Tax shift

A bigger piece of the property tax pie is borne by homeowners

Part 2 of 2: 

By MARK MILLER

Charts

Wells County residential property tax bills have seen significant increases — many doubling or more — in just four years.

• Deductions

Assessments, tax rates and certified budgets, as reported in Friday’s News-Banner, have plenty of complicating factors and aspects. However, those all pale in comparison to the complexity surrounding deductions and credits and the varied impacts of how those are applied.

As explained in the March 19 article, each property’s Gross Assessed Value is subject to a number of deductions which result in a Net Assessed Value which is then multiplied by the appropriate tax rate to arrive at the Gross Tax Liability. These typically include: a Mortgage Deduction of $3,000 if applicable; the Standard Homestead Deduction, a set $45,000 regardless of the property’s assessed value; and the Supplemental Homestead Credit, which is a 35-percent deduction after the standard Homestead deduction is applied. Other deductions, less commonly applied, include Disabled, Disabled Veteran, and geothermal heating and cooling credits.

TaxLevyChanges-18-22

In almost all cases the News-Banner examined, these deductions have a declining impact on the Net Assessed Value, an aspect that is only magnified — or multiplied — over the four-year period. Additionally, the degree of impact varies, resulting in a wide range of differences in final tax bills between 2018 and 2022. A few examples involving the same properties referenced in Part 1:

• The three-bedroom home on Bluffton’s north side had in increase in Gross Assessed Value of 32.8 percent and a Net Assessed Value of 41.4 percent. This property’s end result was an increase in their property tax bill of 97.5 percent from 2018 to 2022.

• A three-bedroom home in Nottingham Township on 2.95 acres had a 15.5 percent increase in Gross AV which became a 51.6 percent increase in Net AV, which translated into an 87.3 percent increase in their final tax bill.

• Meanwhile, a nearby four-bedroom home in Jackson Township on 3.4 acres experienced a 12.8 percent increase in their Gross AV, their Net AV went up only 15.3 percent, resulting in a modest 18.7-percent increase in their tax bill over the four-year period.

• Skip and Mary Ross’ home on West Central Avenue in Bluffton experienced a 23.9 percent increase in Gross AV but after deductions, the increase in their Net AV is 57.2 percent, resulting in their 335-percent jump in their final tax bill,

• The home on Elm Grove Road where the tax bill has increased by 106.7 percent over four years had a 42.5 percent increase in their Gross AV but that became a 56.4-percent increase after their deductions were applied.

4-yr-comps

• Credits

The final step in the process after determining your Gross Tax Liability (Net AV multiplied by the appropriate tax rate) is applying the Local Property Tax Credits.

Again, the decreases in the LPTC for 2022 versus 2021 are almost entirely a result of the Wells County Council’s decision to redirect 7 percent of the original 30 percent of the county’s Local Income Tax receipts to fund the jail renovations.

What is puzzling is the wide variations in changes, both in the one-year comparisons and the four-year. From the 20 samples pulled for the four-year impact study, the change in the Local Property Tax Credits ranged from a reduction of 47.25 percent to an increase in the credit of more than 280 percent. Increases seem to be a rarity, with decreases ranging from a modest 1.7 percent to the more common 30-40 percent range. (See the “examples” chart)

Wells County Auditor Lisa McCormick provided the News-Banner with the instructions for the process and a spreadsheet detailing the different “buckets” — where properties fit based on different qualifications. Most Wells County residential properties fit into what is called “1 percent AV” and many get a “former Qualified Residential” designation, which triggers at least some of these variations.

County-Comps

As reported earlier, McCormick said that how the Property Tax Credits are applied to individual properties is done at the state level. 

The Indiana Department of Local Government Finance explained the process as pretty straightforward: “Each property that qualifies for credits receives an equal percentage of their bill in credits. In other words, the difference between properties is based on the difference in net assessed values. It should be noted that there is not sufficient information on the tax bill in order to calculate the percentage relief each bill is receiving.”

