Budgeting for AssessorsPart Two Dan Jones, Asst. Director Budget Division August 2017
Overview • The property tax system in Indiana • Calendars • Auditors role going from gross to net AV’S • Deductions and Other Adjustments • Abstract • Tax rates, Tax Bills, and Funds • Legislation
The Property Tax • National polls consistently show that property taxes are the second most hated of all taxes. • Based on values not ability to pay – i.e., it’s perceived as regressive*; • Property owner has no control; • Owner can lose the property if the tax is not paid. • *Institute on Taxation and Economic Policy. 2015. “Who Pays? A Distributional Analysis of the Tax Systems in All 50 States.”
Property Tax • Advantages of Property Tax: • The most stable revenue source for local governments*; • Predictable, barring legislative changes; • Imposed on an immobile tax base; • Government maintains and controls the records; • Strong and effective collection tools. • *Ronald C. Fisher. 2009. “What Policy Makers Should Know About Property Taxes.”
Property Tax • Property tax in Indiana is a primary source of funding for local budgets; • Townships and public libraries are the most reliant upon property tax revenue; • Cities and towns have more diversified revenue sources (PT is usually 25% to 35% of total revenues). • Schools use property tax for debt payments, buses, and transportation costs. • All revenues other than property tax are called “miscellaneous revenues.”
Status of 2017/2018 • Complying with all the assessment and budgeting deadlines is crucial for on time tax billing, collections, and distributions: • Real & PP Balanced by 7/16/16 31/92 • AV’s Certified by 8/1/16 10/92 • Budgets and Tax Rates Certified by 2/15/17 92/92 • 1st Half Property Tax Distribution by 6/30/17 92/92 • AV’s Balanced by 7/1/17 /92 • 2018 TIF Neutralizations Submitted and Approved /92 • 2018 AV’s Certified by 8/1/2017 /92
2018 Budget Status Map Status as of July 1, 2017
Property Tax • Property taxes are paid in two installments and distributed to governmental units twice a year; • 1st installment due May 10 and distributed by June 30; • 2nd installment due Nov 10 and distributed by Dec. 31; • Provides a consistent and predictable cash flow for local units of government.
Calendars • Budget and Assessment processes have established sequences of events with several statutory deadlines; • Calendars are contemporaneous; Budget and Assessment calendars are relational and overlapping but represent different processes with different cycles. • http://www.in.gov/dlgf/files/pdf/160621_-_Jones_Memo_-_Budget_Calendar_Revised.pdf • http://www.in.gov/dlgf/files/pdf/160105_-_Wood_Memo_-_2016_Assessment_Calendar.pdf
Purpose of Calendars • Goal of each calendar is to stay on schedule; • Process of both assessing and budgeting is sequential, meaning: • Some tasks must be completed before others can begin; • Results of each step affect the outcome of successive steps.
Impact of Non-Compliance • Ultimate goal is on-time property tax distribution to all governmental units in the county. • Non-compliance may result in severe financial consequences: • Expense of borrowing for cash flow purposes; • Penalties for late payments; • Potentially higher credit risk; • Potential disruption to vendors, employees, and taxpayers.
Process Sequence Auditor certifies Net Assessed Values Treasurer mails tax bills 2nd Installment of taxes due DLGF certifies budgets, rates and levies 1st Installment of taxes due Assessor provides property values to auditor Time Auditor prepares and delivers abstract to Auditor of State and Co. Treasurer Units adopt annual budget, rates and levies Auditor distributes taxes collected to all units Auditor applies deductions and credits to gross values Auditor publishes tax notices three times
Role of the County Auditor • Auditors are involved in almost all phases of the property tax and budget process; • Applies deductions and credits to arrive at net assessed values; • Certifies the Net Assessed Values (CNAV); • Prepares the abstract to send to the Auditor of State’s Office and the DLGF; • Publishes tax rates three times before due date and; • Processes settlement (distribution and allocation) of property taxes to each unit and fund. • Also responsible for the county budget and probably the budgets of some county wide units.
