INDIANAPOLIS – Audrey Thompson’s modest home on Woodspoint Circle in North Manchester used to cost almost $700 a year in property taxes.
So when this year’s tax bill came, the total due was surprising: zero.
“I couldn’t believe it. I was shocked. I kept looking at it. I took it to the bank to check, and they said it was right,” said Thompson, 85. “I don’t know how they did it … but I won’t look a gift horse in the mouth.”
Even more shocking is that virtually every person with a homestead in Wabash County paid nothing on that property year – about 3,400 taxpayers.
And through a quirk in the state law, hundreds of senior citizens in Wabash County might never have to pay property taxes again.
But Wabash County residents are paying nearly the highest local option income tax in the state to cover the extensive property tax relief.
“It’s very mixed. It depends on how it affects you personally – whether you are property-rich or income-rich,” Wabash County Auditor Jane Ridgeway said. “For many, it’s just a wash.”
The Wabash experience is one of the most significant since 2007, when the state allowed counties to choose from three local income tax options to reduce property taxes.
The first option shifts future operating levy growth to income taxes, and the second provides dollar-for-dollar reduction in property taxes. The third is a public safety fee that gives counties additional revenue for spending; it has been considered an incentive to adopt one of the first two instead.
A recent Legislative Services Agency analysis showed that only 22 counties have implemented the local option income taxes, with Wabash County having among the highest rates.
County officials there initially adopted all three options – giving them a total rate of 2.9 percent. The largest portion of the increase was the dollar-for-dollar relief, and the County Council decided to distribute half the relief to homestead properties and half to all other property taxpayers.
As a result, last year’s property tax bills showed several hundred homeowners receiving tax bills with nothing due.
But after the General Assembly changed the property tax system in 2008 to further aid homeowners, the result this year was that most Wabash County homeowners weren’t paying anything unless they owned some additional land or improvement, such as a pool or barn, not covered under the homestead deduction.
“That was never the intent to give so much property tax relief that it was zero,” said Ridgeway, who noted that all property owners are still receiving services.
She also said more than 300 senior citizens might never have to pay property taxes again. That’s because the local option income taxes have brought their bills to zero and a new circuit breaker that lawmakers implemented for the elderly prevents property tax bills from rising more than 2 percent a year (a 2 percent increase on a property bill of zero remains zero).
“We did go all out,” Mike Ridenour, Wabash County Council president, said. “One thing that I’ve learned is this is an undertaking we have to review every year.”
He noted that when the county adopted the taxes, legislators hadn’t yet moved forward with property tax caps or set up a supplemental homestead deduction. That meant homeowner bills dropped more than expected.
Last month, the council decided to drop the overall rate to 2.82 percent and change the distribution of the relief. Now 60 percent of the relief will be spread to all residential property – including rental units and second homes – and 40 percent will go to all property, including businesses.
“We found the people with rental properties were suffering quite a bit more than others and not realizing the savings,” Ridenour said. “Overall, some people pay more, some pay less, some break even. No one is telling us we are the bomb. But maybe no news is good news.”
Larry Curless, a 77-year-old retired farmer from Wabash, said he likes that the new system focuses more on ability to pay through an income tax.
“Back when I was actively farming, I could remember times when I had no profit, but I still paid a high property tax,” he said.
This year, his homestead property tax bill dropped to $322 – down from a high of $2,300 just a few years ago. The only reason he still had a bill is that he has excess land not covered under the homestead deduction and has several other improvements on his land.
But Curless was a net loser – paying more in income taxes than the property tax cut he received.
He thinks the County Council made an initial mistake giving too much relief to homeowners but thinks the council has corrected it this year by spreading it to other property owners.
“No one should be paying zero,” he said. “I think the County Council needs to be very astute.”
Andrew Berger, legislative director for the Association of Indiana Counties, said Wabash County has learned along the way that it is hard to hit an equitable balance. But he hopes other counties look at the benefits of the income tax increase and consider it in the future.
“I think county councils are kind of hesitant to raise an income tax for the same reason the state is hesitant to raise an income tax – they don’t want to put an additional burden on their citizens,” Berger said.
“If they felt that this year they can make do by trimming budgets that’s the first option in most cases. Next year … if the economy improves, they might be more willing to do that as part of a general shift from property taxes to income taxes. It’s such a local choice.”
