OCTOBER
2009

 

By
Larry DeBoer
 
Professor of
Agricultural Economics
Purdue University

Visit Larry DeBoer's Indiana Local Government Information Web site

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10-22-09

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What Your Tax Bill Tells You


I was excited to find my property tax bill in the mail last week. Actually, it said, "not a bill" in big letters across it--the real bill went to my bank. But it included all the information on the bill, and that's a lot of information.

At the top is the gross assessed value of my house, for 2007, 2008 and 2009. This is the assessor's prediction of what my house would bring if I sold it. Maybe a little high, but close. It went up 4 percent in 2008, then back down 2 percent in 2009, because of trending. The assessed value is adjusted each year based on the sales prices of houses in my neighborhood.

Next subtract deductions. My house is a homestead, because it's occupied by its owners (my wife and me), and it's our primary residence. Homesteads get the $45,000 homestead standard deduction and the supplemental standard deduction, which is 35 percent of what's left. The supplemental deduction is new, created by the 2008 tax reform. The taxable assessed value of my house is about half the gross assessed value, and it's 37 percent lower in 2009 because of that new deduction.

Then comes the local property tax rate, which is the sum of the rates of the county, township, city, school corporation, library district and special districts where my house is located. It's 25 percent lower in 2009. The rate went down so much because the state took over the school general fund, the county welfare funds and several smaller funds as part of the big tax reform. These government functions are no longer paid for with property taxes but supported by the state budget. The sales tax increase to 7 percent back in April 2008 helps pay for the added state spending.

The tax rate times the taxable assessed value is the gross tax liability. Since both my assessed value and the tax rate are way down, my gross tax bill is down 53 percent. But don't start the party yet.

Credits must be subtracted. Big changes here. On my bill, state tax credits increased 60 percent in 2008 and then dropped 95 percent in 2009. The tax reform applied a temporary homestead credit in 2008 as a transition to the new system, which eliminated those tax levies. Most state credits disappeared in 2009. The money that the state used to fund these credits was switched to support the school general fund and county welfare payments.

My house isn't eligible for a tax cap credit. In 2009 the maximum tax I could owe under the tax caps is 1.5 percent of gross assessed value. That's way higher than what I actually owe. Homesteads get so much in deductions that very few need a credit to bring the tax bill down to the capped level.

After all these calculations, my house saw a tax cut of 29 percent in 2008 and another cut of 3 percent in 2009.

My house is pretty typical, according to research results by the General Assembly's Legislative Services Agency. Homestead taxes fell by about a third statewide in 2008 and fell another 4 percent or so in 2009. And only 3 percent of all tax cap credits went to homeowners. You can see these results at http://www.in.gov/legislative/publications.

The research also shows that most homeowners saw substantial tax reductions in 2008, but the experience in 2009 was all over the map. For my house, the tax cuts from the new deduction and levy takeovers were almost offset by the loss of all those state credits. In counties where credits were high in 2008, their loss created tax increases for homeowners in 2009. In counties where 2008 credits were low, homeowners saw further tax cuts in 2009. Statewide, more than 90 percent of all homeowners saw lower property taxes in 2009 than in 2007. That's why the tax bills show all three years so homeowners can compare 2009 to 2007.

Of course, my property tax bill doesn't tell me how much more I'm paying in higher sales taxes. And it doesn't say how much more I'd be paying if my house was a rental, not a homestead (the answer: more than double). It tells me a lot about changes in state tax policy. But not everything.

 

 

Writer: Larry DeBoer,
Editor: Olivia Maddox,