Gross to Net Assessed Values • By July 1, the county assessor is to deliver to the county auditor the real estate book (i.e., roll and balance 2017-pay-2018 gross assessed values). • By August 1, the county auditor is to apply the deductions and exemptions that have been filed with their office and certify the net assessed values (CNAV) to the DLGF. • DLGF is to make the CNAV information available to all units.
Deductions IC 6-1.1-12-0.5 Basis for taxation after deduction • Sec. 0.5. For each year that a deduction from the assessed value of tangible property is allowed, the assessed value remaining after the deduction is the basis for taxation of the property. • As added by Acts 1979, P.L.52, SEC.1.
Deductions IC 6-1.1-12-1 Mortgage Deduction • Deduction for property financed by mortgage or installment loans; home equity line of credit: • Instrument must be recorded in county recorder’s office. Amount of deduction is: • Balance of loan on the assessment date; • One-half of AV of property; or • $3,000, whichever is less. • Person must be a resident of the state, own the property, or be buying the property.
Deductions IC 6-1.1-12-9 Deduction for person 65 or older • Individual must be at least 65 on or before December 31 of calendar year before year of deduction; • Combined adjusted gross income of all owners does not exceed $25,000; • Individual owns or is buying the property one year before claiming the deduction; • They must reside on the property and assessed value of property does not exceed $182,430.
Deductions IC 6-1.1-12-9 Deduction for person 65 or older (Continued): • Individual receives no deductions other than standard deduction, supplemental, or deduction for compliance with fertilizer storage rules; • Individual must own or be buying the property; • Deduction is lesser of ½ of assessed value of property or $12,480; • Surviving spouse may be entitled to the deduction.
Deductions IC 6-1.1-12-11 Deduction for blind or disabled • Individual must be blind or have a disability; • Contract or loan is recorded with county recorder; • Property is principally used and occupied by individual; • Individual’s taxable gross income does not exceed $17,000; • Deduction is $12,480.
Deductions IC 6-1.1-12-13 Deduction for veteran with partial disability: • Deduction is $24,960 from assessed value of property individual owns or is buying and if: • Individual served in the military or naval forces of the United States during any of its wars; • Individual received an honorable discharge; • Individual has a disability with a service connected disability or 10% or more as evidenced by a pension certificate, an award of compensation, or a disability compensation check by Veteran’s Affairs or a certificate of eligibility from Indiana Dept. of Veteran’s Affairs.
Deductions IC 6-1.1-12-14 Deduction for totally disabled veteran or veteran age 62 and partially disabled: • Individual served in the military or naval forces of the United States for at least 90 days; • Received an honorable discharge; • Has either a total disability or is at least 62 years old and has at least a 10% disability evidenced by certificate; • Individual owns or is buying the property; • Assessed Value does not exceed $175,000; • Individual may receive a reduction of AV for $12,480.
Deductions IC 6-1.1-12-18 Deduction for rehabilitated residential real property; • If assessed value of a property has increased because it has been rehabilitated, owner may be entitled to a deduction; • Deduction is not to exceed the amount of the increase due to the rehabilitation or $18,720, whichever is less; • Deduction is limited to 5 years but a county, city, or town fiscal body may adopt an ordinance extending the deduction but not longer than 15 years; • No new rehabilitated deductions will be granted after January 1, 2017.
Deductions IC 6-1.1-12-26 Solar energy heating or cooling system • Owner of real property equipped with a solar energy heating or cooling system may have deducted annually from the assessed value of the property an amount equal to the out of pocket expenditures by the owner of the property for: • The components; and • Labor involved for installation of components needed to collect, store, and distribute solar energy.
Deductions IC 6-1.1-12-26.2 Property tax deduction heritage barns: • “Barn” means a building designed for housing animals, storing or processing crops, storing, and maintaining equipment; • “Heritage barn” refers to a barn constructed before 1950 and it is a mortise and tenon barn; • Deduction equals 100% of assessed value of the structure and foundation.
