Each week I try to post an informational update on government and issues in our State or Region, with my focus being primarily to educate my own teenagers in how our government, taxes, hard decisions, and leaders work.  We're glad to have others looking in over our shoulders or even providing additional insights, since we're of the mind that open debate is a basic conservative philosophy.

Today - Taxes in the State of Indiana

One prominent financial advisor to Indiana Cities and Towns explained Indiana taxes to me as a three legged stool:  Property Taxes, Income Taxes, and Sales Taxes. 

Sales Taxes are pretty simple and clean, set by state law at 7% with a couple small targeted areas at 8% for specific approved projects.  Indiana has a flat state income tax rate of 3.4%. Many Indiana counties also collect income tax of up to 1%, much of which is used to keep property taxes as low as possible.  Now, property taxes, that's a bit more complicated.

For many years Indiana's 92 counties assessed real property and personal property values based on a very complicated formula, with dramatic inconsistencies, in some cases individual townships inside of the counties assessed using different formulas.  It was to be frank, a total mess, and open to corruption due to its inexact nature.

Indiana's real property assessment rules were found to be unconstitutional by the State Supreme Court in December, 1998.  New rules, being applied in a reassessment in 2002, differed a lot from the old, unconstitutional rules.  Assessment of real property structures were based on the estimated cost required to replace the structure, less depreciation based on age, with modifications for condition and quality.  Under the new rules, improvement assessed values are predicted selling prices of the properties, also known as "market value."  Assessment of residential, commercial and industrial land also is based on estimates of sales prices.  Assessment of farm land is based on a statewide fixed price per acre, called the base rate, modified by the land's productive capacity, forest cover, grade, and other factors.   Assessment of personal property is done annually by property owners or local assessors, based on equipment and inventory purchase prices.  Equipment assessments allow for depreciation. (Source)

Tax Bills Going out Finally was the headline this morning.  Why "finally?"  In early 2008 the Indiana State Legislature passed a huge additional reform, which when whittled down to it's basic elements, caps property taxes on residences at 1% of market value and commercial property at 3% of market value.  One problem with the "new" assessment process was runaway spending at the local level, which had some communities piling up the tax rates to 4 or 5% of market value. 

Governor Mitch Daniels (R) with extremely low support levels statewide in late 2007, mainly due to having privatized the State Toll Road for about $4 Billion making unions angry, engineered this major reform capping property taxes.  The net effect was squeezing local cities and towns and schools and libraries to fit their tax levies under these tax caps.  Oh by the way, Mitch's approval numbers have skyrocketed and he now leads in his re-election polls by 16 points.  Indiana residents appear to have been very happy to have taxes capped.  

So, back to the "finally" headline above.  All these reforms over the last 8 years have caused some chaos in assessments, with some 2007 assessments still getting approved (certified).  One side note:  Taxes are assessed in arrears in Indiana, a 2007 assessment in payable in 2008.  Many counties still haven't sent out tax bills for 2008, due to waiting to complete 2007 assessments.  It may take a couple more years to get back to tax bills in May and November like the olden days.  But, the end result is a property tax system based on real market values, less corruption, less subjectivity, and now caps on local government spending.

As a conservative these were all good goals, and future legislation in Indiana may well further flatten and make taxation fairer.  Will one leg of the stool, perhaps even property taxes, be removed entirely?  Will the caps be lowered and sales taxes increased?  Will personal property taxes (a small subset of taxes that cause economic development to be difficult in some cases) be eliminated or reduced?   Lots of interesting issues, and well worth understanding.