Property Tax Trends in 2014
If you want to know about Indiana property taxes, take a look at the General Assembly’s website. The Legislative Services Agency (LSA) has published 92 reports about property taxes in 2014, one for each county. (Disclaimer—I helped.)
You’ll find some charts, some text and a bunch of numbers about the taxes in your county, town, school district and all the other governments where you live. You can find the reports at iga.in.gov/documents/bec7ef25. It works best to click on the download icon and open the document on your own machine.
In 2014, property tax changes were small, statewide. Total property tax bills increased by 1 percent, and homeowner taxes fell by 0.9 percent. Still, three trends affected property taxes in a lot of counties.
Many counties reduce property tax bills with credits funded by local option income taxes (LOITs). A credit is subtracted from property tax bills, and local governments make up the revenue with the LOIT. In 2014, LOIT credit rates declined in 70 percent of tax districts.
Here’s what happened: The state collects local income taxes and remits them back to local governments. In 2012 the Indiana Department of Revenue discovered that it had remitted too little, and in April it made a special distribution to the counties. It was too late to change the LOIT credit rates at that point—tax bills had already gone out in most counties—so the revenue was saved for credits in 2013. Credits were higher than usual that year. In 2014, they snapped back to normal, and credit rates fell.
The average LOIT credit rate dropped by about two percentage points. It’s a trend with a small effect, and without another special distribution we won’t see it again.
Statewide, total gross assessed value (before deductions) rose 0.6 percent in 2014. Agricultural assessments increased 6.9 percent. The reason was the rise in the base rate of farmland, which is the starting point for setting its assessed value. The base rate is determined by a formula that includes corn and soybean prices in the numerator and interest rates in the denominator. For taxes in 2014, the base rate used data from 2005 through 2010.
During that period, crop prices were rising and interest rates falling. For 2014, the base rate rose 8 percent, from $1,630 to $1,760 per acre. Agricultural tax payments rose 6.3 percent.
This affected taxpayers most in rural areas where farmland is a large part of the tax base. In the 12 counties where agriculture is more than one-quarter of taxable assessed value, the agricultural tax bill increase averaged 6.6 percent. The average homestead tax bill fell 4.1 percent. The growth in property tax revenues is controlled by state rules, so if farmers pay more of this controlled amount, homeowners pay less.
The base rate will be $2,050 per acre for taxes in 2015. That’s a 16.5 percent increase from 2014. This trend will continue.
For the past few years, homeowners have been asked to file a homestead verification form to show that their property is eligible for the homestead property tax deductions. The deadline passed, and some property owners hadn’t filed the form. Many counties began reclassifying these buildings as “other residential,” a category that is mostly rental housing. The number of homesteads fell by about 25,000, the gross assessed value of homesteads fell 2.0 percent, and other residential assessments increased 10.1 percent.
Homestead deductions make a huge difference for homeowner tax bills. At a tax rate of $2 per $100 assessed value, a $100,000 homestead would typically pay $655 in property taxes. The same building classified as other residential would pay $1,940.
Many of the homeowners who ignored the homestead verification form won’t ignore a tripled tax bill. They’ll apply for the homestead deductions, and those properties will rejoin the homestead category in 2015. That was already happening this year in some counties.
Of the three trends, then, LOIT credit changes won’t repeat, farmland assessment increases will continue, and homestead verification may reverse itself.
These trends made a big difference for some counties and taxpayers, but in 2014 local changes in assessments, deductions, levies and rates had the biggest effects on tax bills. To find out about your county, check the LSA reports.