Larry DeBoer
Professor of
Agricultural Economics
Purdue University

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Where's the Tax Relief?

Half of Marion County homeowners saw property tax increases in 2003, and one out of seven saw their taxes rise by 50 percent or more. Things were worse in Adams County, where two-thirds of all homeowners saw increases, and nearly one-fifth had increases of 50 percent or more. Yet, we all heard that tax restructuring was supposed to deliver property tax relief. Homeowners in Marion and Adams counties and elsewhere may be asking their legislators, "Where's the tax relief?"

We can find it if we do the arithmetic. Let's do an example. Take a house in Kokomo that could sell for $120,000. Suppose that under our new market value system the local assessor nails it right at 120. But suppose it's one of those well-maintained older homes with an assessment that tripled. In 2002, it was assessed at $40,000.

Last year, the tax bill was $755 for the year. This year, it's $1,229, a 63-percent, $474 tax hike. Ouch! Where's the tax relief in that?

First, it's in the homestead exemption. For last year's taxes, the exemption subtracted $6,000 from the assessment of the home before the tax rate was applied. This year, it subtracted $35,000. Subtract the $3,000 mortgage exemption, too (it's unchanged), and the taxable assessed value was $31,000 last year, $82,000 this year.

If we'd gone to market value assessment -- as the courts ordered -- without the increase in the homestead exemption, in 2003, $111,000 would have been taxable.

Now, the tax rate. Rates come down with reassessment, because state tax controls keep the revenue collected from rising as much as assessed value. In 2002, the rate was about $3.32 per $100 assessed value; in 2003, it's about $2.62. Multiply the tax rate by the taxable assessed value to get the gross tax on the house. That's $1,029 in 2002 and $2,148 in 2003.

Without tax relief, the 2003 rate would have been lower, because everyone's homestead exemption would have been smaller. The rate is the total revenue divided by the assessed value, so if assessed value is bigger, the rate is smaller. It's a guess, but the rate might have been about $2.35 without the increase in the exemption. The gross tax on our Kokomo home would have been $2,609.

We're not done yet. Homeowners also get tax credits. One is called the PTRC, for property tax replacement credit. In Kokomo, in 2002 the PTRC reduced the gross tax by 16.6 percent, $171 for our homeowner that year. This year, the PTRC is worth 32.8 percent, which is $705 for our homeowner.

That's where a lot of the increased sales and cigarette taxes are going, to fund this higher credit. The General Assembly agreed to pay 60 percent of every school corporation's general fund property tax levy, and that shows up in a higher PTRC rate. If the rate had remained at 16.6 percent in Kokomo in 2003, the homeowner would have seen his tax bill reduced by only $433.

Most homeowners also receive the homestead credit, which was 10 percent of the gross tax in 2002, and is 14.9 percent of the tax after PTRC in 2003. That was worth $103 in 2002. It's worth $215 in 2003.

The Indiana Legislature increased the homestead credit rate with tax restructuring but changed the way the rate is applied. It's now worth more to some taxpayers, less to others. Had it remained 10 percent of the gross tax in 2003, the homeowner would have seen a $261 credit.

Now add it up. The gross rate times assessed value less exemptions is the gross tax; minus credits is the tax bill. That's $755 in 2002, $1,229 in 2003.

And without tax restructuring? The gross tax would be $2,609; the total credits $693, so the tax bill would have been $1,916. That's a 154 percent increase over 2002, $1,160 more. Tax restructuring saved this homeowner $686 in property taxes.

Is it any consolation, if your tax bill went way up, to know that without tax restructuring it would have gone way, way up? Maybe not. But it's true.




Writer: Larry DeBoer
Editor: Olivia Maddox