Hot Topics: Property Tax Assessment
If you own a house, or some land, or a building, or business machines or products for sale, you pay property taxes. How much you pay depends on your local tax rates. It also depends on the assessed value of your property. Assessed value is the dollar value the assessor puts on your property. That value times the tax rate is how much you pay.
The assessor uses a set of rules to figure out assessed value. The Indiana Department of Local Government Finance (formerly the State Tax Board) is the government agency that makes these rules.
In December 1998, the Indiana Supreme Court decided that the rules violate the Indiana Constitution. The Constitution says that assessments must be "uniform and equal." The Court said the rules don't make "meaningful reference to property wealth," so they don't make uniform and equal assessments.
Until now, Indiana has been one of only two states that did not base assessments on "market value" (Nevada is the other). Market value means a prediction of the price a property would sell for. Market value assessment would help uniformity and satisfy the Supreme Court. The Department of Local Government Finance struggled for years to come up with new constitutional regulations. Finally, they adopted rules that effectively make Indiana a market value state.
The trouble is, Indiana's assessments are so far from uniform that changing to market value would cause big changes in peoples' tax bills. To get to market value, home assessments would have to rise more than business assessments. This means that homeowners would pay more, and businesses would pay less in taxes under market value. This would happen even if total tax collections didn't change.
The changes in tax bills would be very large. If Indiana switched to market value and made no other changes, the average homeowner would pay about 33% more in taxes, the average business about 18% less.
No one wants homeowners to pay so much more. So in June, 2002, the Indiana General Assembly passed a tax restructuring bill to protect homeowners from the market value tax shift. Restructuring reduces total property tax collections by about a billion dollars, replacing it with money from a sales tax increase. It also increases deductions and credits that homeowners can take. Now, the average homeowner may actually see a small tax cut.
We're not out of the woods yet. The reassessment was supposed to be finished by March 1, 2002, but none of the counties met that deadline. In fact, as of May 2003, only four counties have set their tax rates. They need tax rates to send out property tax bills, so almost every county missed sending out bills in time for the usual May 15 payment deadline. What will local governments do for money? Borrow it, or use a new state law that allows Treasurers to send out provisional tax bills.