Overview of the Indiana Property Tax

 

Contents

Introduction
Assessed Value
Supreme Court Decision
Local Levies and State Controls
Property Tax Rates

Property Tax Replacement Credits and Homestead Credits

 

 

Introduction
Indiana local governments collected about $5 billion in property taxes in calendar year 2001. More is collected from the property tax than any Indiana local or state tax. The tax base of the Indiana property tax--the thing that is taxed--is the assessed value of property.  The total revenue collected is called the levy.  The property tax rate is calculated by dividing the levy by the assessed value in each jurisdiction each year.  Rates usually change each year, and are different in every tax collecting jurisdiction.

Links to More Information

To Find: Go To:
Department of Local Government Finance, the state agency that oversees the Indiana property tax (called the State Board of Tax Commissioners, or State Tax Board, until January 1, 2002) Department of Local Government Finance website

 

Assessed Value
Assessed value includes real and personal property.  Real property is land and buildings; personal property is mostly business, farm and utility equipment and inventories.  Property is assessed locally, by township and county officials, using rules established by the Department of Local Government Finance (which used to be called the State Board of Tax Commissioners).  Utility personal property is assessed by the state. 

Indiana's real property assessment rules were found to be unconstitutional by the State Supreme Court in December, 1998.  New rules, being applied in a reassessment in 2002, differ a lot from the old, unconstitutional rules.  Assessment of real property structures is currently based on the estimated cost required to replace the structure, less depreciation based on age, with modifications for condition and quality.  Under the new rules, improvement assessed values will be the predicted selling prices of the properties, also known as "market value."  Assessment of residential, commercial and industrial land also is based on estimates of sales prices.  Assessment of farm land is based on a statewide fixed price per acre, called the base rate, modified by the land's productive capacity, forest cover, grade, and other factors.  Real property was reassessed for taxes payable in 1996, and is now (in 2002) being reassessed for taxes payable in 2003.  Assessment of personal property is done annually by property owners or local assessors, based on equipment and inventory purchase prices.  Equipment assessments allow for depreciation.  

This chart shows what kinds of property comprise assessed value in Indiana.  Real property is land and buildings, and is labeled "R" on the chart.  Business and residential real property make up 72% of total Indiana assessed value.  Personal property slices are labeled "P" on the chart.  Personal property is mostly business inventories and depreciable equipment (like the manufacturing equipment in factories or the generating machinery in a power plant).  A small sliver of the pie is individual and household personal property, which includes some mobile homes and large motor vehicles.  

Business property makes up about 59% of Indiana assessed value.  A little more than half of this is real property (that is, 32% out of the 59%).  The rest is personal property.  Household property makes up 41% of Indiana assessed value.  Almost all of this is housing and its land; very little is personal property.

While businesses have 59% of assessed value, they actually pay about 62% of Indiana property taxes.  That's because business property tends to be located in jurisdictions with higher property tax rates, compared to residential property.

The 2002 reassessment will change the shares in this pie, increasing the real property share relative to the personal property share, and increasing the household share relative to the business share.

Links to More Information

To Find: Go To:
Table showing assessed value and tax levy by property type, in glorious detail This website:  Statewide Assessed Value and Levy Table
Data on assessed value by county since 1977 This website:  Property Tax Summary Data
Department of Local Government Finance, information on next reassessment (see Assessment Calendar and Assessment Manual and Guidelines) Department of Local Government Finance website
Ft. Wayne Department of Economic Development on how property taxes work in Indiana Ft. Wayne Department of Economic Development website
Vanderburgh County Assessor on how property is assessed in Indiana Vanderburgh County Assessor's website

 

 

Supreme Court Decision
On December 4, 1998, the Indiana Supreme Court declared the property assessment rules unconstitutional.  The Indiana constitution requires that property taxes be
Afair@ and Auniform@.  The Department of Local Government Finance has adopted new assessment rules for the 2002 pay 2003 reassessment.  The special session of the General Assembly modified these rules as part of tax restructuring.  The new rules, as modified, effectively make Indiana a "market value" state, which means that Indiana's assessed values will be based on predictions of the selling prices of property.  Almost all states are market value states.


Links to More Information

To Find: Go To:
Discussion of the Supreme Court decision and the 2002 reassessment This website:  Property Tax Assessment topic
Full text of the Indiana Constitution, Article 10, Section 1 This website: Indiana Constitution on Assessment

 

 

Local Levies and State Controls
Tax levies are set by local governments--counties, townships, cities and towns, school corporations, library districts and other special districts--based on their spending needs.  Local governments traditionally set their property tax levies by calculating what each of their departments need to spend during the year.  Non-property tax revenues are subtracted from this spending amount, and the remainder is the amount that needs to be collected from property taxes.

