General Assembly Property Tax Legislation

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House Bill 1001 
(signed by the Indiana Governor on March 24, 2006)

HB 1001 is primarily a residential property tax reduction bill. The Homestead Credit is increased for one year in 2006 from 20% to 28%. The standard Homestead Deduction is increased for one year in 2007 from $40,000 to $45,000. Beginning in 2007 for Lake County and 2008 for all other counties, HB 1001 also establishes a cap on residential property taxes equal to 2% of the assessed value of the residential property.

House Bill 1001
(signed by the Indiana Governor on May 13, 2005)

Ordinary Hoosier working families, particularly those who are homeowners and dine out, took a hit during the 2005 Indiana General Assembly session. We were skewered by the multitude of state lawmakers who voted for the Governor-supported House Bills 1001 and 1120. 

The HB 1001 budget bill includes the Property Tax increases listed next. These property tax increases overshadow the positive development of a 2% property tax cap for Lake County.

(a) $436 million over the next two years from placing a cap on the state's Property Tax Relief Credits (PTRCs) while providing PTRC funding equal to the amount paid in 2002 plus the revenue generated by one percent of the sales tax. NOTE: A February 17, 2006, E-mail from the Indiana House Republican Senior Fiscal Analyst states that "Current estimates reveal that the new cap will not be reached in 2006 (so no negative impact on property taxes).... because actual property tax levy growth has been slower than previously estimated!"

(b) School property tax increases of 1.2 percent the first year and 1.3 percent the second year for basic funding.

(c) One to 1.2 percent school property tax increases to provide textbooks to low-income students, recoup state cuts for transportation, and pay for utility and insurance costs.

(d) Lowered base assessed values for farmland will benefit farmers but shift property taxes to other property owners such as businesses and homeowners, especially in rural counties.

(e) Counties can issue bonds to be paid off with property taxes to fund about $100 million owed the state for housing juvenile offenders.

(f) $52.5 to $63 million in county levies this year to enhance and adequately fund services to protect abused and neglected children.

(g) A new rule requiring annual assessments of homes will increase 2007 homeowner property taxes between 8 to 11 percent.

Senate Bill 296 
(signed by the Indiana Governor on March 16, 2004 after passing the Indiana Senate 47-0 and the Indiana House 97-0)

The key provisions of Senate Bill 296 (SB 296) are effective January 1, 2005, and include the following:

• The property tax deduction for qualified individuals at least sixty-five (65) years of age increases from $6,000 to $12,480 assessed value (or no more than one-half of the assessed value of the real property).
• The property tax deduction for qualified blind or disabled individuals increases from $6,000 to $12,480 assessed value.
• The property tax deduction for qualified disabled veterans and surviving spouses increases from $12,000 to $24,960 assessed value.
• The property tax deduction for qualified rehabilitated residential property increases from $9,000 to $18,720 assessed value per dwelling unit.
• The property tax deduction for qualified rehabilitated historic (at least 50 years old) single family dwellings increases from $60,000 to $124,800 assessed value for five years.
• The property tax deduction for qualified rehabilitated single- to four-family dwellings in a residentially distressed area increases from a $96,000 maximum to a $199,680 maximum assessed value.

SB 296 does not provide sufficient property tax relief for Hoosier homeowners. The property tax reductions of those qualified persons receiving increased deductions are shifted to all property owners in the form of a higher property tax rate. 

Senate Bill 1  
(signed by the Indiana Governor on December 12, 2003)

The Indiana General Assembly concluded its special property tax session on December 5 by passing Senate Bill 1 (SB 1). SB 1 makes 24 changes to Indiana's property tax system. When analyzed from the perspective of all residential homeowners statewide, eleven of the 24 changes will likely decrease residential property taxes, one will redistribute the taxes, seven will indirectly affect the taxes, and five changes will not affect residential property taxes. 

SB 1 does not provide sufficient property tax relief for Hoosier homeowners.

