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12-24-03
Getting It Right
I went to a meeting yesterday. A man talked about ratios and coefficients,
distributions and logarithms. It was very dry. But, if Indiana is going
to have a property tax system that works, it will be very important. It
was a meeting of the Indiana Property Tax Equalization Study Steering
Committee. Here's what it is doing and why.
In December 1998, the Indiana Supreme Court decided that Indiana's assessment
rules were unconstitutional. We're trying to make the rules right is by
using market value, which means assessing property at its predicted selling
price. The difficulties we're having now are the result of these new rules
and the short time the court allowed for applying them.
Once we work through our current troubles, though, we've got a chance
to have an assessment system that's better than it was. Research on property
assessment reveals that states that try to assess property at 100 percent
of selling price have more uniform assessments than states that use other
standards.
Uniform means that property is assessed correctly, consistent with the
standard. Since the standard is the predicted selling price, uniformity
means that most assessments are equal to the selling prices, or are pretty
close.
Here's why market value promotes uniformity. The assessment is a prediction
of selling price. Most property owners have some idea of what their property
is worth. They can tell whether the assessment is correct, or at least
close. If the assessment looks like the potential selling price, it's
right. If it doesn't, it's wrong.
Suppose the assessment is too high. You know it's too high if you're
tempted to shout at the assessor, "Find me a buyer who will pay that
much, and I'll sell it right now!" If that happens, the taxpayer
can appeal. Successful appeals fix assessment errors. They also pressure
assessors to improve their methods to reduce the number of appeals in
the future. Both results make assessments more uniform.
But what happens if an assessment is too low? You look at the assessment
and say, "I'd never sell this property for that!" You say it
in a whisper, though. Even the most public-spirited property owner can't
be expected to appeal an assessment because it's too low.
That's where the equalization study comes in. The Department of Local
Government Finance (DLGF) has hired some experts to look at assessments
in Indiana counties and figure out where assessments are correct and where
they aren't. They do this by comparing the prices of properties that have
sold to their assessments. If the prices are close to the assessments
for most properties, then the assessor has done well.
If the assessments are too low for a lot of properties, though, the study
will find out. Then DLGF could take some action. It might be friendly
action, like helping local assessors improve their methods. It might be
not-so-friendly action, like ratcheting up the assessments of classes
of property that are assessed too low.
Property owners with low assessments might think that the equalization
study will work against them. Maybe, but maybe not. What happens if most
property in a county is assessed too low, but your assessment is not quite
as low as your neighbors'? Then your tax bill is too high, but you won't
know to appeal, because your assessment is less than market value. The
equalization study should identify places where property is widely under-assessed.
Farmers have a big stake in the equalization study. That's because farmland
assessment rules are so simple that farmland is hard to under-assess.
Farmland assessment starts with a $1,050 base rate per acre, adds an adjustment
for soil type and subtracts a percentage if the land is not tillable.
And that's it. If farmland is assessed correctly, while other property
is assessed low, farmers will pay higher property taxes than they should.
The equalization study is needed to find those problems, and DLGF needs
to act on the information.
Appeals from taxpayers--and oversight from DLGF--based on the equalization
study. That's how we'll get a good property assessment system.
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