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Thursday, June 16, 2016

Tax Cap Applies to Road District Road Fund Tax

In a recent Illinois case, the court looked at the issue of whether a township road district had authority to levy a permanent road-fund tax without following the referendum process set out in the tax cap law. In Hampshire Township Road District v. Cunningham, 2016 IL App (2d) 150917, the court said no, and ruled in favor of the county clerk who had refused to levy the tax because the district had failed to follow the referendum procedure required by the Property Tax Extension Limitation Law (known as the tax cap law).

A group of citizens had petitioned for a referendum at an annual town meeting to consider whether the township road district would have the power to levy a tax for road construction and maintenance. A referendum was held under the process set out in the highway code, which allows the referendum to be conducted at the town meeting. At that meeting, 19 citizens approved the question. When the road district attempted to enforce the levy, the county clerk refused to extend the tax because the district had not followed the direct referendum process required by the tax cap law. That law requires non-home rule local governments to follow a particular procedure, including a referendum, before levying a new tax.

The district filed suit against the clerk to enforce the tax levy. The district argued that a tax cap referendum was not required to levy this particular tax because the tax was imposed pursuant to the highway code, and the district followed the specific referendum process in that statute (rather than the tax cap law). Both the trial and appellate courts disagreed with the road district, and ruled in favor of the county clerk, holding that the tax cap law "trumps" other procedures.

The court looked at both the language of the tax cap law and its legislative history. First, the court stated that the tax cap law requires a direct referendum if a new rate is either: (1) authorized by statute to be imposed without referendum; or (2) subject to a backdoor referendum. Under this test, the court determined that the district’s road tax was a new rate. Second, the court held that that the language in the tax cap law overrides other laws and that the district was required to submit the new rate to a referendum under the process set out in the tax cap law. In other words, the town hall "referendum" held under the highway code was not sufficient to meet the process required by the tax cap law.

Based on the holding of this case, non-home rule units of government will now have to carefully consider whether the tax cap procedures will apply in levying new taxes/rates.

Post Authored by Douglas Spale and Julie Tappendorf, Ancel Glink


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