Only one of the six causes of current and future residential property tax increases has been addressed. To help combat excessive levy increases by local taxing units, some measures have been enacted such as annual increase restrictions, using all extra property taxes collected to lower the next year's budget, approval of library board levies by an elected fiscal body, and a decrease in the number of signatures to begin the petition or remonstrance process against public building projects. However, SB 1 does not satisfactorily alleviate the following causes of property tax increases: (1) reassessment, (2) the so-called homestead credit calculation correction, (3) the K-12 school funding property tax increases in the current budget, (4) the 2004 manufacturing inventory tax shift, and (5) the 2007 shift of the entire inventory tax.  

When the General Assembly imposed the 20 percent sales tax increase (from 5% to 6%) effective December 1, 2002, a 16.3% decrease in the Pay 2003 property tax was promised to the average homeowner statewide AFTER reassessment. In other words, a $740 million increase in the sales tax was supposed to fund a $329 million DECREASE in residential property taxes. After the actual statewide effects of reassessment become known in a few months, it will be interesting to see just how far the General Assembly has fallen short of its residential property tax decrease promise.

The so-called homestead credit calculation correction reduced the General Assembly's promised property tax relief another $102 million. K-12 school funding property tax increases passed by the General Assembly this year will increase residential property taxes another $48 million. The 2004 manufacturing inventory tax shift will add $121 million to the homeowner property tax burden. Another $282 million will be paid by homeowners when the entire inventory tax is shifted in 2007.

The General Assembly must restore the property tax relief promised to Hoosier homeowners when its 2004 session gets underway next month.

Meaningful residential property tax relief occurs when homeowners pay less property tax without other taxpayers having to pay more in property or other taxes. In other words, property tax replacement credits paid by the state through spending decreases are necessary for meaningful property tax relief. Homeowners deserve the meaningful property tax relief that modest spending cuts can provide. For example, $400 million in property tax replacement credits can be provided if the state's current biennium budget is cut just 2.63 percent.  

New property tax replacement credits must be created to help vulnerable homeowners whose property taxes have increased the most.

Reassessment has resulted in property tax bills that increase dramatically for the owners of older homes in well-kept neighborhoods throughout the state (see the "stories"). Also, the inventory tax shifts in 2004 and 2007 will cause homestead property taxes to skyrocket in those 40 townships that pay 80% of the total business inventory tax (the counties that will be hit hardest include Adams, Cass, DeKalb, Delaware, Elkhart, Jackson, Knox, Lake, Montgomery, and St. Joseph). In particular, older Hoosiers on fixed incomes and disabled homeowners may have to give up their homes because property tax increases limit the medicines or food they can afford.  

Decisions regarding the elimination of property taxes must not be delayed.

Following next are (1) a spreadsheet listing the statewide residential property tax effects of SB 1 and (2) a description of each of the 24 SB 1 changes analyzed from the perspective of all residential homeowners statewide.

SB 1 Changes That DECREASE Residential Property Taxes

Installment Payments of Property Taxes: Under certain circumstances, the county treasurer may petition the Department of Local Government Finance (DLGF) to establish a schedule of installments with respect to one or more classes of real property for the payment of property taxes.

Waivers of Late Penalties: Under current law, if an installment of property taxes is not completely paid on or before the due date, a penalty equal to 10% of the amount of delinquent taxes is added to the unpaid portion. This bill allows the DLGF to accept waivers of penalty payments for property taxes on real property for which a general reassessment or an annual assessment adjustment caused a tax increase from the preceding year of a percentage determined by the county treasurer.

Maximum Tax Rates: After a general reassessment (or an annual AV adjustment beginning with taxes paid in 2006), the increase in assessed value can cause an increase in certain levies or appropriations if they continue to be based on the unadjusted maximum statutory rate. This bill would result in an adjustment to each of these maximum tax rates so that the available levy or appropriation would be unaffected by changes in AV due to reassessment. These levies and appropriations would continue to grow by actual added property value. The bill includes language to adjust the 2003 base rate as if this bill was in effect for 2003 taxes.

