Citizens Guide to Property Tax
Citizen's Guide to Property Tax
What is the purpose of property taxes?
Property taxes are a primary source of funding for local government units, including counties, cities and towns, townships, libraries and other special districts including fire districts and solid waste districts. Property taxes are administered and collected by local government officials. These funds are used to pay for a variety of services including welfare; police and fire; new construction and maintenance of buildings; local infrastructure like highways, roads and streets; and the operations, including salaries, of the local units of government.
Property taxes are an ad valorem tax, meaning that they are allocated to each taxpayer proportionately according to the value of the taxpayer's property. The statewide average revenue distribution for each property tax dollar is as follows:
- County: $0.17
- Township: $0.03
- City/Town: $0.19
- School: $0.41
- Library: $0.04
- Special Unit: $0.07
- Redevelopment: $0.08
Breakdown is based on average expenditure per dollar of property tax levied in Indiana for taxes payable in 2013. (Information sourced by the Department.)
The property tax process is also known as the property tax assessment and billing cycle. This cycle begins with the development of each property's assessed value by the county assessor. The assessor then transfers the data on each property's value to the county auditor. The auditor, after applying deductions, exemptions, and other valuation adjustments, sends these values (known as the certified net assessed values) to the Department of Local Government Finance. After thorough review, the Department converts these values to property tax rates by dividing each local unit's approved budget amounts by the assessed value for each unit. The Department forwards these rates back to the county, where the auditor and treasurer work together to calculate, generate and mail tax bills to each taxpayer. Learn more about the assessment to budget process.
The Department's website offers a variety of resources to educate and inform taxpayers on this process. The site also features search tools to provide taxpayers with sales disclosure and assessment information on properties statewide. This information can be used in the appeals process or to allow taxpayers to better understand how assessors determine a property's assessed value.
How is the value of my property determined?
The tax assessment and billing cycle begins with the assessor's valuation of your property. Just like other states, in Indiana properties are valued using mass appraisal techniques. With mass appraisal, your property is looked at in conjunction with other properties in your area. Assessors consider age, grade, and condition. Finally, in a process known as annual adjustment, or "trending", each year real property sales data is used to determine if the value of properties in your area should change to match the market value found in the sales of recent properties.
(Prior to 2002, property was reassessed every 5 to 10 years. That left taxpayers with a large change in their assessments between reassessments, which often led to sudden increases in property tax bills.)
Learn more about Annual Adjustment and Reassessment.
What role does the DLGF have in the property tax assessment process?
The Department plays several roles related to property valuation and assessment. The primary role of the Department is an oversight role. After the assessor has placed values on all properties in a county, the assessor submits to the Department an assessment to sales "ratio study" for review and approval. The ratio study is basically a comparison between sales and assessed values in the county to ensure that market values are being used to determine assessed values. The Department uses several statistical tests to determine whether assessed values are in line with property sales in the area. Tests are also run to ensure that the assessments are fair and treat all property owners equally. Once these tests are passed, the assessment work in the county is approved.
In addition to oversight activities, the Department is responsible for the assessment of certain types of railroad and utility property. To learn more about this process, click here.
How do I know how much my property is worth? What if I don't agree with my property's value?
You will receive notice of your property's value in one of two ways: the county assessor may send you a notice of assessment, known as a Form 11. Otherwise, the assessed value of your property can be found with your tax bill. This document is known as the TS-1 tax comparison statement.
If you feel your assessment does not reflect the market value-in-use of your property, you may appeal your assessment. To file an appeal, you must contact your local assessor in writing within 45 days of receiving the Form 11 notice or tax bill, whichever was sent earlier. Indiana law does not require taxpayers to submit an appraisal in order to appeal an assessment.
To see an illustration of the property tax assessment appeals process, click here.
How are property tax rates determined?
Property taxes represent a property owner's portion of the local government's budgeted spending for the current year. Increases or decreases depend upon a local government's fiscal management, the assessed valuation of a property and/or local tax rates, which are based on the budget proposals submitted by local government taxing entities that provide services to each community. Local spending is the reason for property tax rate increases - or decreases - depending on local fiscal management.