Deductions Miscellaneous Deductions • IC 6-1.1-12-28.5 Resource recovery system • IC 6-1.1-12-29 Wind power device • IC 6-1.1-12-31 Deduction for coal conversion system • IC 6-1.1-12-33 Deduction for hydroelectric power device • IC 6-1.1-12-34 Deduction for geothermal energy heating or cooling device • IC 6-1.1-12-34.5 Deduction for use of coal combustion products
Deductions IC 6-1.1-12-37 (Version d) Standard deduction for homesteads • “Homestead” means an individual’s principal place of residence, located in Indiana, that the individual owns or is buying via an instrument recorded at the county recorder’s office. Individual must have an interest in the property as of assessment date. • Deduction is the lesser of 60% of assessed value of the property or $45,000. • Real estate is not to exceed 1 acre immediately surrounding the dwelling. • Separate conditions apply to mobile or manufactured homes not assessed as real property.
Deductions IC 6-1.1-12-37.5 Supplemental deduction for homesteads • A person entitled to receive the standard deduction from the assessed value of property is also entitled to receive a supplemental deduction after application of the standard deduction. The amount of the supplemental deduction is: • 35% of AV remaining after standard deduction up to $600,000, and; • 25% of assessed value that exceeds $600,000.
Deductions IC 6-1.1-12-40.5 Limits on deductions for mobile or manufactured homes • Sec. 40.5. Notwithstanding any other provision, the sum of the deductions provided under this chapter to a mobile home that is not assessed as real property or to a manufactured home that is not assessed as real property may not exceed one-half (1/2) of the assessed value of the mobile home or manufactured home. • As added by P.L.291-2001, SEC.143.
Credits Property tax credits • Definition: A type of property tax relief applied directly to the tax liability after it is initially calculated. The most common credits are: • Circuit breaker credits; and • Property tax replacement credits; and • Homestead credits.
Other Adjustments to AV Tax Increment Financing • Assessed values of property in TIF allocation area are assessed as all other properties; • TIF property values are included in gross assessed values on the abstract and then subtracted to arrive at the net; • Tax rates are calculated using net assessed values, which does not include TIF AV.
Other Auditor Adjustments Auditor’s Corrections • Corrections made by county auditor to successful assessment appeals. May result in refunds of taxes paid and/or future tax credits; also results in a lower assessed value. Correction of Errors • Corrections to erroneous tax bills and successfully appealed by taxpayer. Results in a refund to the taxpayer.
Other Auditor Adjustments AV Withholding • Under IC 6-1.1-17-0.5, the county auditor may reduce for a calendar year the taxing district’s net assessed value used to set tax rates for the taxing district. The reasons for withholding are: • Successful appeals of AV • Deductions from granting of standard deductions after certification; • Granting of other deductions; • Reassessment. • Amount of withholding may not exceed 2% of net assessed value.
Abstract • “ The Abstract is a summary report of real and personal property assessed values, deductions, tax charges and credits for a property tax year filed by county auditors with the Auditor of State’s office. It is a report of property values and taxes charged in a county. The Abstract template is created by the Settlement Department at the Auditor of State (AOS) and provided to the Department of Local Government Finance (DLGF). DLGF uploads taxing district names, fund titles and codes, and county specific tax rates for each county. The DLGF sends the county specific abstract to the Settlement Department. Then, the Settlement Department updates the Abstract with information collected in the Pre-Abstract survey.” • Source: Auditor of State Spring 2015 Auditor’s Conference Review of Abstracts
Function of the Abstract • Abstract calculates and displays: • Gross assessed values by tax district; • All deductions and credits by tax district; • Calculates net assessed values by district; • Tax rates by unit, fund, and tax district; • Calculates taxes to be billed by tax district, taxing unit, fund, and allocation to each unit by fund; • Calculates the amount of taxes to distribute to TIF funds; • Includes the adjustments for circuit breaker credits.