Maximum Levies: Under current law, a civil taxing unit's maximum permissible levy grows each year by the six-year average increase in Indiana nonfarm personal income. The annual increase is limited to 6%, although a taxing unit may appeal to the state's Local Government Property Tax Control Board for a larger increase in the maximum levy if the unit's AV growth is 3% greater than the statewide average growth in AV. This proposal would change the calculation for the maximum levies of units, the Family and Children Fund, and the Children's Psychiatric Services Fund. Beginning in 2004, these maximum levies would be based on the previous year’s actual levy (subject to the maximum levy) rather than the maximum levy itself. This change removes the previously unused portion of maximum levies and eliminates any "banking" of unused levy authority in the future. In addition, this bill clarifies current statute that the school transportation maximum levy computation begins with the previous year’s certified levy as opposed to the previous year’s maximum levy. However, the actual levy would not be reduced below 2003 levels.

Certified Assessed Value: Under current law, the county auditor may keep the AV of certain property in bankruptcy and assessments under appeal separated from other property on the tax duplicate. This AV is not considered in the county auditor’s certification of AV for use in fixing tax rates. When assessed value is removed from the AV certification, the tax rate is increased in order to generate the desired certified levy. This bill would remove county auditors’ authority to reduce the certified AV to compensate for appeals. The inclusion of AV that is successfully appealed would cause some tax rates to be set too low, resulting in tax shortfalls. However, the bill also allows civil units and school corporations to seek an excessive levy in the following year to compensate for shortfalls caused by successful appeals.

Appeal Process: Provides that the initial step in the appeal of property assessment is a written request by the taxpayer for a preliminary conference with a county or township assessing official. The written request need not be on a DLGF form. Notwithstanding a property assessment agreed to by the township assessor and the taxpayer in resolution of an appeal to the county property tax assessment board of appeals, the bill permits the board to determine its own assessment under its authority to assess property for the current year. The bill allows, for the assessment years 2002, 2003, and 2004, an appeal of a real property assessment that is filed within 45 days after a taxpayer receives the notice of change in assessment or the related tax bill, whichever occurs first, to apply to the taxes imposed for that assessment date and payable in the next year even if the appeal is filed after May 10 of the assessment year.

Elimination of Appeal for Alternate Use of CAGIT PTRC: Eliminates the property tax appeal provision that permits local units to reallocate CAGIT property tax replacement credits for a purpose other than property tax relief.

Levy Excess Fund: Under current law, if the actual property tax distribution exceeds the certified levy, a local unit may retain an amount equal to 2% of the certified levy in the fund and deposit the amount over 102% of the certified levy in the Levy Excess Fund. The DLGF may require a civil taxing unit to include the amount in the Levy Excess Fund when setting the unit’s budget. The bill requires the total amount of actual property tax distributions that exceed the certified levy to be deposited in the Levy Excess Fund and requires the unit to use the amount in the Levy Excess Fund when setting the unit’s budget.

Validating Actions Taken by the Department of Local Government Finance: Legalizes and validates any action taken by the DLGF before January 1, 2004, to extend the deadline for filing an assessment appeal to the county, to allow the payment of property taxes in installments, or to waive a late payment penalty.

Deduction/Credit Filing Extension: Extends the deadline from May 2003 to December 15, 2003, to file an application to receive a Homestead Credit, $35,000 Standard Deduction, Mortgage Deduction, Aged Deduction, Blind/Disabled Deduction, and Veterans Deduction in 2004. Allows a person who acquires property after March 1, 2003, to file for and qualify for the Homestead Credit and deductions.

Homeowner's Property Tax Deduction: Would increase the maximum allowable homeowner’s property tax deduction under the Adjusted Gross Income (AGI) Tax in tax year 2004 only. The increase in the maximum allowable deduction would apply only to homeowners who pay any or all of their 2002 Pay 2003 property taxes in 2004. Under the bill, for tax year 2004 AGI taxes, a taxpayer would be entitled to a maximum homeowner’s property tax deduction equal to the sum of (1) and (2): (1) A maximum deduction of $2,500 for 2003 Pay 2004 property taxes. (2) A maximum deduction for the portion of 2002 Pay 2003 property taxes paid in 2004 based on the formula [(2002 Pay 2003 property taxes paid in 2004)/(2003 Pay 2004 property taxes)]$2,500.