However, local governments are subject to a complex set of tax control rules set by the state.  Like much else, these control rules were modified by the tax restructuring bill passed by the General Assembly in June 2002.  Until now, the rules limited civil government (non-school) operating fund taxes to an increase of between 5% and 10% per year, depending on how rapidly assessed value in the jurisdiction was growing.  Faster growing jurisdictions could increase their levies more.  After restructuring, levy increases will be limited to the 6-year average increase in Indiana personal income.  This increase has averaged just over 5% in recent years.  All jurisdictions, rapidly growing or not, will be subject to this limit.  Civil government cumulative funds have maximum rate limits, and most are also included within the levy ceiling.  Debt service levies are not limited, though the Department of Local Government Finance can approve or reject local bond issues.  County welfare levies are also outside the levy limits.  

School corporation general fund levies are limited by the state school aid formula, which usually changes every two years.  School debt service levies are uncontrolled, though both the Department of Education and the Tax Board can approve or reject bond issues.  The school capital projects fund has a maximum rate that varies by school corporation.  Increases in school transportation operating taxes are limited to 5% per year, though levies for bus purchases are not controlled.

This chart shows which units collect Indiana property taxes.  What stands out is that really big green slice, labeled "School Corp., 54.7%."  School corporations collect more than half of all Indiana property taxes.  The remainder mostly goes to counties and cities and towns.  Together, these three kinds of governments collect about 88% of all Indiana property taxes.  Amounts collected by townships, library districts, other special districts and conservancy districts are comparatively small.

 

Links to More Information

To Find: Go To:
A table showing the statewide property tax levies, by jurisdiction and fund type This website:  Property Tax Levies by Jurisdiction and Fund
Data on property tax levies by county since 1977 This website:  Property Tax Summary Data

Property Tax Rates
Once the levy is set by local governments, after application of the control rules, and once local assessors have calculated assessed value, property tax rates can be set.  Rates are re-calculated each year by dividing the levy by assessed value.  The result is multiplied by 100 and presented as "dollars per $100 assessed value," but the figure shown is essentially a percentage.  The rate is multiplied by the assessed value owned by each taxpayer to calculate the taxpayer's liability.  

The rate the taxpayer pays is the sum of the rates of the local government in which his or her property is located.  All taxpayers pay a county rate, a township rate and a school corporation rate.  Most taxpayers live in a city or town and a library district, and so pay those rates too.  There are also rates for other special districts, such as solid waste management districts, transportation districts or fire protection districts.  Taxpayers receive one combined tax bill from the County Treasurer, and make one payment for all the local units.  The county divides the revenue among the local units.

Statewide, the average "net" property tax rate was $8.82 per $100 assessed value in 2001.  That is the same as saying that the average taxpayer payed 8.82% of his or her assessed value in property taxes.

Until pay 2001 Indiana took the results of the assessors' efforts, called "true tax value," and divided by three.  Starting with taxes payable in 2002, Indiana stopped dividing by three.  Assessed value is triple what it was.  The levy was not affected, however, so tax rates were cut by two-thirds.  The $8.82 average tax rate would be $2.94 using the new calculation.  It can be said, then, that Indiana's average tax rate is "about $3 per $100 assessed value," or 3%.

Links to More Information

To Find: Go To:
How to read the tax rates and other information on a property tax bill This website:  How to Read Your Property Tax Bill
Data on average property tax rates by county since 1977 This website:  Property Tax Summary Data

 

Property Tax Replacement Credits and Homestead Credits
The state gives local governments property tax replacement credits (PTRC), equal to 20% of taxes levied on real property (not personal property), excluding cumulative funds, debt service incurred after 1984, and some other levies.  This was changed with the tax restructuring of June 2002.  Up until then personal property was not excluded from PTRC.  In addition, the state will now pay PTRC on 60% of school corporation general fund levies.  This was the major property tax relief effort of the 2002 tax restructuring.

The credits are funded by the state sales tax and other state revenues. The Gross Levy is the name given to the levy before property tax replacement credits, and the Net Levy is the name given to the levy actually collected from taxpayers, after PTRC.  In pay 2001 the Gross Levy was about $5.9 billion, PTRC totaled about $850 million, and the Net levy was about $5.05 billion. Overall, in pay 2002 PTRC reduced the statewide levy by about 14% year.  With the added school corporation levy replacement, in 2003 this figure should increase to about 25%. 

Homestead credits are calculated after the tax payments for individual homeowners are set.  The credit reduces tax payments on a homeowner's primary residence by 20%.  This rate was increased from 10% by the 2002 tax restructuring.  The state reimburses local governments for the property tax revenue they lose due to this credit.  In 2001 the state paid local governments about $190 million in homestead credits, when the rate was 10%. 

Links to More Information

To Find: Go To:
How to read the tax credits and other information on a property tax bill This website:  How to Read Your Property Tax Bill
Data on state PTRC payments by county since 1977 This website:  Property Tax Summary Data
Details about the 2002 Tax Restructuring This website:  Tax Restructuring 2002