The Indiana property tax is complicated. Each spring the county treasurer reminds us just how complicated it is, by mailing form TS-1, “Taxpayer and Property Information.” It’s a one-page summary of how they get from the assessed value of your house to the amount you owe on your property tax bill. It can help sort out the complexities of that dreaded bill. It’s coming to your mailbox soon!
At the top of the form is assessed value. That’s the county assessor’s estimate of the value of your house, meaning the amount it would bring if you sold it. Next come deductions, which are subtracted from gross assessed value before tax rates are applied. Homeowners get two big deductions, the standard, which is $48,000, and the supplemental, which this year is 37.5 percent of the remainder after the standard is subtracted. For a $200,000 house those two deductions would subtract $105,000.
After deductions, the net or taxable assessed value is multiplied by the tax rate. The rate is measured as dollars per $100 assessed value, so you can think of it as a percentage. The tax rate is the sum of the county, city, school, township, library and special district tax rates where the house is located. That sum is known as the district tax rate. If the tax rate is $2.50 (2.5 percent), and the net assessed value is $95,000, the tax bill is $2,375.
But we’ve only just begun. Last year 58 counties had property tax credits funded by local income taxes. Those counties passed a local income tax rate to raise money to replace part of the property tax bill. Sometimes the credits are for homeowners only, and sometimes they apply to other property owners too. If the county has a LIT credit of 10 percent, and the gross tax bill is $2,375, the credit will be $238, and the remaining bill is $2,137. The homeowner pays less in property taxes, but local governments are reimbursed from LIT revenue.
Now for the circuit breaker credits, which cap tax bills at a percentage of gross assessed value. The caps are 1 percent for owner-occupied homes, 2 percent for rental housing and farmland, and 3 percent for everything else, mostly business land, buildings and equipment.
For our example, the cap is $2,000, which is 1 percent of the gross assessed value. Since the tax bill after LIT credits is $2,137, the homeowner gets a circuit breaker credit of $137 to bring the final bill down to the cap. That’s part of the tax that the homeowner doesn’t pay. It’s not reimbursed, so local governments lose that revenue.
That’s pretty complicated. Who thought this up? The answer: No one thought this up. It’s the product of 50 years of policy change. Over the years each substantial rise in property taxes resulted in new property tax relief, adding ever more deductions, credits and caps to the system.
Many of the proposals in the General Assembly for property tax reform this year would add more complications. But there is one proposal to simplify the system. House Bill 1402 would replace most of the deductions with simple fractions — two-thirds of gross AV for homes and one-third for rental housing and farmland. It would eliminate the LIT property tax credits and phase out taxes on business personal property.
These deductions would interact with the circuit breaker caps to limit the effective district tax rates to $3 per $100 assessed value — 3 percent. A $200,000 home would get a two-thirds deduction, $133,333, leaving a net AV of $66,667. Three percent of that is $2,000, which is the circuit breaker cap on this home. Any tax rate above $3 would simply increase circuit breaker credits, raising no additional revenue.
One thing this proposal doesn’t do is provide much immediate tax relief for homeowners. Since relief is a priority this year, these proposals would likely be amended before they could go forward. In other words, added complications.
The General Assembly’s session is scheduled to end on April 29. Until then, watch for your form TS-1 in the mail. Follow the steps and you’ll understand why your tax bill is so high. You may not like it, but you’ll understand it.