SB 1 Change That REDISTRIBUTES Residential Property Taxes

Three Appraisal Methodologies for Rental Properties: Requires the property tax liability payable in 2006 and thereafter on residential rental properties that have more than 4 rental units to be computed using the lowest assessed valuation determined by applying each of the following appraisal techniques: (1) cost approach; (2) sales comparison approach; and (3) income capitalization approach. Provides that the gross rent multiplier method is the preferred method for valuing rental properties that have fewer than 5 rental units and mobile homes.

SB 1 Changes That INDIRECTLY AFFECT Residential Property Taxes

Bond Bank Investments: Would allow the State Treasurer to invest state funds in certain Indiana Bond Bank (IBB) obligations which are secured by tax anticipation time warrants or notes. The short-term investment of state funds in IBB obligations would help reduce the cost of issuing additional rollover funding for the local units of government who are unable to repay their current loans by December 31, 2003. Potential investment of state funds include funds in the Common School Fund, the Public Depository Insurance Fund, and any other fund under the authority of the State Treasurer.

DLGF Takeover of Assessment: Authorizes the DLGF to take over the 2003 general reassessment process (including the equalization study) in a county if the county's equalization study was not submitted to the Department before October 20, 2003, or if the DLGF determines that the county's reassessment is likely to be inaccurate.

Approval of Appointed Library Board Levies: With respect to the review of budgets and levies of taxing units that have a governing body comprised primarily of appointed members and propose to increase their property tax levies by more than 5%, the bill adds library districts to the entities subject to review by an elected fiscal body and authorizes reduction of the proposed levy to an amount that is less than the maximum permissible levy.

Qualifications of Assessors: Provides that each county assessor and each elected assessor who has not attained a Level II certification must employ a Level II assessor-appraiser. Each elected county assessor, township assessor, or elected trustee-assessor must attain Level I certification within one year after taking office and attain Level II certification within two years after taking office. A person who does not comply with this requirement forfeits the assessor's or trustee-assessor's office.

Assessment Software: Requires the DLGF to study the feasibility of creating uniform and common computer software programs for property tax assessment purposes, including computer software programs that allow the sharing and transfer of assessment data in a uniform format by the state and all counties.

Petition and Remonstrance: Requires the State Board of Accounts to design a standard form of the petition that is used to initiate the petition and remonstrance procedure. The bill provides that the petition requires the signatures of the lesser of 100 or 5% of the property owners in the political subdivision (instead of 250 or 10%). It also does not allow a political subdivision to promote a position on the petition or remonstrance by (1) allowing facilities to be used to promote a position unless equal access is provided to the opposition, (2) make expenditures from a fund controlled by the political subdivision except to explain the project, and (3) use employees during normal working hours or paid overtime.

Property Tax Study: Requires the Commission on State Tax and Financing Policy (CSTFP) to study the elimination of property taxes as a source of funding for local government services along with alternative sources of revenue that might be used to replace property taxes. The study is to be completed no later than December 31, 2005. The CSTFP is a statutory commission which consists of five members. The CSTFP is staffed by the Legislative Services Agency.

SB 1 Changes That DO NOT AFFECT Residential Property Taxes

Electronic Submittal of Sales Disclosure Forms: Provides that after December 31, 2004, the sales disclosure forms and data forwarded by local assessors to the DLGF and the Legislative Services Agency must be provided in electronic format.

Automatic Refunds for Successful Appeals: The county auditor must determine the amount of the refund for successful assessment appeals without the taxpayer having to file a claim and without the board of county commissioners having to allow the claim.

Provisional Property Tax Statements: For the 2003 pay 2004 assessment, the county treasurer may use a provisional statement based on 90% of tax liability if the county auditor fails to deliver the abstract before March 16 of the year following the assessment date. The county treasurer must give notice of the provisional statement by publication in a form prescribed by the DLGF. The county auditor or 50 property owners may request that the DLGF waive provisional tax statement requirements for a particular assessment date.

