How we got here from there: a chronology of Indiana property tax laws.

• Author: Faulk, Dagney

With the recent general reassessment of real property, the various resulting court cases, and the localized billing problems that have followed the reassessment, property taxes have come to the forefront of the public policy debate in Indiana. This is an opportune time to review the major legislation (1) that has affected Indiana property taxes over the past few decades, providing a history lesson and perhaps some perspective on how the system became what it is today. (2) The tables and charts provide supplemental information, helping to put local government taxes and expenditures in perspective.

In Indiana, real property (land and improvements that are considered permanent fixtures, such as a house) and certain types of personal property (tangible property not permanently affixed to real estate, such as equipment and machinery) are subject to the property tax. The bulk of property tax revenue (approximately 70 percent in 2002) is raised through the tax on real property. Only real property is subject to periodic general reassessments to determine taxable value. In contrast, the value of personal property is self-reported by taxpayers each year. Businesses pay the bulk (approximately 99 percent in 2002) of the personal property tax. Property owned by government and nonprofit organizations is not subject to the property tax.

Bowen Tax Package (1973)

Property tax reform in Indiana can be traced back to this tax reform package, passed in response to increasing local property tax rates and levies. (3) The reform limited local governments' ability to increase property tax levies, set up alternate funding mechanisms for local government, and shifted some of the responsibility for revenue generation to the state. School funding was treated separately and increased through a state school aid formula. The reform package

1. doubled the sales tax from 2 percent to 4 percent (exempting groceries) and allocated the extra revenue to property tax reduction through the Property Tax Replacement Credit (PTRC); (4)

2. permitted counties to levy local option income taxes (CAGIT) with most of the revenue used to reduce property taxes;

3. set limits on property tax rates and levies for counties adopting CAGIT;

4. established tax control boards.

   General Assembly Changes (1979)

   These changes, effective in 1980, were a response to reassessment and the economic environment (high inflation) of the late 1970s.

1. For local taxing units, the growth in tax levies was limited to the same growth rate as the Assessed Value Growth Quotient (AVGQ). AVGQ equals the average growth in AV over the prior three years, excluding reassessment, which was scheduled to occur every four years. The minimum AVGQ was set at 5 percent and the maximum was 10 percent. School property tax levies were restricted using the school funding formula. Over the years, many jurisdictions would "bank" the difference between their actual and maximum levy growth to use in future years if needed.

2. Taxing units were allowed to appeal to the state tax board for an excess levy--above the AVGQ normally permitted.

   Court-Ordered Reassessment (1993-2000)

   The initial lawsuit, Town of St. John v. State Board of Tax Commissioners, was filed in 1993. The plaintiffs argued that...