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House Bill 1053 seeks to close what is viewed by many as an unintended loophole in the Property Tax Code that currently allows retail and recreational facilities on golf courses to operate at the much lower tax rate for property labeled as “open space land.”

With somewhere in the vicinity of 750 golf courses in Illinois, mostly in Chicagoland, local governments could see a sizable boon to tax revenues should the amendment to 35 ILCS 200/10-155 (the “Open Space Tax”) pass the House and Senate.

The amendment appears to be in response to a 2011 appellate court decision that overturned Lake County’s interpretation of the Open Space Tax Act.  Lake County assessed portions of a golf course that also offered several amenities, such as a clubhouse, swimming pool, and horseback riding facilities, at the regular tax rate instead of the preferential Open Space Tax rate that otherwise applies to golf courses and other qualified open spaces.

The Second Appellate Court overturned the County’s assessment in Onwentsia Club v. Illinois Property Tax Appeal Board, holding that the statute’s language applies to all facilities on property that qualifies as open space, so long as the facilities “contribute[] to the nature of the land as a landscaped area.”  In other words, because a clubhouse “facilitates a golf course being a golf course, it conserves a landscaped [open space] area.”  Based on the Court’s ruling, the County proceeded to assess all of the land, from the parking lot to the swimming pool, at the Open Space Tax rate.

The proposed amendment would specifically exempt hotels, clubhouses, banquet facilities, recreational courts, pools, retail facilities, parking lots, and other land improvements from qualifying for the preferred Open Space Tax rate.  It should also be mentioned that the implications of the Open Space Tax amendment reach beyond golf courses and could apply to other property such as a private beach that offers concessions or banquet space rental.

While local governments certainly stand to gain from the amendment, as with any legislation, it is important to consider its unintended consequences.  For example, the manner in which the amendment is written does not specifically delineate portions of property that would still be taxed at the lower rate, as in the golf course itself, from the portions that are improved and not to be considered an open space.  The present language arguably could mean that the entire property would be taxed at the higher, fair cash value standard.  Doing so could debilitate golf courses from operating profitably, and is certainly not the intent of the legislation.

The impetus behind the amendment makes a lot of sense, especially for local governments, because it seeks to limit a very favorable tax status to only the portions of mixed-use property that are actively being used as an “open space” and fit the apparent, legislative purpose of promoting natural landscapes.  Where a country club generates a substantial stream of revenue from non-golf activities in structural facilities such as banquet and spa facilities, it only seems fair that the retail portions of the property should be taxed like other retail properties that do not happen to be located on property with a golf course.

Brad Stewart

Author: Brad Stewart