Editor’s note: As co-chair and “creator” — for lack of a better term — of the State and Local Tax Review task force, local Sen. Travis Holdman delivered these remarks at the joint-study committee’s final meeting Wednesday. I felt them worthy of our readers’ review for several reasons, not the least of which is to demonstrate that our sometimes lengthy attempts at discussing property taxes, for which I have often been (jokingly I think) berated, is not unique. Travis’ attempt to encapsulate the issues the SALTR task forced faced demonstrates why brevity is difficult when discussing property taxes.
—Mark Miller
A few comments which are not necessarily the views of Chairman Thompson or any other member of the Senate Majority Caucus or member of this task force. These are my observations and points I feel need addressed.
While it has been demonstrated that Indiana has a competitive and taxpayer friendly system, help for the taxpayer is on the way. However, it may take some time to work its way through the established system as well as the General Assembly.
We will likely begin to see a leveling off of market value in use of real properties as the economy begins to stabilize. There are likely to be some pockets of growth around the state that will be less effected by a bit of a slow down. The legislation you will see introduced this session will take time to fully implement. Tax bills for 2025 cannot be “fixed” this session further beyond what the Indiana General Assembly has done the last couple of sessions like capping general fund local levy growth. Moving forward, legislation this next session can result in tighter property tax controls for local units of government.
There are two solutions to lowering property tax: less local spending and borrowing and (more) reliance on Local Income Tax (LIT) levies.
1. The overall tax policy in the State of Indiana is one of the best in the nation. The Tax Foundation ranks Indiana No. 10 in overall best tax policy, and 5th for property tax. Indiana has cut income tax rates 25 times since 2012. We are working with Governor-elect Mike Braun on these tax proposals.
2. Indiana’s tax structure is the result of 50 years of patchwork in the search of a fair and equitable tax system for property, sales, individual and corporate constituencies.
3. There will always seem to be the need for adjustments in process and rates with changing demographics and increased digital integration.
4. With regards to property taxes. The State of Indiana does not levy property taxes from any classification of property taxpayers. The property tax is an entirely local tax.
5. The formula for arriving at the amount owed to local units of government is simple: Assessed Value times the Rate equals the Levy (the net tax bill). However, each of the components of the formula is very complex within its own definition and inner workings.
6. In Indiana, a property’s assessed value should reflect market value in use. The phenomenon of increased property values is directly related to the market and assessed value with a constant tax rate in many cases resulting in higher levies. Indiana is not unique. Inflation and increased property values has affected all 50 states and legislators across the country are grappling with the impact to the taxpayer.
7. Regardless of the legislature’s efforts to provide more information on the process of how property tax bills are calculated, property tax bills remain complicated, confusing and complex and difficult for the taxpayer to understand.
8. The General Assembly, more than a decade ago put in place the one-, two- and three-percent property tax caps which limit taxpayer’s liability based on their “market value in use.” Voters ultimately voted to make this regimen part of our constitution.
Accordingly, the homestead property at 1%, other residential and farm property at 2% and commercial property at 3% of the market value in use would be the maximum amount a taxpayer would pay. However, there are local unit work-arounds to the caps with referenda that allow for the local unit to go beyond the on-e, two-, three-percent caps.
9. To address spending from one year to the next by local units of government there are statutory limits on annual increases for operating levies. Two years ago, the General Assembly lowered the limit to 4% for a two-year period. Had we not done so, the calculation of the limit for 2024 would have allowed it to be raised to 5.16% (a 29% increase).
However, once again there are work-arounds to the levy limits we have imposed on local units. Levies to pay debt, referenda, something called excess levy appeals and local units’ cumulative funds are outside of the limits we have imposed resulting in an effective annual limit in 2024 of 5.3% not just 4%.
10. Property tax calculations include in many cases deductions and credits to ease the tax burden for the property taxpayers. Deductions for homestead properties merely shift the burden to taxpayers within the two- and three-percent classification. This is the general rule unless it pushes the levies for the two- and three-percent payer to the cap. “Credits” on the other hand reduce the amount of tax liability and results in a compete loss of revenue for the local unit.
11. The complexity of the system cannot be “fixed” to provide overnight relief to any one classification of taxpayer. This process requires a multi-year effort to ease into a reform.
12. Local units of government generally operate with a majority of revenues from local property taxes and local income taxes.
13. Current Local Income Tax rates are set at a maximum of 2.5% with additional 1.25% if used for property tax relief for a total of 3.75%. However, Marion County is an exception with a maximum of 2.75% and 1.25% for property tax relief or a total of 4%.
14. There is currently $4.8 billion in LIT capacity statewide
15. ln general, I have a concern for the amount of debt our schools and other units of government are accumulating. We have got to control local spending and the same goes for state government.
We as a state cannot expect our local units of government to be more nimble, more frugal, more out-of-the-box champions and implementers if we are not willing to do so ourselves. The state’s average increase in revenue for the 10 years prior to the years of Covid is roughly 3.24%. That should be the high-water mark for spending from one year to the next. If we have excess revenue, in my opinion, we should cut the state’s individual income tax rate.
Since its inception, as the author of SB3 two years ago that formed this Task Force, my concerns were that the expectations for the results of our work would far exceed the product.
We have been diligent in collecting more data than you will ever know. My deepest gratitude to Krista Ricci, Ben Tooley, and other members of the House and Senate fiscal teams. Thanks goes as well for the yeoman’s job our LSA staff has done to provide research for us. Thank you to a working group of House and Senate members that have been diligent and thoughtful offline to respond to concerns of our constituents. To fellow members of this Task Force, thank you for your input and being patient with the process. And, Chairman Thompson, thank you for making the team work better.
Holdman represents District 19, which includes Wells County, in the Indiana State Senate. He was recently re-elected as the Majority Caucus Chair.
