FROM THE DESK OF SENATOR DAVID LONG
The historic reassessment of property taxes is going very slowly in Allen County. Our County Assessor’s office is about a year behind where it should have been. At last check, tax bills that were due in May and November of this year will not come out until February of 2004! Those taxes may prove to be a shock to all of us, because the normal split of ? property taxes paid in May and the other ? in November will not apply. Most of the bill will instead come roaring in at one time. For owners of older homes in Fort Wayne, the reassessment will most likely result in higher taxes, while owners of newer homes will suffer less. However, everyone’s tax bill may increase as a result of the numerous property tax increases enacted by various local units of government, including a court mandated local jail expansion, the construction of a court mandated juvenile detention center, the expansion of the county library, and construction of new or remodeled schools by several school districts.
So, the pain of the reassessment will be increased as a result of these additional property taxes raised by local government. How bad it will be remains to be seen, but we should all be concerned.
Below, I have provided a short explanation of what property tax reassessment entails, as well as what the State legislature has tried to do thus far to help our taxpayers with this purely local tax.
Why is property assessed?
Property is assessed to determine its value for tax purposes. After total assessed value for all property in a taxing district (for example a library, township, school, sanitation district etc.) is determined, a tax rate is established for each district. The assessed value for each property is multiplied by the tax rate to determine how much property tax each person pays.
Why is property reassessed?
Property values change over time. Reassessment helps insure that tax bills reflect changes in property values so property taxes are spread fairly among all property owners.
What are property taxes used for?
Property taxes are used by local government and schools to pay teachers, build schools and other buildings, for parks, police and fire protection, libraries, poor relief and other municipal and school functions. State government receives less than one tenth of a percent of all property taxes collected.
When was the last general reassessment conducted?
The last reassessment was completed in 1995.
Why do people say this is a “court ordered” reassessment?
In 1998 the Indiana Supreme Court ruled on a 1996 Tax Court decision that the old assessment system was unfair and unconstitutional. This ruling found that some taxpayers were paying too much property tax while others were not paying their fair share. Accordingly, the Court mandated the Department of Local Government Finance (DLGF) to develop new rules and reassess all property.
What was the problem with the old system?
Under the old rules assessors were not required to link assessments to objective standards such as market value. So, assessed values lacked meaningful references to actual property values. This led to a situation where business property was generally over-assessed while residential property was generally under-assessed. In addition, homes with similar market values located in different parts of the state or even different townships in the same county, had significantly different assessed values. The Court said this was unfair and unconstitutional.
When did the Department of Local Government Finance issue new rules?
In May 2001, nearly 5 years after the Tax Court first found the old assessment system to be unconstitutional, the Governor approved new rules adopting a market value based assessment system. (The Governor also approved new rules for the assessment of business and utilities)
Did the Court say Indiana had to adopt a pure market based system?
No, the Court left the door open to consider other relevant factors. However, the Department of Local Government Finance (DLGF) opted to adopt a pure market value based system. (The DLGF was formerly the State Tax Board.)
Who is responsible for insuring that reassessments are timely and are conducted fairly?
By statute the DLGF, a state agency reporting to the Governor, establishes the rules that govern how reassessment is conducted and how property is to be valued. Local assessors review each property under the direction of the DLGF. After all property is assessed the county reports total property values and proposed tax rates to the DLGF for certification.
Why is this reassessment so unusual?
This is the first time property is being reassessed under the new market value rules.
How were the new rules expected to impact property taxes?
The bipartisan Legislative Services Agency estimated the new market value rules would increase average statewide taxes for homeowners by 13%. Although average property taxes for business were expected to drop by about 10%, the new rules included provisions on inventory and work-in-progress that business said would have created disincentives for capital investment at a time when the state was already leading the nation in manufacturing job loss.
Why are older homes getting hit harder than newer homes?
Under the old rules homes were treated as depreciating assets. As a home got older, its assessed value dropped relative to new construction. Thus, many older homes were under-assessed. Under a market value system age is not a significant factor. The condition the property is in is more important. The decision to base assessments primarily on market value and ignore mitigating factors such as depreciation or high maintenance costs hits older homes in good neighborhoods especially hard.
