My 2020 Resolution Was to Pay More Taxes? Parking Tax Increase and Community Associations

My 2020 Resolution Was to Pay More Taxes? Parking Tax Increase and Community Associations I t’s now 2020, and the start of new laws passed by our State legislators. Apparently, the General Assembly believed that we Illinoisans would all resolve to pay more taxes in 2020. To help us meet that perceived “resolution”, the Parking Excise Tax Act (effective 1/1/2020) imposes a new statewide parking tax requiring operators of parking areas, spaces, and garages throughout Illinois to collect and pay an additional tax for the privilege of parking a vehicle in such parking areas, spaces, or garages. The new tax is based on the purchase price paid for the use of the parking area, space, or garage. For those interested in specific details, the tax rate for a parking space paid for on an hourly, daily, or weekly basis is 6% of the purchase price. The tax rate for a parking space paid for on a monthly or annual basis is 9% of the purchase price. Fortunately, the new tax provides an exemption for residential off-street parking for home or apartment tenants or condominium occupants and specifically applies to “a condominium agreement between the condominium association and the owner, occupant, or guest of a unit, whether the parking charge is payable to the landlord, condominium association, or to the operator of the parking spaces.” This means that condominium associations that charge fees (assessment or user charge) to unit owners for use of parking areas or garages are not required to collect the tax on that fee. However, if the condominium association permits the general public to pay for and use its parking area or garage on an hourly, daily, weekly, monthly, or annual basis, the association is required to pay the new parking tax. For condominium associations located in Chicago and Cook County, this type of parking tax is nothing new. For example, Cook County already has a similar parking tax, which also exempts condominium associations. However, the new Parking Excise Tax Act is statewide and applies to all Illinois associations to which such a type of parking tax may have never applied before. Interestingly, the new parking tax statute does not expressly exempt common interest community associations (“CICAs”) or master associations – only condominium associations. So what does this mean for such a CICA or master association that charges a fee for use of its parking area or garage? Given the legally distinct definitions of “condominiums” and “CICAs” and “master associations”, it is our opinion that the law does not expressly exempt CICAs or master associations from the new State parking tax. However, we note that if a CICA or master association provides parking to owners similar to how a condominium association does so (in such a manner that exempts the condominium association), then it stands to reason that such CICA or master associations should also be exempt from the parking tax. Given this oversight, the new parking tax statute may require some adjustments during the next legislative session. In summary, condominium associations throughout the state should, if they have not already done so, review their parking arrangements with legal counsel to ensure they fall within the provided exemption and that there is no tax liability on the association under the new Illinois parking tax statute. Non-condominium associations (i.e. CICAs and master associations) should also review their parking arrangements with legal counsel to determine whether the new Illinois parking statute is applicable. Y

The #1 mistake board members make is making a buying decision mostly based on the base management fee when vetting a new management company. I get it. You have a budget and the budget has a fixed amount of money set aside for management services. Furthermore, you are a volunteer and you are not getting paid for the job and you have a million other things to do which you would rather be doing. So naturally you want to make the quickest decision possible when seeking a new management company. Unfortunately, that is the worst approach possible. That is like getting married with someone that you just met for coffee. Or simply put, it's like tying the knot for better or for worse with someone that you just met and you really have no idea who they really are and what they are really like. But upon first impression, you liked them and they seem like a good person. Besides, you are so busy and everyone else on the board is so busy, making a quick decision based on the base management fee seems like the best approach given the time constraints of the situation.

Regardless of the time constraints of today's board member, the facts speak for themselves. A typical community association that is 50 units and under goes through three management companies over a course of five years. This is based on my research over almost twenty years. Yes there are exceptions to the rule. However, if you plot out the data, the resulting graph should show a typical bell curve with most associations changing management companies every 5 years and the outliers either rarely change management companies or ? It is by far the biggest mistake that board members make. It is such a big mistake that it usually results in having to repeat the process within 12 to 16 months. Make no mistake about it. This is an easy mistake to make. And yes. Mistakes do happen. But I am here to help you avoid this mistake and not have to learn from this mistake.

they change every year.

The significantly better vetting methodology is to take a holistic approach and understanding the overall value and management philosophy of the organization. The base management fee that a community management company charges is in no way reflective of the overall quality and value that a company provides. It is such a small piece of the overall puzzle. There are so many other factors that board members should take into account. The better approach is to understand the overall cost and the overall value that the company can provide and then compare and contrast these elements in order to make a more educated decision.

Manager Change

For example, if you hire a management company that offers you a low base management fee and assigns you a really good property manager, it appears you have made a great decision. However, on average, the typical property manager stays with an association account for six to nine months. So you can bet that on average, you will get a new

manager every six to nine months. And what if you are now very unhappy with the new manager? This is the unknown factor that was not originally taken into account.

Ala Carte’ or Not?

The other example is the management company that offers a low, low price and the association signs up with the understanding that everything is included and virtually nothing is ala carte. Yet, over time, there are bills that the management company is submitting and invoicing the association for services rendered. In this scenario, the agreement the association signed is probably very vague and did not specify exactly what was included and what was not included.

Develop a Spreadsheet

The best approach to vetting a new management company is to develop a spreadsheet that specifies the items that the board wants to specifically learn about how the management company deals with those items. For example, here are some items that might be on the spreadsheet: 1. Base management fee (what does this include, what are the ala carte services) 2. How many hours does the management company base fee include? (then determine the hourly rate that the firm is charging you and decide if this makes sense from a business stand point) 3. Google the management company. What are their google ratings? What about the owner of the company? Are they on LinkedIn? Are they focused on community management or are they involved in a wide variety of real estate services that don't show a focus on community management? 4. Board meeting process (what is the process from start to finish including post mortem) 5. Large scale project management process (what are the exact steps involved when handling a large scale project) 6. Management philosophy (is the company just focused on responsiveness or is the company dedicated to creating enhanced community living) 7. Analysis of the agreement (what is included and what is excluded, how detailed is the agreement) 8. Communication protocol and online portal review (how does the management company communicate with the board members and homeowners) 9.Management company income (how does the management company make money, what are all the revenue streams?)

Trust & Transparency

These are items that include the base management fee and include other items that are equally important to understand when vetting a new management company. For example, if the management company says that large scale project support is included, the board should dig deeper and understand exactly what that means. And ask how that could be possible to include all that extra effort without charging an ala carte fee for project support. Remember, you are looking to hire a company that you can trust and is transparent in how it makes money as the management company of your association.

In summary, it is extremely important for board members to take the time to properly vet management companies when looking to switch to a new firm. In order to do this successfully, it takes time and effort. It is best to have a time line of about 3-6 months to make this transition depending on the size of the association. The bigger the association, the more time should be set aside. It is also important to determine the most important features and qualities of the new management company when conducting the search. If you make a good decision, the business relationship between the association and the management company should be mutually beneficial for all involved parties and create a better community living experience for all the homeowners. Y