Larry DeBoer: Envelope from the county treasurer

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It was printed in bold letters on the front of the envelope. “Open Immediately. Property Tax Notice Enclosed.”

It was the annual property tax bill on my house. I remembered last year: a jump in my tax bill of 31%.

I tore open the envelope and found the page of numbers showing how my tax bill was calculated. The taxable assessed value of my home went up only 3% this year. Last year the increase was 35%. My tax rate went down by almost 5%. The tax bill is the assessed value times the rate. If my home value went up 3, but my tax rate went down 5, my tax bill should decrease by about 2%, right?

Wrong. My tax bill went up 10%.

This is pretty typical for Indiana homeowners this year. Statewide, taxable homestead assessed values rose 3.8%, the average tax rate fell by 0.5%, yet the average tax bill rose 6.6%. That’s much less than last year’s 17% tax bill increase. Still, how does the tax bill rise more than the assessed value when the tax rate goes down?

We can all answer this question for our own homes. Indiana provides a page of numbers with every tax bill showing how it’s calculated. You get the page even if your mortgage holder pays your taxes from escrow. Let’s take a look.

At the top of the page is the gross assessed value. That’s the assessor’s estimate of the possible selling price of my house. It rose 11% this year, close to the statewide average increase of 10.1%. Home values have been rising everywhere, and our market-value-in-use assessment system is capturing the increase.

Gross assessed value minus deductions is net assessed value, which is taxable. The General Assembly increased deductions for this year, to provide some tax relief. The $48,000 standard homestead deduction changed a little. The supplemental homestead deduction changed a lot. It was increased from 35% of the assessment after the standard deduction, to 40%. That’s why net assessments rose so much less than gross assessments.

The tax rate is a combination of the rates of the county, city, school district and the smaller units. Tax rates are recalculated each year by dividing the local unit’s tax levy by the total net assessed value within the government’s boundaries. Statewide, the levy rose 5.9%, total net AV rose 6.4%, so the average tax rate fell 0.5%.

This year the General Assembly restricted levy growth by cutting the growth of the maximum levy from 5 to 4%, and restricting growth of school referendum levies for operating costs to 3%. Last year the average levy increased 8.8%, an unusually large rise. The new restrictions helped limit that increase to 5.9% this year.

About two-thirds of the counties have local income taxes that provide property tax credits to homeowners. Some counties increased their LIT credits this year, which caused homestead tax bills to drop. My county left the credit about the same.

That’s the end of the tax bill calculation for homeowners where tax rates are lower. Those homeowners probably saw modest increases, or even decreases in their tax bills this year.

If the tax rate you pay is high enough, though, you’ll be eligible for a circuit breaker tax cap credit. The Indiana Constitution limits homeowner tax bills to 1% of the gross AV of the home, before deductions. The taxpayer gets a credit if the tax bill exceeds the cap.

My house is eligible for a tax cap credit. It dropped by 84%. Homestead tax cap credits fell 61% statewide. My tax bill went up, not down, because of the drop in tax cap credits.

The constitutional tax caps are based on gross assessed value. Tax bills are based on net assessed value. Deductions increased, so net AV grew much less than gross AV. That means the cap rose faster than the tax bill, so the credit needed to bring the tax bill down to the cap was much smaller.

The General Assembly gave homeowners a tax break, but for some, the Indiana Constitution took it back.

Larry DeBoer is a Purdue University agricultural economist whose column appears in Indiana newspapers. Send comments to [email protected].