Wednesday, September 22nd, 2021

Hoosiers to vote on Property Tax Caps

Posted: Wednesday, October 27, 2010

This information was submitted by the Regional Chamber of Commerce

When Hoosier voters go to the polls next Tuesday they will have the opportunity to amend the Indiana Constitution for the first time since 2004.  Voters will determine whether or not it is appropriate to place property tax caps in the Constitution of the State of Indiana.

Public Question Number One on the Ballot will read:

Shall property taxes be limited for all classes of property by amending the Constitution of the State of Indiana to do the following:

(1) Limit a taxpayer's annual property tax bill to the following percentages of gross assessed value: (A) 1% for an owner-occupied primary residence (homestead); (B) 2% for residential property, other than an owner-occupied primary residence, including apartments; (C) 2% for agricultural land; (D) 3% for other real property; and (E) 3% for personal property.

The above percentages exclude any property taxes imposed after being approved by the voters in a referendum. (2) Specify that the General Assembly may grant a property tax exemption in the form of a deduction or credit and exempt a mobile home used as a primary residence to the same extent as real property?

Indiana’s process for amending the constitution requires that identical versions of a constitutional amendment pass both branches of the legislature in two successive sessions.  Indiana is one of only 12 states that demands a potential amendment be approved by successively elected legislatures.

The property tax caps were first passed in 2008 and were passed by the legislature again in 2010.  Immediate property tax relief was issued to homeowners in 2008 through the issuance of a homestead property tax credit.  Additional tax control reforms, including the assumption of levies formerly funded by property taxes, and tax caps did not begin to take effect until 2009.

As a result of the comprehensive property tax reform package passed by the General Assembly:

- In the 90 counties reporting 2010 property tax data, property tax caps saved taxpayers $366 million in 2010
- $94 million in savings went to homeowners
- $184 million in savings went to owners of other residential property and farmland
- $88 million in savings went to owners of business and personal property
- 94.3% of homeowners are paying less property taxes in 2010 than they were in 2007
- On average, homeowner tax bills have decreased 33.6% since 2007

Some opponents of the property tax caps claim that local units of government will suffer irrevocable revenue losses due to the permanent implementation of constitutional property tax caps.  The concern centers on the ability of local governments to provide vital services such as police and fire protection, the ability to adequately fund schools, and the presumption that the implementation of property tax caps will result in massive layoffs of those employed by local units of government.

Some argue that Indiana should allow time to see if the caps, which are currently state law, are effective or if they need to be tweaked.  They argue that placing tax caps in the constitution permanently ties the hands of the legislature.  Other opponents decry a property tax system which imposes varying limits on the taxation of different classes of property.  They point to a 15.2% increase in property taxes paid by businesses since 2007, and a 14.8% increase incurred by those who pay property taxes on farmland and claim that the tax caps amount to a tax shift.

Proponents of the tax caps are quick to point out that nearly half of the increase in business property taxes occurred between 2007 and 2008, which preceded statutory relief to business property.  They argue that the 3.5% cap in 2009 was too high to help most business owners, and that under a 3% cap in 2010, property tax growth on business properties slowed to 1.2%.  Likewise, proponents point to the formulaic assessed value increases for farmland.  In 2007, the base rate of agricultural land was $880.  By 2010, it had risen to $1,250.

Other proponents of the plan argue that constitutional caps are necessary to curb the growth of government.  Proponents point to additional options offered to local units of government (a local option income tax option, and referenda that allow school districts to request funding beyond the property tax caps) that are available to offset losses of revenue that may be incurred due to property tax caps.

A February 2010 report entitled The Economic Effects of Indiana’s Property Tax Limits, authored by the Center For Business and Economic Research at Ball State University sought to analyze the effect of property tax caps on economic activity in Indiana.  The report concludes:

“In the long run, as businesses respond to the increase in investment, the state can realize a growth in employment of 97,000 workers…Over the long run, both capital use and returns to capital increase by $2.25 billion. This is the genesis of much of the increased investment and Gross Regional Product in this study.