How To Read Your Property Tax Bill

Contents
Introduction
A Homeowner's Tax Bill
Assessment Year/Payable Year
Property Identification and Taxing District
Distribution of Gross Tax
Tax Increment Finance (TIF)
Gross Assessed Value of Land and Improvements
Exemptions and Deductions
Net Assessed Value
Tax Rate and Gross Tax
Property Tax Replacement Credit
Homestead Credit
Net Tax
Installments
Delinquent Taxes
Special Payments

Introduction
Each year the Indiana County Treasurers send property tax bills to property owners or their mortgage holders. These bills can be pretty mysterious, but in fact they contain a lot of information about how the Indiana property tax works. Understand the tax bill, and you'll understand much about property taxes in Indiana.

To calculate how much each property owner owes, the tax rate is multiplied by the assessed value of the taxpayer's property. The assessed value is determined by the township and county assessors. Since the assessed value is the starting point for calculating the taxes you owe, understanding how your property is assessed helps explain how your tax bill is calculated. It might be useful to read two other topics on this website, one on how houses are assessed, and another on the assessment notice property owners receive. These three topics provide an overview of Indiana property taxes, from the taxpayer's point of view.

A Homeowner's Tax Bill
Here's a typical property tax bill, for a homeowner in Tippecanoe County, Indiana, with its property and personal identity information removed.  Most property tax bills in Indiana look like this, though counties can adopt any format approved by the State Board of Accounts.  You can take a look at this bill, and click on any part of it to read an explanation.  Or, scroll down to find an explanation of any section of the bill. 

Assessment Year/Payable Year
Property tax bills are labeled with two years.  This is because property is assessed in one year for taxes payable in the next.  For example, if a property is assessed on March 1, 2004, the taxes on the property will be due in May and November, 2005.  This is similar to the income tax--the taxes you pay by April 15 are on the income earned the year before.  The first year listed on the tax bill is the assessment year.  The second "pay year" or "payable year" is the year in which the taxes are due.

We often label assessment years with a phrase like "2004 pay 2005" to show the year the property was assessed, and the year the taxes were paid. The last reassessment, for example, occurred in 2002 pay 2003. That means the new market value assessment rules were applied in 2002 and taxes were collected based on these new assessments in 2003 (though it took many counties longer than that).

Property Identification and Taxing District
The key number is the principle identification code that this county uses for this property. The key number also shows up on the assessment record and the assessment notice. It could be useful if you have questions for the assessor, who might ask you for this number to help answer your questions.

In Tippecanoe County, the first three digits of the key number identify the "tax district" where the property is located. The tax district is also identified by name on the tax bill. The name is "West Lafayette WLCS B-C LIB." It means that the property is located in: Tippecanoe County, Wabash Township, West Lafayette City, West Lafayette Community School Corporation, Tippecanoe County Library District, and the Greater Lafayette Transportation District.

A tax district is an area within a county where a set of local government units overlap. Each of these units charge property taxes, so the rate that this taxpayer pays on this house is the sum of all the tax rates of all the overlapping units. Every property in the tax district will be charged that rate. Rates will be different in other tax districts. For example, much of the City of West Lafayette is in the West Lafayette Library District. This unit has a different tax rate than the county library district, so the total tax rate charged in that district will be slightly different from the rate charged in this one.

The tax bill also shows the legal description of the property. This house is in the University Farm subdivision, phase one, lot 78.

Distribution of Gross Tax
The tax bill emphasizes the fact that you pay taxes to many overlapping governments by showing the distribution of gross tax payments. This is "for your information."  It is not used in the calculation of your tax bill. 

You'll notice that in total these governments are receiving a lot more than you pay. That's why it's called the distribution of the gross tax. The gross tax is the sum of the net tax that you pay, and the property tax credits that the state pays (see below). You pay the net tax, after state credits are subtracted. The local governments receive your tax payment, and the revenue that the state pays out to make up for the money you don't pay because of these credits. Some counties show the net tax distribution.

