It’s not at all uncommon for state and local governments to use targeted tax breaks as a tool for encouraging economic growth, giving various types of businesses – and sometimes, single major employers – incentives to expand their operations. On the final day of the November term, the Illinois Supreme Court agreed to decide the constitutionality of one such tax break in Moline School District No. 40 Board of Education v. Quinn.
Moline School District arises from Public Act 97-1161, which amended the Property Tax Code to exempt aeronautical firms called fixed based operators – “FBOs” – from property taxes on leasehold interests and improvements at the Rock Island County Metropolitan Airport. At the time of the amendment, the Metropolitan Airport Authority leased property to only one FBO, who paid $150,000 in property taxes a year. The legislative history of Public Act 97-1161 suggests that the bill was intended to encourage that FBO to expand in Illinois instead of Nebraska, Missouri or Iowa – states where the plaintiff pays no property taxes.
The plaintiff school district filed a complaint for injunctive and declaratory relief, arguing that Public Act 97-1161 violated the “special legislation” clause of the Illinois Constitution, which provides that “The General Assembly shall pass no special or local law when a general law is or can be made applicable.” The plaintiff alleged that it would suffer irreparable harm from the loss of funding triggered by the property tax exemption. The plaintiff filed a motion for summary judgment, and the FBO intervened in the action and filed a cross-motion. The trial court denied the plaintiff’s motion for summary judgment, holding that no other FBOs in Illinois were similarly situated to the intervenor, and the legislature could constitutionally enact legislation to address a unique situation.
The Third District of the Appellate Court reversed. The special legislation clause prohibits the conferring of special benefits or exclusive privileges on a person or group to the exclusion of others similarly situated. Two factors are relevant: (1) a discrimination between two groups which are similarly situated; and (2) the classification is arbitrary. A classification is upheld if it is rationally related to a legitimate state interest.
The Court held that the Act fell under the second factor. The Court found that there was no justification for singling out FBOs at the airport from other FBOs or indeed, any other businesses in Illinois. The Court noted the hope that the intervenor would use the money saved to expand, but found that nothing required it to do so. One could just as easily speculate, the Court commented, that giving a similar tax break to any other FBO or business would encourage it to expand its operations.
The intervenor argued that it was uniquely situated because it was located on the border of states with no property taxes, and had options to expand in those states. The Court found that neither point was sufficient – the tax break was extended to any FBO choosing to locate in the State, not just the intervenor, and there was no reason to believe that other FBOs and businesses around the State didn’t have competitors in no-property-tax states. Because the Court found no rational relation between the Act and a legitimate state interest, the Court held that it violated the special legislation clause.
We expect Moline School District to be decided in eight to ten months.