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Larry: Hi, my name is Larry DeBoer
and I'm a professor in the
Agriculture Economics Department
and a specialist with the Cooperative Extension Service
at Purdue University in West Lafayette, Indiana
Welcome to our series of videos about
Indiana local government!
Today, let's talk about property taxes,
In most places of the United States
the property tax is the main source of tax revenue
for local governments: counties, cities, school districts,
libraries, townships, and so forth
That's certainly true in Indiana, the property tax
is also important for taxpayers
If you own a home or a business, if you're a farmer
with farmland or a landlord with rental property
you probably pay the property taxes
So, let's start with the basics
In Indiana, there are 3 terms you need to know
to understand the property tax
and they are: Assessed Value,
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Tax Levy,
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and Tax Rate
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Let's start with Assessed Value
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Assessed Value is the base of the property tax,
the thing that is taxed
The property tax is different from the
income or sales tax because
there isn't always a record of
what to tax
like a paycheck or a sales receipt
For the property tax, you could pay a percentage
of the selling price of your property
except most properties doesn't sell every year
So, what can we do?
We have to estimate property value
The Indiana Supreme Court established
a standard for these estimates in an important
decision in December 1988
To paraphrase, the standard is
Objective Measures of Property Wealth
We elect assessors to estimate
the value of property
The objective measures that the assessors use
are numbers like selling prices for properties that sell,
rents earned on rental properties,
or construction costs to replace a structure
For most properties, the assessment is a prediction
of what the property could sell for
if it was sold in the market to a disinterested stranger
That's often called market value
Since 2007 in Indiana, property assessments have been
adjusted each year to account for changes in
selling prices, rents, and costs
That's a process called trending
Every once in awhile, property is reassessed
Data on the characteristics of property are collected
anew: square footage, building material,
numbers of rooms, and so forth
that's to make sure the data are
up to date and accurate
Indiana finished a statewide reassessment for taxes in
2013
Starting in 2015 though reassessment will go
to a four year cycle
with 1 quarter of the property in each county
reassessed each year
So, assessed value is the base of the property tax
Which is the dollar value placed on taxable property
by the local assessor
It's based on objective measures of property wealth
called market value
They're trended each year
and every so often
we collect a lot of new data
in a statewide reassessment
Now, let's move on to the tax levy
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The tax levy is the amount of property tax revenue
that the local governments intend to collect
The levy is limited by the state property tax controls for
most property tax revenue
There is a maxium levy that local governments can
collect, but most local governments set their
levies right at that maxium
The maxium levy increases each year
based on changes in Indiana total personal income
Lately the increase has been about 3% per year
The property tax levy is divided
among the local government's funds
The general fund is usually the big one
Its revenue is used to support the operating cost
of the government
which is mostly paying benefits of employees
Other funds include the
school and library capitol projects funds,
several cumulative funds,
and debt service funds
Not all of these funds are subject to the
maxium levy
Debt Service Funds, for example, collect
property tax revenue to payback money that's been
borrowed for big infrastructure projects
Those levies are set by the borrowing/ repayment
schedule
Property tax levies support
most local governments,
school corporations, counties and cities and towns
recieve the most
Maybe you noticed that I said
the levy was the amount, local governments intend
to collect
Sometimes actual revenues fall short
of intentions
The tax caps may limit the taxpayer's payment
to less than the full tax bill
Taxpayers get a credit for any amount above the caps
and local government doesn't get the revenue
and some taxes will be delinquent
People owe taxes on their property, but
don't pay
That's a particular problem after recessions
So the tax levy is the property tax revenue
that local governments intend to collect
The amount is controlled by state rules
It goes into several funds,
the biggest of which is the General Fund
Not all of the levy is collected because
of tax delinquency
or tax cap credits
Now, the Tax Rate (ding)
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Here's another way that the property tax
is different from incomes taxes or sales taxes
With the income tax, the legislature sets a tax rate
a flat 3.4% in Indiana
And taxpayers pay that percentage
of their taxable income
With the sales tax, the legislature sets a
tax rate, 7% in Indiana
and taxpayers pay that percentage of their
taxable sales
With the property tax, the local government sets
the levy, the amount to be collected
and then fixes the rate to collect that amount
They divide the levy by the assessed value,
and the result is the rate
That way, multiplying the rate by the assessed value
of each property delivers the needed tax levy
That means the tax rate can differ
for each local government in Indiana
and usually changes from year to year
Rates work like this
Each local government sets its levy
and then divides by the assessed value of the property
within its borders to get the rate
The taxpayers properties will be located inside
the borders of several different local government units
A property will be within a county,
and a township,
and a school corporation
and it might be in a city or town,
a library district
or other special district
The rates of each of these units are added up
and that's the rate that the taxpayers pays
In Indiana, we express rates as dollars per $100
assessed value
that's really the same as a percentage
For example, a $2 rate means the taxpayer owes taxes
equal to 2% of the value of his or her property
So, each local government sets its tax rate by
dividing its levy by its assessed value
Tax rates vary across local governments
and year to year
The taxpayer pays the sum of the rates of
the local governments
in which the property is located
That's it, the basics, is there more?
Oh my gosh, yes!
But if you know assessed value, levy, and rate
You're on your way to figuring it all out
We'll have more videos to help with that
Thanks for watching
I'm Larry DeBoer
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