Some counties will show the percentages of your tax bill that each government receives, rather than the dollar amount. Some counties will even print a pie chart to show the shares. Here's what the pie chart would look like for this tax bill:

The school corporation receives by far the largest share of this tax payment.  That will be true for most taxpayers in Indiana. Statewide, school corporations receive about half of all property tax collections.  In some rural areas, school receive more than two-thirds of the revenue.  The county and the city or town (if there is one) get the next biggest amounts.  On this bill there is a separate listing for "welfare," which is a county function, though the tax amounts are determined by the state. 

Statewide, schools corporations, counties and cities/towns receive over 90% of property tax collections.  That's certainly true on this tax bill--the school, city, and county (including welfare) get 97% of the tax payment. The other local governments receive a very small share. And the state government gets a little.  The state tacks on a fraction of a cent per $100 assessed value to each tax bill.  That adds up to about $9 million for the state each year.  Local governments receive about $7 billion in gross taxes.  The property tax is primarily a local tax.

Tax Increment Finance (TIF)
This house is not in a tax increment finance district (and it wouldn't matter if it was). TIF is a way that many county and city/town governments help pay for new infrastructure. It works like this.

The "TIFing" government (always a county or city or town) will draw a boundary around an area where it thinks development will take place. Development means changes in land use or new construction. Taxes on property that is assessed at the time the TIF district is created continue to be distributed to all the overlapping units--including the school corporation, the township, the library district and any other special districts. But taxes on commercial property (like stores or office buildings) that is newly built after the TIF district is created are distributed only to the TIFing government. If the city creates the TIF district, all the additional tax revenue on new construction will go to the city.

The city or county uses this revenue to pay for infrastructure, usually (but not always) facilities that are related to the development in the TIF district. A new factory might require new road construction and a bigger sewage treatment plant, for example. The revenue from the TIF district could be used to pay for this new infrastructure. The intent of TIF, then, is to make development pay for itself.

The tax bill on a commercial structure in a TIF district, built since the TIF district was created, will show a different gross tax distribution. Some small amount would still go to all the overlapping units, since the land would have been assessed prior to the TIF district's creation. But the taxes on the structure and on the increased value of the land would go to the county, city or town that created the TIF district.

This is a tax bill for a house, though. New houses are not included as part of "TIFed" property, so taxes on houses are distributed to all the overlapping governments even when they are in TIF districts.

Gross Assessed Value of Land and Improvements
Assessed value is the dollar value assigned to your property by the local assessor. It is "gross" assessed value because it does not include the exemptions and deductions that most property is eligible for. That means that for most taxpayers, not all of their property's assessed value is taxed. "Net" assessed value is gross assessed value less deductions and exemptions.

Assessed value is divided into land and improvements (buildings, structures). Each is labeled "R" or "NR", which stands for "residential" and "non-residential." Assessed value must be separated into residential and non-residential categories for the homestead credit (see below). This is a percentage reduction of property taxes on residential property only. Non-residential property is not eligible.

All the property here is residential. The sum of the land and improvement values is $183,700. This is the figure calculated on the assessment record, and included on the assessment notice. In Indiana since 2002, the total gross assessment is a prediction of the selling price of the property.

Exemptions and Deductions
Exemptions and deductions are dollar amounts that qualifying property owners can subtract from the assessed value of their property, before the tax bill is calculated.  Exemptions and deductions are the difference between gross assessed value and net assessed value. It's net assessed value--after exemptions and deductions--that is taxed.

The biggest exemption for homeowners is the homestead or standard exemption, labeled on the tax bill as "Exemptions H". This exemption is worth $35,000 or 50% of the gross assessed value of the property, whichever is less. To be eligible for the homestead exemption, a property must be residential, occupied by the owner, and the owner's primary residence. That means that rental property and second homes are not eligible.