Each year, local units (or the municipal or county fiscal body responsible for adopting a unit’s budget, rates, and levies) submit their adopted budget to the Department. The Department then reviews each unit's budget, and ensures that the budget is in line with laws, regulations, and other property tax controls related to this spending. After the unit makes any necessary adjustments, the Department approves a funded budget and develops tax rates for each taxing unit.
What kind of budget review does the Department do?
Essentially, the Department ensures that the proposed spending of the local government unit does not exceed the unit's property tax paycheck. If the proposed spending does exceed the unit's anticipated property tax paycheck, the unit of government is required to revise its budget to bring it in line with the paycheck. In this way, the Department works in a way that is similar to a bank. The bank will tell its client how much money is available in an account, but not how to spend the money. It is the same relationship between a local unit of government and the Department.
What are local taxing units and taxing districts?
A taxing unit is an individual unit of government with the authority to levy property tax. Examples include township, cities and towns, counties, fire service, school corporations and libraries. All of the combined taxing units that provide services to a common geographical area compose a taxing district. Below is an example of a county (in this case Ohio) displayed with its taxing districts:
|04||Rising Sun City||
What is the difference between a tax rate and a tax levy?
A tax rate is the percentage used to determine how much a property taxpayer will pay per one hundred dollars of net assessed value. A tax levy is the amount, specific in dollars, that a taxing unit (city, town, township, etc.) may raise each year in property tax dollars. In other words, the levy is the cap on the amount of property tax dollars a local government is allowed by law to collect.
How is the tax levy determined?
The amount each unit is allowed to collect each year is based on the unit's "maximum levy," which is based on the amount of property taxes raised by the unit last year. Additionally, state law allows a unit of government to raise more levy than in the previous year. The amount by which the levy can increase is called the growth factor. A unit has the option of requesting the maximum levy or a lesser levy each year. If a unit chooses not to take its maximum levy in a given year, the unit’s overall maximum levy is not impacted.
How is my local tax rate determined?
Each unit's levy is calculated and then a rate is determined by the Department. This is done by dividing the unit's levy by its net assessed value.
Tax Rate = Total Tax Levy / (Total Net Assessed Value/100)
To illustrate this, we can refer back to the Ohio County example. Each unit has its own tax rate. The sum of these rates for each district equals the total tax rate. For District 01, the breakdown is as follows:
Ohio County: District 01
|Total 2010 Levy||Total 2010 Net AV||Total Unit Tax Rate|
|Rising Sun-Ohio County
|Ohio County Public Library||$93,672||$257,341,799||$0.0364|
|Southeastern Indiana Solid Waste||$33,197||$257,341,799||$0.0129|
|Total Tax Rate for District 01||$0.7090|
A more basic way of understanding the relationship between the levy, net assessed value and the tax rate is in terms of a gift purchased by a group of people. If five people are going to pitch in money to buy a gift, and the total cost of the gift is $100, each person will have to pay $20. If the number of people willing to pitch in on the gift suddenly drops to four people, each person will pay $25. If the four people decide to purchase a different gift for only $80, then the amount each person pays is still the same. If the cost of the gift increases to $125, and the number of people pitching in drops to four, each person will have to pay $31.25. This is the same relationship that exists between certified net assessed value (the people), the property tax levy (the cost of the gift), and the tax rate (the amount each person pays).
How can I get involved in the local budgeting process?
The first step in becoming involved in the local budgeting process is to gather information. The Department has assembled the educational tools found on this website that can help you begin to understand the intricacies of local government financing and the budget process in general. In addition, taxpayers can also find county by county detail on property tax related matters, including how many property tax dollars are being collected and used in each county.
