Q&A on Assessment
- Why is property assessed?
- How do local government and schools use property taxes?
- Why is property reassessed?
- Why was the 2002 reassessment referred to as a “court-ordered reassessment”?
- What was wrong with the old system?
- After the last General Reassessment older homes seemed to be hit harder than newer ones, why?
- What did the General Assembly do to help homeowners affected by the 2002 court-ordered reassessment?
- What is trending?
- Why did the General Assembly initiate trending?
- This year is not a reassessment year and I had a large increase in my assessed value. Is my assessor correctly assessing my property?
- Aren’t some the AV increases we are seeing for Pay 2007 taxes relatively high even for the first year of Trending?
- Who is responsible for reassessments and trending?
- Does an increase in my assessed value automatically indicate that my property taxes will increase similarly?
- The assessed value on my home only increased a little, but my tax bill had a significant increase. Why?
Why is property assessed?
Property is assessed to determine its value for tax purposes. After total assessed value for all property in a taxing district (for example a library, township, school, sanitation district, etc.) is determined, deductions are applied and a tax rate is established for each district. The assessed value for each property is multiplied by the tax rate to determine how much property tax each person pays.
How do local government and schools use property taxes?
Property taxes are used by local government and schools to pay teachers, build schools and other buildings, for parks, police and fire protection, libraries, poor relief and other municipal and school functions. State government receives less than one tenth of a percent of all property taxes collected.
Why is property reassessed?
Property values change over time. Reassessment helps insure that tax bills reflect changes in property values so taxes are spread fairly among all property owners. Prior to the court-ordered reassessment in 2002, the last general reassessment was completed in 1995
Why was the 2002 reassessment referred to as a “court-ordered reassessment”?
In 1998, the Indiana Supreme Court ruled on a 1996 Tax Court decision that the old assessment system was unfair and unconstitutional. This ruling found that some taxpayers were paying too much property tax, while others were not paying their fair share. Accordingly, the court mandated the Department of Local Government Finance (DLGF) to develop new rules and reassess all property.
What was wrong with the old system?
Under the old rules, assessors were not required to link assessments to objective standards such as market value. Therefore, assessed values lacked meaningful references to actual property values. This led to a situation where business property was generally over-assessed, while residential property was generally under-assessed. In addition, homes with similar market values located in different parts of the state, or even different townships in the same county, had significantly different assessed values. The court said this was unfair and unconstitutional.
After the last General Reassessment older homes seemed to be hit harder than newer ones, why?
Under the old rules, homes were treated as depreciating assets. As a home got older, its assessed value dropped relative to new construction. Thus, many older homes were under-assessed relative to their actual value. Under a market value system, assessments are based primarily on market value and ignore mitigating factors such as depreciation or high maintenance costs that hit older homes in good neighborhoods especially hard.
What did the General Assembly do to help homeowners affected by the 2002 court-ordered reassessment?
In 2002, the General Assembly restructured state and local taxes because it expected the new rules would increase residential property taxes. Three major relief measures were enacted to cut property taxes and help protect homeowners:
•The Homeowner’s Exemption was increased from $6,000 to $35,000; a homeowner does not pay any property tax on the first $35,000 (up to half) of a home’s value. This progressive measure provides help for all homeowners, but especially helps those with lower-valued homes.
• A new 60 percent Property Tax Replacement Credit (PTRC) was created for the School General Fund Tax Levy. Combined with other credits, the state now pays about 85 percent of the cost of operating local schools.
• The Homestead Credit was increased from 10 percent to 20 percent. With this credit, the state pays 20 percent of each individual’s net property tax bill remaining after payment of the replacement credit for schools.
What is trending?
Trending is the annual adjustment of real property values in between reassessment years. Instead of adjusting property values only during reassessment, assessors now adjust the assessed values of real property based on sales trends for each neighborhood.
Why did the General Assembly initiate trending?
Under the market-value system, some property, such as residential, appreciates at faster rates than other property. If residential properties were only adjusted every 5 - 7 years during a general reassessment, there would be significant jumps in assessed value. One of the primary goals of trending is to recognize changes in value as they occur and avoid periodic big jumps in value.
This year is not a reassessment year and I had a large increase in my assessed value. Is my assessor correctly assessing my property?
2006 Pay 2007, the first year of trending will seem like a reassessment year since Indiana hasn’t conducted a general reassessment or adjusted assessed values on a statewide basis since 2002. Once the first year of trending is complete, assessed values under trending in each subsequent year should be much more modest. The rule of thumb of a correct assessment is whether the property could be sold at the assessed value.
Aren’t some the AV increases we are seeing for Pay 2007 taxes relatively high even for the first year of Trending?
Yes. Although they were supposed to, many counties did not increase the AV on residential property all the way to market value in the last reassessment. Some of the 2007 increase in some counties actually represents a “catch up” AV that should already have taken place.
Who is responsible for reassessments and trending?
By statute, the DLGF, a state agency reporting to the governor, establishes rules that govern how reassessment is conducted and how property is to be valued. Local assessors implement the rules and conduct the reassessment or trending under the direction of the DLGF. After all property is assessed, the county reports total property values and proposed tax rates to the DLGF for certification.
Does an increase in my assessed value automatically indicate that my property taxes will increase similarly?
Not necessarily. If all types of property increase by similar amounts, the overall effect will be minimal. However, if one type of property increases by a larger amount than another, the property tax burden will shift from one taxpaying group to the other. The preliminary data indicates that in the 13 counties completed (update) with trending, residential property is increasing proportionately more than other property types. This indicates that the property tax burden is shifting more to residential property taxpayers and away from other types of property.
The assessed value on my home only increased a little, but my tax bill had a significant increase. Why?
Even if assessed values are not increasing very fast, if schools or local government significantly increase their levies, tax bills can increase accordingly. In most cases levies to support operating budgets do not increase very much each year because there are controls on how fast they can rise. However, there are no such controls on debt service levies. If schools or other local units decide it is necessary to build new buildings, funds needed to pay annual debt service are added to the levy. This can have a big impact on tax bills for all property tax payers in that taxing district.
