Chicago has 2nd-highest commercial property taxes in U.S.

Chicago Mayor Brandon Johnson and progressive allies said the city can find fiscal flexibility by taxing big business. The city is already home to the second-highest commercial property taxes in the nation.

Chicago has the second-highest commercial property taxes in the nation at 3.78% – more than double the U.S. average for the largest cities in each state, a study found.

Only Detroit has higher commercial property taxes at 4.21%, according to the study by the Lincoln Institute of Land Policy and Minnesota Center for Fiscal Excellence.

Why? The study stated Detroit has a high effective commercial property tax rate on $1 million-plus commercial properties because of low property values in the struggling city, which went bankrupt in 2013. The study found Chicago’s high rate is because of high local government spending and because the tax system shifts a higher burden to businesses.

Chicago’s commercial property taxes have been rising rapidly in recent years. In the past decade, total taxes billed have increased from $1.98 billion in tax year 2011 – payable in 2012 – to $3.82 billion in tax year 2021 – payable in 2022. That represents a 93% increase in 10 years.

Chicago commercial property taxes are already 2.5 times higher than residential property taxes because Cook County assesses commercial property at far higher values than residential property. Commercial property taxes in central Chicago now average nearly $150,000 annually, with some of the city’s largest businesses being hit with substantial increases.

Willis Tower saw an $11 million increase (+29%) in property taxes for taxes due in 2022, bringing its bill to more than $50 million annually. Prudential Plaza saw more than a $5 million increase (+24%) in property taxes due in 2022, bringing its total to over $27 million last year.

Cook County commercial property taxes are on pace to rise by $1.6 billion through 2026. With the recent passage of Amendment 1 and union-ally Brandon Johnson elected mayor, that could easily rise even higher based on calls for higher taxes and the fact Johnson will be sitting across the bargaining table from the Chicago Teachers Union peers he used to lobby on behalf of. Donations from unions made up over 90%, of Johnson’s campaign funding.

Research has shown a large share of Chicago’s commercial property taxes are simply passed on to tenants in the form of higher rents. This is particularly concerning as downtown Chicago commercial properties are facing all-time high vacancy rates. Higher property taxes mean higher rents and likely fewer tenants leasing space in the city. Commercial property owners who absorb the tax costs will see a reduced return on investment, slowing growth in the city.

Despite Johnson and his allies calling for taxes on the rich, the fact is Chicago’s taxes are already high, particularly on those deemed “high earners.” Data shows an income of $100,000, the level Johnson allies have suggested should be subjected to a new city income tax, results in actual take-home pay of just $59,505 in the Windy City. That ranks 58th out of 76 cities. Levying an additional city income tax against those earners, as Johnson allies have called for, would push Chicago even farther down the list. Workers in neighboring cities such as St. Louis, Indianapolis, Milwaukee and Lexington making $100,000 incomes have actual take-home pay much higher than Chicagoans. Taking away more income would make Chicago even less competitive or attractive for workers.

Commercial property taxes aren’t the only high taxes in Chicago. Chicago’s 911 surcharge, wireless taxes, amusement tax, soft drink tax, bottled water tax, cigarette tax, parking tax, ridesharing and homesharing fees were among the highest among other large U.S. cities as recently as 2018. The city’s total combined state and local sales tax rate was tied for second highest among major U.S. cities as of 2021.

Just like burdensome commercial property taxes, the city’s residential property tax burden has seen out-of-control growth, increasing 164% in 20 years. In that same time, average residential property tax bills climbed from $1,805 in 2000 to $3,342 in 2019. Those sharp increases have been pushing residents to their breaking point.

In recent years, surveys of residents have indicated crushing property tax burdens are driving them out of the city, contributing to the city’s population loss. The city’s population loss continued in 2022, with Chicago losing 33,000 residents, accounting for one-third of the population loss suffered by the state as a whole. Last year, only New York City lost more residents than Chicago and surveys continue to show Chicagoans citing property taxes as a major concern with 51% of residents supporting a property tax freeze in the face of a property tax levy that has doubled in the past 10 years.

A city struggling with affordability should be looking at ways to reduce burdens on residents, businesses and job creators rather than seeking new ways to tax them.