Public local budget hearings are usually scheduled in September and October to comply with a statutory deadline for all taxing units to adopt budgets by November 1 of each year. After the political subdivision formulates its estimated budget and its proposed tax rate and tax levy, each political subdivision will give notice to the taxpayers stating the time and place set for the public hearing to discuss the estimated budget and tax levy. This notice is published twice with the first publication at least ten (10) days before the date fixed for the public hearing. This is an opportunity for the public to comment on the political subdivision's budget, tax rate and tax levy. If ten (10) or more taxpayers object to a budget, tax rate or tax levy of a political subdivision, they may file an objection petition with the proper officers of the political subdivision not more than seven (7) days after the public hearing. If an objection petition is filed, the political subdivision shall adopt with its budget a finding concerning the objections in the petition and any testimony presented at the adoption hearing. (November 1 is the statutory deadline for a political subdivision to adopt a budget, tax rate and tax levy.)
How is my tax bill calculated?
In concept, the calculation of a tax bill is fairly simple - multiply the assessed value of your property after deductions by your local tax rate and that is your gross tax liability. There are, however, many other steps that can make the process more complicated.
As an example, let's say your primary residence in Cass Township, Ohio County is valued by the assessor's office at $200,000. This is known as your gross assessed value. However, you may be eligible to receive deductions on your property that would reduce your tax liability. Since this is your primary residence, you may be eligible to receive the Homestead Standard Deduction (the lesser of $45,000 or 60% of the gross assessed value) and Supplemental Homestead Deduction (35% of the remainder value up to $600,000; 25% of the remainder value exceeding $600,000). For example purposes, assume that the entire value of this property is attributable to a homestead - a dwelling, one garage and up to one acre of real estate.
$200,000 - $45,000 -$54,250 = $100,750
The property's value after deductions are applied - in this case, $100,750 - is known as your net assessed value and is the value upon which your tax bill will be calculated.
In order to calculate your tax bill, your net assessed value is multiplied by your local tax rate of $0.7090. (In Indiana, tax rates are calculated on a per $100 basis. This means that, for every $100 your home is worth, you are charged 70.9 cents.)
($100,750/100) x $0.7090 = $714.32
This is your total tax bill for the year. It can be further reduced by the addition of property tax credits, which are subtracted directly from your billed amount.
Since this is a homestead property, the property tax caps will prevent you from paying more than 1 percent of the gross assessed value in property taxes.
$200,000 x 0.01 = $2,000
Since your tax bill of $714.32 already is below the maximum of $2,000 you will not receive an additional credit related to the property tax caps. If your tax bill, after the application of other credits, had exceeded the maximum, an additional credit would have been applied to reduce the bill to the maximum amount determined under the property tax caps.
When are property taxes due?
Property taxes should be due in two installments annually - one on May 10 and one on November 10. At least 15 days prior to May 10, the county treasurer is required to mail to each taxpayer the TS-1 property tax bill and comparison statement.
What penalties will be applied to my property taxes if I fail to pay by the date they are due?
If an installment of real property taxes is completely paid on or before the date 30 days after the due date and the taxpayer is not liable for delinquent property taxes first due and payable in a previous installment for the same parcel, the amount of the penalty is equal to 5% of the amount of delinquent taxes. Otherwise, the amount of the penalty is equal to 10% of the amount of delinquent taxes. Also, with respect to property taxes due in two equal installments, on the day immediately following the due dates of the first and second installments in each year following the year of the initial delinquency, an additional penalty equal to 10% of any taxes remaining unpaid will be added. A property may become subject to a tax sale if the taxes remain unpaid (IC 6-1.1-24-1).
What types of property tax relief are available to taxpayers?
- Exemptions - an exemption is a full or partial waiver of property tax liability for a given property. Exemptions are generally only available in limited circumstances, such as for not-for-profit organizations, religious groups, and economic development purposes.
- Deductions - a deduction is a subtraction of assessed value for a property prior to the calculation of tax liability. Deductions are the most common types of property tax relief available to taxpayers and include relief for primary residences (homesteads), mortgaged property, veterans and disabled citizens, to name a few.
- Credits - a credit is a type of property tax relief applied directly to the tax liability after it is initially calculated. Common property tax credits include the circuit breaker credit and the local property tax replacement credit.
For more information about property tax bills, see "Understanding Your Tax Bill" which is available from the left-hand navigation links on the Department's website.