The homestead exemption used to be much smaller, but it was increased during the tax restructuring of June 2002. The homestead exemption was increased from $6,000 to $35,000. This was one of the main ways the Indiana General Assembly protected homeowners from the tax shifts caused by the market value reassessment.

The other exemption that most homeowners receive is the mortgage exemption, which is $3,000. It's labeled on the tax bill as "Exemption M." This exemption is available to owners of real property or mobile homes who have mortgages.

Homeowners must apply for these exemptions at their County Auditors office. This homeowner has a mortgage, but no mortgage exemption. That's because the mortgage was refinanced in 2003, and (unfortunately) the homeowner did not re-apply for the mortgage exemption. The exemption can be applied for at any time. It's an exemption on assessed value, though. Applying in the summer of 2005 means the exemption will be subtracted from assessments in 2006, for taxes payable in 2007. The lack of the mortgage exemption is costing this homeowner about $50 a year. That's small compared to the homestead exemption. If the homestead exemption were missing, this homeowner's tax bill would be almost $600 higher.

There's room on the tax bill for other exemptions and deductions. Some of the others include:

• the Age 65 and over exemption, for older homeowners with incomes less than $25,000, worth up to $12,480;
• the blind or disable exemption, for homeowners, worth $12,480;
• several veterans exemptions, for property owners who are veterans, worth between $12,480 and $24,960;
• exemptions for making particular kinds of improvements to property, such as rehabilitation of old property or additions of particular energy systems (solar, wind powered, hydro-electric).

Again, taxpayers must apply for exemptions at their County Auditor's office.

Net Assessed Value
This is the taxable assessed value of the property, calculated as gross assessed value minus exemptions and deductions. On this tax bill, the gross assessment of land was $43,600, and the gross assessment of improvements (the house) was $140,100. The total gross assessed value was $183,700. The homestead standard deduction of $35,000 is subtracted, leaving the net assessed value of $148,700.

Tax Rate and Gross Tax
The tax rate is the sum of the tax rates of the governments in the tax district.  Tax rates are measured in dollars per $100 of assessed value, so they are effectively percentages. Here are the tax rates that make up the rate on this house:

Tax rates are set during each government's budget process, subject to state property tax controls.

The tax rate times the net assessed value is the gross tax, shown on this tax bill in the box labeled "Actual Tax Dollars Amounts." The net assessed value, $148,700, times the tax rate, $2.7101 per $100 assessed value, equals $4,029.92, which is the gross tax.

Local governments receive this amount from taxes and state credits on this property. The state credits mean that this taxpayer only pays about 60% of the gross tax.

Property Tax Replacement Credit
Property Tax Replacement Credits (PTRC) are a state program of tax relief. The percentage PTRC rate is subtracted from the gross tax. This would cost the local governments lost revenue, so the state pays local governments the PTRC amounts out of its budget. On this tax bill the PTRC rate is 29.3747%. Multiply this by the gross tax of $4,029.92, and the result is the replacement credit amount, $1,183.78. The taxpayer does not pay this amount. It is paid by the state to the local governments.

PTRC was created during the Bowen Administration's tax reforms in 1973.  Originally, the sales tax was increased from 2% to 4%, and the revenue pledged to the property tax replacement fund.  Revenue from this fund was to be paid to all local governments to reduce their property taxes by 20%.

By the early 1980s it was found that the sales tax revenue from the added 2 percentage points was not enough for the annual PTRC payments.  Since then an additional appropriation is made by the state from its other revenues (like individual income and corporate income taxes).

Also in the early 1980s, the kinds of property tax collections eligible for property tax replacement credits were limited.  In particular, property taxes collected for debt service on bonds issued after 1984 were made ineligible for PTRC payments.  Debt service payments are outside the property tax controls.  The state was concerned that paying 20% of local unit debt service might encourage more borrowing and construction that was necessary. 

