not by the other affected taxing agencies. The case, Village of Arlington Heights v. Pappas, promises to set an important precedent that protects the revenues of school districts and non-municipal local governments throughout the State. It will also grow in importance as more TIF Districts expire and are dissolved in the coming years.
The Village of Arlington Heights created two TIF Districts that were dissolved in tax years 2005 and 2008, respectively. During the life of the TIF Districts, the County Treasurer collected property taxes on the incremental value of the real estate as required by the Municipal Code and the Property Tax Code. The Treasurer paid any refunds resulting from PTAB appeals, tax objection complaints, rate objections or certificates of error as they were presented to that Office. The Office would then reimburse itself by withholding the amount of the refunds from the next distribution of the TIF District’s property tax collections. When the two TIF Districts were dissolved, there was no more revenue from which the Treasurer’s Office could reimburse itself. However, the Office had to refund approximately $295,000 to taxpayers after the TIF Districts were dissolved.
In 2012, the Treasurer’s Office requested the Village reimburse it for the amount of the refunds that had been paid out on behalf of the now dissolved TIF Districts. The Village refused and filed a complaint in Cook County Circuit Court asking for a declaratory judgment that it was not obligated to pay the refunds for the TIF Districts. The Village also sought an injunction preventing the Treasurer’s Office from withholding any of its property tax distributions. The Treasurer’s Office filed a counterclaim against the Village and a third-party complaint against all the other taxing agencies, including Township High School District 214 and Arlington Heights School District 25, arguing that, if the Treasurer’s Office couldn’t collect the money from the Village, the other taxing agencies should be required to pay their pro rata share of the refunds.
Franczek Radelet attorneys Ares Dalianis and Jennifer Smith represented both school districts in the litigation. They were also appointed to act as Special State’s Attorneys representing Cook County and the Cook County Forest Preserve District. The trial court found that the Village of Arlington Heights was responsible for paying the refunds on behalf of the dissolved TIF Districts. The Court primarily relied on Section 20-175 of the Property Tax Code, which directs the Treasurer to deduct refunds, “pro rata, from the moneys due to taxing bodies which received the taxes erroneously paid, or their legal successors.” The Village, as the legal successor of the TIF Districts, was found to be the proper party to pay the refunds. The Illinois Appellate Court agreed with this reasoning and upheld the decision.
The decision, which also comports with a basic sense of fairness since it was the Village that controlled and benefitted from the TIF District’s revenues, is not yet final. The Village has until December 15, 2016 to ask the Illinois Supreme Court to hear the case. We will update you with any new developments in this case. In the meantime, however, this is a positive outcome for school districts and other taxing agencies whose revenues are impacted by TIF Districts.