Could taxes increase for a newer home?
Yes. Under the old rules local assessors had broad discretion to assess homes more favorably than other types of property. Under the new market value system assessors have much less discretion. So, the assessed value of any property regardless of age could increase if it loses a favorable assessment.
What did the General Assembly do to help homeowners?
In 2002 the General Assembly restructured state and local taxes because it expected the new rules would lead to increases in residential property taxes. Four measures were enacted to cut property taxes and help protect homeowners.
The Homeowner’s Exemption was increased from $6,000 to $35,000. With this exemption a homeowner does not pay any property tax on the first $35,000 (up to half) of a home’s value. This progressive measure provides help for all homeowners but especially helps those with lower valued homes.
A new 60% Property Tax Replacement Credit (PTRC) was created for the School General Fund Tax Levy. Combined with other credits the state now pays about 85% of the cost of operating local schools.
The Homestead Credit was increased from 10% to 20%. With this credit, the state pays 20% of each individual’s net property tax bill remaining after payment of the replacement credit for schools.
Finally, the General Assembly increased the assessed value levels below which seniors, blind and disabled and WW1 and Disabled Veterans are eligible for property tax deductions. This provision will help seniors and veterans retain their property tax deductions after reassessment. This was passed in the 2003 Session.
What was the cost of the property tax relief and how was it funded?
The increased Homestead Credit and new 60% school credit together provide about $1.3 billion in property tax relief. These measures were expected to lead to an average statewide decrease in residential property taxes of 13%. Moving from an expected increase of 13% – to an expected decrease of 13% – was expected to provide a net tax decrease of 26% for homeowners. In order to provide funding for this property tax relief the General Assembly increased the state sales tax by one cent. There were also increases in cigarette and gaming taxes. That was the deal – increase the sales tax to decrease property taxes.
Did the General Assembly keep its word?
Yes. The General Assembly has kept its tax relief commitment to homeowners. The budget for FY 2004 passed earlier this year dedicates about $3.5 billion – nearly 1/3 of the total General Fund Budget – for property tax relief. All of the 2002 revenue increases pledged for property tax relief are being used for that purpose. If not for the relief passed by the General Assembly in 2002 taxpayers would be paying an additional $1.3 billion per year in property taxes. The General Assembly has fully kept promises made with the 2002 tax restructuring. Had the General Assembly not acted, average tax bills for homeowners would be about 21% higher.
Then why are homeowners in some counties seeing big tax increases?
There are two reasons. First, part of the promised 13% reduction has been eroded by correction of the way in which the state calculates the Homestead Credit.
Second, it appears some local officials and schools are using the reassessment process to push through unusually large property tax increases. For the first seventeen counties that have completed reassessment and issued tax bills there has been an average increase in total countywide property taxes billed of 12.9%. Some of these increases are offsetting the tax relief provided by the one-cent increase in the sales tax.
What was the problem with the Homestead Credit?
Earlier this year it was discovered the state had been over-paying counties for the Homestead Credit. When the Department of Local Government Finance made the correction in favor of the state it diminished the value of the Credit from 20% to about 15%. This cost homeowners statewide about $120 million per year in property tax relief and reduced the expected drop in average residential taxes from 13% to 8%.
Aren’t people who own older homes just being asked to pay their fair share?
To the extent their homes were under-assessed and are now properly assessed at near market value, they may be paying closer to their fair share. However, large tax increases that occur all at one time without giving homeowners time to plan and make decisions are problematic. Such increases, especially for seniors on fixed incomes, can affect the ability of homeowners to remain in their homes. This in turn could have negative impacts on whole neighborhoods. Although the higher taxes may be understandable, big increases in just one year has left some people questioning the fairness of the new rules.
Should I expect my taxes to increase or decrease?
It is still estimated that (after adjusting for recalculation of the Homestead Credit) average statewide residential property taxes will drop by about 8%. You will not know what your taxes are until your county completes reassessment and you receive your tax bill. However, it is clear that regardless of what happens with statewide averages, increases and decreases will vary widely among neighborhoods. If you live in a newer home your old assessed value is likely to be closer to market value and your taxes are more likely to stay the same or decrease. If you live in an older home your old assessed value is likely to be lower than market value and your taxes are more likely to increase especially if your home is in good condition and property values in your neighborhood have increased.
