Popcorn & Property Taxes
Schuckit & Associates
October 10, 2007
Local Government Structure
• Proliferation of local officials performing
• Prosecuting Attorney
• Board of Commissioners – 3 with
• 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
• 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.
• 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
• Tax Court rejected the defense.
• 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
• 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.
• 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
• 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.
• 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
• 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
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
– 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.
• 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 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.
• 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
Real Reform Based on Facts
• Eliminate property tax? Be careful what
you wish for:
– Property tax has been stable form of funding
– All 50 states have property tax
– Often, the only tax that businesses pay
– One of the three legs of taxation stool
• 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