Abstract to Tax Bills • Auditor of State must approve a county’s abstract before the taxes can be calculated and billed. • Approval of abstract provides auditor’s the tax rates to be charged; • Amount of deductions to be allowed; • And credits to be subtracted, including circuit breaker credits.
Property Tax Bills • Property tax bill is a statement showing the assessed value of the property and the deductions allowed from those values and the tax rates charged minus any credits. • Property tax bills also serve as the notice of assessment (TS-1) in some counties. • A tax bill also shows the amount of taxes charged by each unit of government in the tax district.
Sample Calculations Property Tax Levy = Rate X (AV/100) • Gross Assessed Value $167,900 • Minus Deductions (Homestead*) 91,015 • Equals Net Assessed Value $ 76,885 • Multiplied by Tax Rate 3.4959 • Equals Gross Tax Liability $2,687.82 • Minus Local Tax Credits** 161.27 • Net Property Tax$2,526.55 • Minus Savings Due to Tax Caps*** $ 847.55 • Total Property Tax Liability $1,679.00 * Standard deduction of $45,000 plus 35% of remaining AV ** Property Tax Replacement Credit of 6% *** 1% of Gross Assess Value
Property Tax Rates • Most governmental units have the authority to levy property taxes; • Includes: • Counties; • Cities and towns; • Townships; • Schools; • Libraries; • Municipal Corporations; • Special units.
Property Tax Rates • The location of a piece of property within a county determines the combination of services provided by different governmental units that a property owner receives. That combination determines the property tax rate. • Properties with the same combination of services is a “tax district.”
Example • Compare two tax districts in Marion County:
Tax Comparison Dist. 800 Dist. 102 Gross Assessed Value $167,900 $167,900 Minus Deductions* 91,015 91,015 Equals Net Assessed Value $ 76,885 $ 76,885 Multiplied by Tax Rate 2.0711 5.2079 Equals Gross Tax Liability $1,592.36 $4,004.09 Minus Local Tax Credits** 95.54 240.24 Taxes Due Before Caps $1,496.82 $3,763.85 Minus Savings Due to Tax Caps $ 0.00 $2,084.85 Total Property Tax Liability $1,496.82 $ 1,679.00 Circuit Breaker Threshold $1,679.00 $1,679.00 * Deductions: Standard Homestead $45,000; Supplemental HS $43,015; Mortgage $3,000 ** Assumes 6% PTRC
Tax Rates • Each taxing unit may have more than one fund with a property tax rate; • Example: Any Indiana County: • County General Fund • County Reassessment Fund • County Highway • County Health Fund • County Bond Fund (Debt Service) • Cumulative Capital Development Fund • County Bridge Fund
Funds • The property tax supported funds each type of unit may have is mostly governed by Indiana Code; • State Board of Accounts oversees the appropriate use of funds; • DLGF controls the level of property taxes levied; • Other funds units may have are mostly special revenue funds or “user fee funds”; • Units may also establish “home rule funds” which are not statutorily required.
Funds with Tax Rates • Units that have funds with property tax rates operate within a “maximum levy;” • Maximum levy is initially established by DLGF; • After established, growth in the maximum levy is “controlled” by state statute; • Basically, growth is limited to a statewide average percentage increase based on income growth (currently 3.8%).
Example of County Max Levy Miscellaneous Changes to Maximum Levy: Mental Health $210,000 Dev. Disabilities $ 39,312 Cum. Fund $461,151 Total $706,780
Summary • A budget is a financial plan that includes both revenues and expenses for a specific period of time; • Appropriations are largely supported by property tax; • Property tax growth is limited and controlled; • Property tax is determined by the approved spending levels of local units of government and the net assessed value of taxable property; • To a great extent, the property tax burden depends upon where the property is located.
Contact the Department • Dan Jones, Asst. Dir. Budget Division • Telephone: 317.232.0651 • Email: firstname.lastname@example.org • Director of Budget Division • Telephone: 317.234.3937 • Main Office Number: 317.232.3777 • Website: www.in.gov/dlgf • “Contact Us”: www.in.gov/dlgf/2338.htm