Popcorn Property Taxes

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					Popcorn & Property Taxes

        Beth Henkel
    Schuckit & Associates
      October 10, 2007
   Local Government Structure
• Proliferation of local officials performing
  overlapping functions.
         Constitutional Offices
•   Clerk
•   Auditor
•   Treasurer
•   Recorder
•   Prosecuting Attorney
•   Sheriff
•   Coroner
•   Surveyor
         Legislative Entities
• Board of Commissioners – 3 with
  executive power
• County Council – 7 – as legislative
  – Unique to Indiana
  – Instituted in late 1800s as watchdog over
    excesses & corruption
  – Fiscal powers
• 92 county assessors
• 1008 local assessors
 Local Government Home Rule
• In many other states, local government
  units have restricted powers.
• In Indiana, under the Indiana Home Rule
  Act, units have:
  – all powers granted it by statute; and
  – all other powers necessary or desirable in the
    conduct of its affairs, even though not granted
    by statute.
                Home Rule
• Indiana’s Home Rule statute limited,
  – No fiscal home rule.
  – No municipal charters
  – Incorporation laws provide strict structures.
• Constitution’s elected officials limit reform
 Indiana’s Property Tax System
• Early 20th Century, market value system in
• 1960s = departure – to a cost based
• True tax value did not equal market value.
      Evolution of New Rules of
• It was whatever the State Tax Board
• Land was always valued, allegedly, at
• Improvements assessed differently:
  – Reproduction      cost    of    property     less
  – Actual sales price of property irrelevant.
          Systemic Change
• 1998-2002 --Tax Court and Supreme
  Court ruled that the old system was
  unconstitutional because it assessed
  property on reproduction costs less
  depreciation rather than “real world
• In 2002, Indiana joined 48 other states and
  adopted market-based assessment
  Supreme Court Guidance
(1) The assessment system must measure
    taxpayers’ property wealth.
(2) Based on objectively verifiable data to
    enable a review of the assessment system
    to ensure uniformity and equality . . . .”
(3) One acceptable deviation from strict market
    value is “value in use.”
          Dragging the Feet
• Legislature postponed reassessment.
• Governor postponed.
• Why? The effect on homeowners –
  predictions that tax burden would rise by
  more than 30%.
• 2000– Judge Fisher orders new rule in
  place by June 2001 and reassessment
  under constitutional rules as of March 1,
        Market Value in Use
• The new rules focus on the ultimate value
  and whether it accurately measures the
  value in use of a particular parcel of
• Most often value in use = sale value
• Focus is on the bottom line: Sales price.
          The Bottom Line
• Question you should ask yourself when
  you get your assessments: Would I sell
  my house/business for that?
• More an art than a science
• Opinion-based -- still subjective
• Actual sales of comparable property
  provide the benchmark.
   Why Older Homes Were Hit
• Old system valued Victorian home based
  on its cost to reproduce – but depreciated
  the value substantially.
• In defending the old system, the State
  pointed out the costs associated with
  rehabbing such homes and maintaining
  their value.
• Tax Court rejected the defense.
     Rehabilitation Deduction
• Form 322 (IC 6-1.1-12-18 to 21)
• This deduction is for 100% of the increase
  in assessed value due to rehabilitation, up
  to a maximum of $ 18,720 per dwelling
  unit. The deduction runs for five (5) years
  from the increase in assessment.
• Useful for rentals.
• Low assessed value limit = $37,440 for
  single family.
           Older Home
      Rehabilitation Deduction
• Form 322A
• Deduction for up to 50% of the increase
  due to rehabilitation.
• Up to max of $124,800 for single family
• Building must be at least 50 years old
  before the date of application.
• Minimum price for rehab = $10,000.
        Annual Adjustments
• Sounded like a good idea
• Avoiding real property “sticker shock” in
• Moving up valuation dates.
• Reassessment a continual process.
• Professionalize the assessment process.
 Effect of No Annual Adjustments
• Reassessments could be as long as 10
  years apart.
• In between, real property values stayed
  the same while personal property updated
• Effect =
  – shift of tax burden to business
  – “sticker shock” in year of reassessment.
  Straightforward Components
• Bring benchmark date to 1/1/05.
• General rules:
  – Verify 2004 and 2005 sales.
  – Perform statistical analysis and ratio studies
    for each township and property class.
• Update real property values based on
  sales of comparable property.
  Legislative Changes that Fueled
            Perfect Storm
• Inventory off the tax rolls – 51 counties this
• Balanced state budget in part by freezing
  state support of property tax
  – Reduced PTRC
  – Reduced homestead credits.
• Legislature relied upon incomplete and
  inaccurate data.
 Perfect Storm: Homestead Credit
• Reduction in homestead credit from 28% to 20%
• Not offset by increase from $35,000 to $45,000
  in homestead deduction.
• 28% decline in homestead credit
• Hit homeowners with assessed values under
• Homestead deduction increase only benefited
  those whose houses were assessed at >
     Perfect Storm: Trending
• Trending real estate values from 1999 to
  – General trend statewide to increase
    residential property.
  – Counties’ did not trend as State predicted.
  – Industrial decline
  – Insufficient sales for commercial property.
Perfect Storm: Unequal Impact
• Rates vary within the county
• But even within taxing districts, these tax
  policies result in disparities.
           Unequal Impact
• Chart depicts tax changes from 2006 to
  2007 in Franklin taxing unit.
  – $100,000 home, 20% increase in assessed
    value, sees 27% increase in taxes.
  – $150,000 home, 20% increase in AV, has
    37% increase in taxes.
  – $70,000 home, 20% increase in AV, has 54%
    increase in taxes.
      Local Spending Issues
• Property tax is perceived as local tax
  funding local services
• More than 50% of taxes go to fund
• County and local government saddled with
  unfunded mandates:
  – Welfare
  – Unfunded pension liabilities
      Local Spending Issues
• State controls levies, not rates
• Debt, capital projects, welfare, and some
  funds outside the levy controls
• State support – PTRC and homestead –
  does not apply to excluded levies.
• No oversight entity that places effective
  controls over impact on taxpayers.
          Reform Measures
• Tension between state and local control
  – Municipalities are not all the same
  – Property tax changes have had disparate
  – One size changes do not fix the problems
• Declining and shifting tax base
  – Elimination of inventory
  – Change from manufacturing to services
    oriented economy
  Real Reform Based on Facts
• Eliminate property tax? Be careful what
  you wish for:
  – Property tax has been stable form of funding
    local services
  – All 50 states have property tax
  – Often, the only tax that businesses pay
  – One of the three legs of taxation stool
             Real Reform
• Intergovernmental partnerships unraveling
• Needs are changing
• Unregulated, unsustainable growth
• Need for users of services to pay fair
• Changing economy from manufacturing to
  services and knowledge-based industries
• Need for regional tax base vs. turfdom