The new Illinois: Will theaters lose property-tax exemption?

February 28, 2011

Now is the time for all good theaters to thank their stars they don’t own their own buildings.  (Most of them don't, at least.)  Why?  Because if I were Mayor Emanuel I’d be doing what municipalities and states around the country are doing: looking at whether the property tax exemptions enjoyed by nonprofit organizations should continue, or whether those properties should be returned to the tax rolls where they could help defray the expenses of, oh, policing and providing fire protection and schools and stuff.

The Illinois Supreme Court has already ruled that simply being a nonprofit is insufficient for property-tax exemption: you have to be a charity, which is not at all the same thing.  (Charities give things away.)  The Illinois Constitution provides property-tax exemptions to “religious, educational and charitable institutions,” and the Supreme Court held that a nonprofit hospital which failed to provide free care didn’t qualify.

In the trial courts right now are a pair of cases each arguing that a luxury residence for seniors doesn’t qualify as a “charity” either and therefore should lose its tax exemption.  The plaintiffs in one case are a group of municipal service districts–townships, library districts, park districts–which stand to gain some revenue if the senior residence becomes property-taxable.

Doubtless the Mayor will do everything he can before increasing the residential property-tax rate.  “Everything” probably begins with reining in Tax Increment Financing, which shifts the full benefit of an area's property taxes to that area, leaving the rest of the city to get by as it can.  There’s a lot more money in TIFs than in nonprofits, and a lot more money in nonprofits like the YMCA and the American Bar Association than in theaters; but still, if I owned my own theater building right now I’d be a bit concerned.

Or, as the saying goes, “If you’re not worried, you’re not paying attention.”

But make sure you’re worrying about the right thing.  Nothing I've written has any impact on exemptions under the Federal income tax code, or on the tax-deductibility of gifts to your theater.  It’s only state property taxes that stand to be affected, if and when the courts so rule.