Taxpayer Notice of Tax Relief: The DLGF would be required to provide to each county a statement containing the amount of additional 2004 property tax that the average homeowner in the county would have paid without the tax mitigation measures enacted by the General Assembly. The DLGF must do this by February 25, 2004.

Special Masters: The taxpayer may appeal a determination of the DLGF to the Indiana Board of Tax Review. The Board may develop a form for petitions that outlines the appeal process. The Board may contract with, appoint, or otherwise designate special masters to conduct evidentiary hearings and prepare reports. The special masters must set a hearing date, give notice of the hearing, and mail to the taxpayer, the DLGF, the township assessor, and the county assessor. At the hearing the township assessor and the county assessor may attend.

House Bill 1001 (SS) 
(as passed by the Indiana General Assembly during its special session on June 22, 2002)

An assessment of the homeowner property tax Pros and Cons for HB 1001 (SS) is listed next.

House Bill 1001 (SS) PROS:

1. The homeowner property tax deduction increases effective 01/01/03 from $6,000 to $35,000 (the deducted amount will be the smaller of 50% of assessed value or $35,000) so the shelter allowance can be eliminated.
2. The school general fund property tax replacement fund credit increases from 20% to 60% effective 01/01/03.
3. The homestead credit increases to 20% (after property tax replacement credits are applied) effective 01/01/03. The homestead credit percentage would have changed from 10% to 4% on 01/01/04.
4. Property taxes will decrease. The pay 2004 property tax decreases (after the 2002 reassessment) are estimated to be 13.2% for agriculture, 12.8% for homeowners, 21.4% for commercial, 26.3% for industrial, and 28.8% for utility.
5. The renters deduction increases 25% (from $2,000 to $2,500) effective 01/01/04.
6. State general spending increases are limited to 3.5% annually for fiscal years 2004 and 2005. Beginning with the 2006 fiscal year, spending increases are limited to the lesser of the six-year average increase in Indiana non-farm personal income or 6%. The Indiana non-farm personal income average increase from 1995-2000 was about 5.06%. The spending limit is applied to appropriations from the general fund, the property tax replacement fund, and the rainy day fund. The spending limit can be increased or decreased to account for new or reduced taxes, fees, exemptions, deductions, or credits adopted after 06/30/02.

House Bill 1001 (SS) CONS:

1. The business inventory tax will be shifted to all other property taxes through an increased rate. Manufacturing inventory (the 30% of total business inventory assessed value used in the production of finished goods that would qualify for an interstate commerce exemption) will be exempt from property taxes paid in 2004, 2005, and 2006. The shift to all other property taxes will be about $72.4 million in fiscal year 2004, $148.0 million in FY 2005, and $154.6 million in FY 2006. There will be a 100% business inventory assessed value deduction beginning with property taxes paid in 2007. The shift to all other property taxes will be about $354.2 million in FY 2007 and $562.9 million in FY 2008. About 51.8% of the business inventory tax shifts will be to homestead property. It is interesting to note that about 40 townships account for 80% of the total business inventory tax; homestead property taxes in these townships are likely to skyrocket!
2. Each county may provide a 100% business inventory assessed value deduction for property taxes paid in 2004, 2005, and 2006. Those counties that provide the 100% inventory deduction must use the county economic development income tax (CEDIT) for additional homestead credits. The CEDIT, COIT/CEDIT, and CAGIT/CEDIT rate caps can be exceeded by 0.25% in these counties. These counties that provide the 100% inventory deduction can continue the CEDIT after 2006 for additional homestead credits. If all counties start providing the 100% inventory deduction in 2004, the business inventory tax shift to all other property taxes will be about $241.2 million in FY 2004, $493.2 million in FY 2005, $515.5 million in FY 2006, $538.6 million in FY 2007, and $562.9 million in FY 2008. The effect of a county using the CEDIT for additional homestead credits is to shift some of the business inventory tax to the individual income tax instead of other property taxes.

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This page was last updated on 03/19/10 .