However, when queried about the wide variations, they replied: “We can provide a general summary of the process but for specific properties, as you included, you would need to speak with the county auditor.” Hence, it turns out to be a combination — both entities are involved.

In providing the instructions and spreadsheet that details the complicated process, McCormick noted that “our tax software calculates each property. The DLGF sets the rates via our abstract, it then goes to the tax software.” Hence, “each property has its own individual set of circumstances, we can look at each individual property, but these cannot be looked at as a whole,” she added. 

The end result is a wide variety of specific impacts to homeowners as seen in the samples. While the changes in how much of the Local Income Tax revenue is credited to homeowners has been a significant factor in the increases, the specifics’ variations boil down to a still-puzzling side issue.

• A new term: tax shifting

“Tax shifting” first came up during this exercise in a conference call with several DLGF officials prior to the March 19 article. It began to surface often as the four-year data was analyzed with a couple colleagues and friends who were used as sounding boards. One of them gave me this definition: “a term used to describe the flow of tax obligations from one person to another or from one segment of the taxpayer base to another.”

For example, an increase of 1 percent in the state sales tax would shift a significant portion of the tax burden away from property owners and wage earners to the general public. In this case, the past four years have seen several significant shifts in how local government is funded.

• First, there is a definite trend in the past four years to depend more on property taxes for local government revenue. It’s not a huge shift, at least so far.

While it varies by each taxing unit, overall, the percentage of the certified budgets of all units funded by property taxes in 2018 was 34.4 percent. That increased to 37.4 percent in 2022. There were some decreases, the city of Bluffton’s dependence on property taxes stayed essentially the same as a percentage, but the school budgets saw perhaps the most significant increases in their dependence on property taxes.

The other sources of income thereby feel less pressure, such as excise and sales and income taxes, while property tax constituents pick up more of the load.

• The most significant shift has been within the mix of property tax segments.

There are five categories of property tax payers, each of which has different rules regarding assessments, deductions and credits: Residential, Mobile Homes, Agricultural, Business, Commercial and Industrial. (See accompanying chart.) The past four years have seen a significant shift in the proportion of property taxes paid among the categories.

Residential property tax payers, which includes the mobile home category, has seen their share of obligations go from 30.58 percent of the total property taxes collected to 38.18 percent. In dollars, that adds up to an additional $3.25 million, a 55 percent increase in four years. Another way to present this: Of the $4.67 million in new property taxes collected in 2022 versus 2018, residential property owners picked up about 70 percent of that tab.

Meanwhile, the other categories’ share of the pie decreased. While the business categories saw modest increases, the agricultural sector has actually seen a decline in total dollars collected.

Purdue University economist Larry DeBoer says this shift is statewide and began when the Indiana Supreme Court “threw out the old assessment system” in 1998. In response to taxpayer complaints, the legislature instituted the “big reform in 2008” which included property tax caps. However, the percentage that homeowners pay has begun to increase again. He also points to the decline in farm values when corn and soybean prices fell, which cause farmland assessments to drop. Those have obviously rebounded but have not yet impacted the system.

• Of less impact overall, and a shift that is more difficult to quantify, there has also been a shift among the residential property owners. Owner-occupied homes have definitely seen higher-percentage increases in the tax liabilities than rentals, and those homes located in the neighborhoods that have seen more sales activities have clearly experienced higher bills than others.

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There are a number of questions that remain and a number of conclusions that can be reached. We have included as many charts as room allows to demonstrate specifics mentioned in this text. 

Keep in mind that there are state guidelines and regulations regarding local budgets that put some controls in place, which include property tax caps which have not been a factor in Wells County.

Perhaps we can go back to the beginning of the original story published March 19. Michelle Sodervick is the Bluffton taxpayer who first noticed the increases when she found the 2022 information posted online and alerted the News-Banner. She and her husband Scott’s property tax bill had shot up 45 percent.

“I don’t argue that property taxes have to go up some,” she said, “but I guess we have to begin to ask more questions.”

miller@news-banner.com