Whether your taxes increase or decrease will also depend on the budget decisions made by local officials and schools. Normally, total county property tax levies increase by about 5% per year.
However, for the first seventeen counties that completed reassessment and issued tax bills, countywide levies have increased by an average of about 12.9%.
Why can’t we eliminate property taxes altogether?
Indiana, like almost every other state has traditionally relied on property taxes to operate local government and schools. The total statewide net tax levy for 2002 was more than $5.3 billion. It would be very difficult to raise that amount of money by other means. For instance, total sales tax collections are about $4.9 billion per year. If the sales tax were doubled from 6% to 12% the increased revenue would not be sufficient to totally replace the property tax.
Could anything have been done differently with reassessment?
In 1998 when the Court ruled the old system was unconstitutional, the state had combined reserves of about $2 billion. This gave the Administration both the time and the money to implement new rules and develop a plan to target property tax relief. Senate Republicans strongly urged the Administration to proceed with reassessment in a timely manner. However, the Administration did not adopt the new market value rules until 2001. Had reassessment progressed while the state had healthy reserves, there would have been time to target tax relief more effectively or at least phase in some of the more significant tax increases.
Is the General Assembly working to address some of the problems?
Yes. The General Assembly is working to amend the Constitution. The State Constitution requires that property be uniformly assessed. This has made it difficult to target tax relief. However, the General Assembly has passed resolutions in each of the two past sessions to amend the Constitution to allow some preferential treatment of certain types of property. Most likely, that would mean giving homeowners a better deal than the Indiana Constitution currently allows. In order to become effective, the amendment must now be approved by a majority of voters in a public referendum. So, to sum this up, if the Constitution is amended it will ease the restriction that now requires uniform and equal rates of assessment and taxation. This will make it easier for the General Assembly to enact targeted tax relief for property taxpayers such as the owners of older homes, who will likely take the biggest hit from reassessment..
Why are you telling me about this now?
Senate Republicans want you to be fully informed on what is happening so you are not surprised when you receive your tax bill. We are hopeful reassessment will go as well in your county as it has in several other counties that have completed the process. However, reassessment is a complicated process and assessors will probably make a few mistakes that warrant adjustment. We want you to know there is an appeal process available to anyone who feels his or her assessment is unfair.
Republicans on the Senate Finance Committee are also holding informal hearings around the state to listen to taxpayers and gather ideas for possible legislation.
Will the General Assembly “fix” the problems in the next session?
New legislation will certainly be introduced and considered. Senate Republicans have made reassessment issues their top priority. But, while there are some adjustments that can be made, additional property tax relief will be difficult. The biggest problem is that when you provide relief to one taxpayer group such as homeowners, it simply shifts the tax burden to other taxpayers such as farmers or small business owners. No taxpayer group wants to accept higher taxes in order to provide relief to another group.
How does a property owner appeal?
If a property owner (homeowner or business) believes their property was not correctly assessed there are several things he or she can do. First, contact the Township Assessor and ask to examine your property record card. Verify that all the data regarding square footage, number of rooms, basement pool etc., are correct. Point out any inaccuracies to the Assessor.
To appeal the Township Assessor’s decision a property owner must file a formal appeal with the County Assessor within 45 days of official notification of the assessment. (Use Form 130 available from the Township or County Assessor or on the DLGF website at www.accesssindiana.com) The appeal will be reviewed by the county’s Property Tax Board of Appeals.
To appeal the county’s decision a property owner must file another appeal with the County Assessor within 30 days of county decision. (Use Form 131 available from the County Assessor or on the DLGF website) The appeal will be reviewed by the Indiana Board of Tax Review.
To appeal a decision of the Indiana Board of Tax Review property owners may file a lawsuit with the State Tax Court within 45 days of the decision of the Indiana Board of Tax Review.
Updated by the Senate Republican Fiscal Staff, October 28, 2003
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