Property Tax Assessment Issues

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The foundation for genuine property tax relief is the 1% homeowner property tax cap amendment to the Indiana Constitution that is included in Senate Joint Resolution 1.

The 1% homeowner property tax cap will enable Hoosier working families to reasonably predict their property taxes so they do not become an unaffordable burden that could lead to the loss of the family home. The 1% cap ends the legacy of failure where (1) we suffer permanent tax increases for temporary property tax relief and (2) property tax caps disappear.

Reasonable property tax predictability is important to Hoosier working families. Recent General Assembly actions have played havoc with the ability of some homeowners to reasonably predict their property tax burden. Legislation passed by the General Assembly the past six years that (1) limited property tax relief, (2) eliminated inventory taxes, and (3) led to the improper assessment of business property caused homeowner property taxes in some urban areas to leap up 100%, 200%, even 300%.

There are those who question the importance of the 1% homeowner property tax cap because the cap is based on the gross assessed value of the homestead property, which is allowed to fluctuate. Homeowner property tax assessments will likely CREEP UP over time, but these assessment increases BY THEMSELVES are NOT expected to cause homeowner property taxes to LEAP UP. In other words, the 1% homeowner property tax cap in SJR 1 is the foundation for genuine property tax relief even if homeowner property tax assessments increase because of market value increases.

It is easy to understand the skepticism of those who think the General Assembly will erode the property tax relief delivered by the 1% homeowner property tax cap by allowing homeowner assessments to increase significantly in relation to business assessments. A review of recent property tax history both explains this skepticism and shows that the skepticism is misplaced.

For many years, Indiana homeowners benefited from the underassessment of residential property compared to business property; therefore, businesses shouldered the majority of the tax burden and allowed homeowners to benefit from reduced property tax liability. However, in 1998, the Indiana Supreme Court ruled the state had to change the implementation of property tax assessment. The State Board of Tax Commissioners determined that the best way to implement the Supreme Court's decision was to adopt a market value-in-use system of assessment. A market value-in-use system differs from the more widely accepted market value assessment, in that all property is to be assessed, not at its "highest and best" use, but at its "current" use. The market value-in-use system allows farmers to pay property tax on their land, based on its use as farm land, rather than its potential use as residential, commercial or industrial development.

The 2002 reassessment was based on 1999 market values and the first time the market value-in-use system of assessment was used. Many homeowners experienced dramatic property tax increases, especially those with well-maintained older homes that had lower assessments for many years. The prior system failed to take into account remodeling and rehabilitation of older properties.

Additionally, 2006 was the first year of a process known as "trending." Trending is a refinement of the property tax assessment system adopted by the General Assembly that requires assessors to update assessments annually based on the appreciation or depreciation of property values. Trending for 2006 reflects changes in value for the years 1999 through 2005. By all accounts, this six year period resulted in substantial appreciation of residential property.

If homeowner property taxes have increased, have business property taxes also increased? Yes, in most cases. However, some business property tax assessments were incorrect. Under regulations adopted by the Department of Local Government Finance (DLGF), assessors are to use sales data to implement trending. Assessors usually have sufficient sale data to trend the assessment of residential property. Business property usually does not transfer as often as residential property, making adequate sale data more difficult to obtain. In addition, in many urban areas in the state, the market value of industrial properties has probably depreciated, rather than appreciated, in the time period between 1999 and 2005, because of factory closings and layoffs. However, the DLGF ordered reassessment in several counties that resulted in assessment increases of commercial and industrial property because of improper trending.

To conclude this review of recent property tax history, the 2002 and 2006 reassessments covered several years each and resulted in significant homeowner assessment increases because of the market value and trending changes. An important development has been the increase in business property assessments in some urban areas. Going forward, homeowner assessments will fluctuate much less because of the market value trending that will take place EACH YEAR. It is inaccurate to assume future homeowner reassessments will continue to increase at the rate of recent past reassessments.

There are seven keys to genuine homeowner property tax relief: (1) control local government spending, (2) elect 2009 General Assembly members who will pass SJR 1 again in 2009, (3) elect a Governor in 2009 who will sign SJR 1, (4) pass the SJR 1 constitutional amendment at the polls in 2010, (5) continue without change the annual market value-in-use trending of assessments, (6) support DLGF-directed efforts to consistently assess property throughout the state, (7) keep business property assessments from declining to artificially low levels.

The 1% homeowner property tax cap in SJR 1 is not by itself the property tax "solution." Watchdog Indiana will continue to push for property tax reform where the property tax paid by individual income tax payers is eliminated and replaced by variable local income taxes. However, SJR 1 is a necessary first step along the way to meaningful reform.

SJR 1 must again pass in the General Assembly in 2009 to put the 1% constitutional homeowner property tax cap amendment on the 2010 ballot. We the people can then vote to make the 1% homeowner property tax cap a permanent part of the Indiana Constitution.

Job #1 for Taxpayer Friendly legislators will be to pass Senate Joint Resolution 1 during the 2009 General Assembly session.

A General Assembly candidate who pledges to vote for Senate Joint Resolution 1 in 2009 is a public servant who is part of the property tax relief solution.

A General Assembly candidate who does NOT pledge to vote for Senate Joint Resolution 1 in 2009 is a messenger for the property tax spenders and is part of the property tax burden problem.

This page was last updated on 08/26/08 .