The tax restructuring of June 2002 greatly increased the complexity of the PTRC calculations. There are now two PTRC rates for each tax district, one that applies to real property and individual personal property, and another that applies to business depreciable equipment and inventories (until 2006 pay 2007). The rate applied to real property--including homes--is higher. For this tax district, the rate for real property is 29.3747%, and the rate for business personal property is 20.2592%. PTRC rates for all property had been lower before restructuring, averaging about 14% statewide. The added PTRC was another way that the General Assembly sought to protect homeowners from the effects of market value reassessment.

Statewide, property tax relief payments approximately doubled from 2001 to 2004, becoming the second largest item in the state budget, after K-12 education. The state's budget is tight, so during the 2005 budget session the Governor and the General Assembly decided that growth in these payments had to be limited. The total payment amount was frozen at the 2005 level for 2006 and 2007. For tax bills, this means that the PTRC and homestead credit percentages will decline in 2006 and 2007. Property taxpayers will have to pay a larger share of the gross tax.

Homestead Credit
The homestead credit is a percentage to be subtracted from a homeowner's tax bill. The percentage is applied to the gross tax after property tax replacement credits are subtracted. Every tax district has is own homestead credit rate. On this tax bill, the gross tax is $4,029.92. Subtract the PTRC of $1,183.78, leaving $2,846.14 (not shown on the bill). The homestead credit rate is 14.4560%. This rate is multiplied by the gross tax less PTRC to get $411.44, shown in the Actual Tax Dollars Amounts box.

As with PTRC, the June 2002 tax restructuring complicated the calculation of the homestead credit rate. Now, every tax district has its own rate. after the gross amount owed is calculated.  In addition, some counties (including Tippecanoe) fund additional homestead credits out of local income tax revenue. In this tax district, the state homestead credit rate is 10.3258%, and the county homestead credit rate is 4.1302%. That adds up to the 14.4560% rate shown on the tax bill.

Tax restructuring made two changes in the way homestead credits are calculated. Prior to restructuring, the rate was 10% and was applied to the gross levy, before PTRC was subtracted. With restructuring, the rate doubled to 20%, but it is applied to the levy after PTRC is subtracted. In addition, in 2002 it was discovered that the homestead credit had been used incorrectly for 17 years. The part of the levy eligible for PTRC was limited in the early 1980's, and this should have limited the levy eligible for homestead credits. Instead, the homestead credit continued to be applied to the full levy, including debt service payments. The "17-year error" was corrected for taxes in 2003 and after.

Since the 20% rate now applies to a fraction of the gross levy less PTRC, the rate shown on tax bills is less than 20% in most tax districts. The state rate doubled, but the part of the tax levy to which it applied was just about cut in half. The amount of homestead credits the state paid out did not change much after tax restructuring.

Net Tax
The net tax is the gross tax minus the homestead and replacement credits.  Unless there are delinquency penalties or other special payments, this is the tax owed. 

On this tax bill, the gross tax is $4,029.92, the replacement credit is $1,183.78, the homestead credit is $411.44, so the net tax is $2,434.70.

Installments
Property taxes are paid in two equal installments, in the Spring, due on May 10, and in the Fall, due on November 10 each year.  Sometimes the Spring installment is labeled "A" and the Fall installment "B". Half the total is owed in each installment.

This was an early property tax reform. Administrators discovered that people were more likely to comply with the property tax if it was not paid in one lump sum.

Delinquent Taxes
What if you don't pay your property taxes?  The state has established a series of steps to handle "tax delinquency."  The taxpayer who pays late must pay a penalty.  If taxes are not paid for a year, the property is subject to auction at a tax sale, held by the county, usually in the Fall.  Selling a delinquent property at a tax sale is a way for local governments to collect the taxes owed from a bidder.  The bidder then has a lien on the property.  The original owner can clear his or her title to the property by paying the bidder the bid plus another penalty.  If this payment is not made, the bidder becomes the new owner of the property.

Special Payments
The County Treasurer is sending out this bill anyway, why not collect other non-property tax fees at the same time? Property tax bills are sometimes used to collect drainage fees, fees for soil conservation districts, and other payments.