Homeowners to get at least some break on property tax hikes
By The Associated Press
Thursday, May 3, 2007 9:45 AM EDT
INDIANAPOLIS - Most Indiana homeowners are expected to pay more in property taxes this year, but state lawmakers did soften the blow during the session that ended Sunday.
They provided direct relief in the short-term and gave counties options to increase local income taxes beginning next year to reduce their reliance on property taxes.
‘‘If they will implement the local option income tax, it could be a huge shift away from property taxes,'' Senate Tax Chairman Luke Kenley, R-Noblesville, said Wednesday.
Not everyone is completely pleased.
House Republicans wanted more direct property tax relief this year and next than the Legislature approved. The Indiana Association of Cities and Towns cites various reasons in predicting that many counties will stick with property tax increases instead of higher income taxes.
Many mayors wanted a bigger menu of local taxes that could be raised - such as sales or food and beverages - because they say those may be better fits for their communities.
But Kenley said that could pit one area against another. People in a county that chose to impose a higher income tax would pay that and then dole out even more if they bought something in another county that had raised sales taxes instead, he said.
Property taxes for homeowners are expected to increase an average of 24 percent statewide this year due to a variety of factors. The biggest factor is trending - a system that uses formulas to estimate how much property values in each county have increased since 1999, the base year for the last reassessment.
This is the first year of trending, essentially making it a general reassessment. In subsequent years, trending is expected to negate the sticker shock many homeowners face during reassessments that have traditionally been years apart.
To soften the blow, lawmakers passed legislation that will spend $300 million on property tax relief this year. That and other steps are projected to lower the average increase on homeowner bills to 7.7 percent. Homeowners will pay their bills in full this year, then get a rebate check toward the end of the year reflecting the relief.
The average homestead in Indiana with a gross assessed value of $151,017 would have its tax bill rise $349 from $1,468 last year to $1,817 if the bill increased by 24 percent. Because of the legislation that passed, the increase will ultimately be $113 because the state will send you a rebate check for $236.
If your tax bill was $1,000 last year and it went up 24 percent this year - or $240 - the state would send you a rebate check for $160, making the increase in the end about $80.
The state will spend an additional $250 million in homestead credits next year, and because that deduction will not be lowered next year as was scheduled, the average homestead savings in 2008 will be $318.
Kenley is more excited about the long-term potential to reduce reliance on property taxes.
Beginning next year, counties can raise one local income tax instead of property taxes to get the same amount of new funding. The funding increases would still be subject to caps on levy increases that are based on a rolling average of personal income growth, which currently equates to a limit of about 4 percent.
However, counties in the first year would have to raise income by double the rate needed to offset levy growth. The extra revenue would be put in a savings account that could be tapped when income tax revenue declines in bad economic times.
Counties also could impose a ‘‘supplemental'' income tax up to 1 percentage point and use it to reduce existing property taxes. The relief could be targeted to homeowners, all residential property including homes and apartments or all classes of property.
Counties that opted for both taxes could impose an additional income tax rate of .25 percent and use the new money for public safety.
Although people would still be paying local taxes, many lawmakers believe the income tax is a much better reflection of wealth and a person's ability to pay than property taxes. That is especially so for those on fixed incomes.
Kenley said the income tax options would go a long way in reducing property taxes.
But Matthew Greller, executive director of the Indiana Association of Cities and Towns, said the legislation was flawed in part.
He said counties would have to raise three separate income taxes in order to get any new revenue to spend than is allowed now, and the increases would be too big for some counties to swallow. That would be especially true in low-income counties, he said.
He also said that if counties do not opt for income taxes over property taxes, cities and towns should be able to. They do not have that option under the legislation.
‘‘I think it will be hit and miss, but my early assumption is you'll have very few counties'' that move from property taxes to income taxes, he said.
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