A property tax report from Indianas nonpartisan Legislative Services Agency offers the good, the bad and the ugly from changes wrought by 2008s property tax overhaul. The ugliest effect is the inequitable distribution of tax-cap credits favoring owners of higher-priced homes.
Ideally, the report could serve as a guideline in creating a more equitable property tax policy, but the mad rush to enshrine tax-cap limits in the state constitution before their full effects were known most likely means Hoosiers are stuck with them.
Going forward, the report should inform the states overall tax policy. One good feature is that taxpayers appear to have more stability in their property tax bills. But a tax system perceived to be unfair is even more troubling than an unpredictable one.
Ninety-two percent of homeowners saw a lower tax bill in 2011 than in 2007.
The average homestead tax bill decreased by 30.3 percent.
Almost 20 percent of homesteads saw decreases of 50 percent or more.
The elimination of the homestead credit, phased out entirely last year, resulted in a 4.4 percent property tax increase in 2011.
Reductions in local credits contributed to large percentage increases in homestead tax bills in several counties, including Noble, Wabash and Wells.
Since the state switched to market-value assessments in 2002, bills due in 2011 were the first to show effects of a deduction in gross assessed value of property. It fell from 2009 to 2010 – apparently the effect of the recession.
Nine percent of tax levies for schools and local governments were lost to circuit-breaker tax caps in 2011, for a total of $616 million in lost revenue statewide.
Forty-two percent of the tax credits were for properties falling under the 2 percent tax-cap limit, which applies to rental property and second homes.
Property values reduced by the recession resulted in higher 2011 tax rates, while higher rates made more property owners eligible for tax-cap credits. Because the increase in credits exceeded the increase in the levy, property tax revenue decreased in some counties, including Allen County.
In addition to the statewide report, Allen County Auditor Tera Klutz prepared an annual property tax report that offers an interesting look at how the circuit-breaker credits play out. A breakdown by taxing district gives a clear picture of how the credits flow primarily to those areas with multiple layers of taxation and to property owners with more expensive homes. In the Leo-Cedarville taxing district, for example, a homestead property must be assessed at $279,710 before the circuit-breaker is triggered. Only 26 homeowners there received a credit for 2012.
By contrast, practically all Hoosiers are paying more as a result of the 2008 sales-tax increase of 17 percent that helped fund the property tax cut, a regressive policy that went into effect just as the full effects of the economic downturn were felt.
Some lessons emerge: While nearly all homeowners have realized a break since the property tax overhaul, the tax-cap credits have disproportionately flowed to owners of more costly properties. But the lost revenue for schools, libraries and other local units of government affects all Hoosiers, even those who didnt receive a tax credit.
The next time tax policy changes are proposed, lawmakers should be reminded of who came out ahead this time around.