Property Tax Basics

Property Tax Basics


♪ (music) ♪ Larry: Hi, my name is Larry DeBoer and I’m a professor in the Agriculture Economics Department and a specialist with the Cooperative Extension Service at Purdue University in West Lafayette, Indiana Welcome to our series of videos about Indiana local government! Today, let’s talk about property taxes, In most places of the United States the property tax is the main source of tax revenue for local governments: counties, cities, school districts, libraries, townships, and so forth That’s certainly true in Indiana, the property tax is also important for taxpayers If you own a home or a business, if you’re a farmer with farmland or a landlord with rental property you probably pay the property taxes So, let’s start with the basics In Indiana, there are 3 terms you need to know to understand the property tax and they are: Assessed Value, (ding) Tax Levy, (ding) and Tax Rate (ding) Let’s start with Assessed Value ♪ (music) ♪ Assessed Value is the base of the property tax, the thing that is taxed The property tax is different from the income or sales tax because there isn’t always a record of what to tax like a paycheck or a sales receipt For the property tax, you could pay a percentage of the selling price of your property except most properties doesn’t sell every year So, what can we do? We have to estimate property value The Indiana Supreme Court established a standard for these estimates in an important decision in December 1988 To paraphrase, the standard is Objective Measures of Property Wealth We elect assessors to estimate the value of property The objective measures that the assessors use are numbers like selling prices for properties that sell, rents earned on rental properties, or construction costs to replace a structure For most properties, the assessment is a prediction of what the property could sell for if it was sold in the market to a disinterested stranger That’s often called market value Since 2007 in Indiana, property assessments have been adjusted each year to account for changes in selling prices, rents, and costs That’s a process called trending Every once in awhile, property is reassessed Data on the characteristics of property are collected anew: square footage, building material, numbers of rooms, and so forth that’s to make sure the data are up to date and accurate Indiana finished a statewide reassessment for taxes in 2013 Starting in 2015 though reassessment will go to a four year cycle with 1 quarter of the property in each county reassessed each year So, assessed value is the base of the property tax Which is the dollar value placed on taxable property by the local assessor It’s based on objective measures of property wealth called market value They’re trended each year and every so often we collect a lot of new data in a statewide reassessment Now, let’s move on to the tax levy ♪ (music) ♪ The tax levy is the amount of property tax revenue that the local governments intend to collect The levy is limited by the state property tax controls for most property tax revenue There is a maxium levy that local governments can collect, but most local governments set their levies right at that maxium The maxium levy increases each year based on changes in Indiana total personal income Lately the increase has been about 3% per year The property tax levy is divided among the local government’s funds The general fund is usually the big one Its revenue is used to support the operating cost of the government which is mostly paying benefits of employees Other funds include the school and library capitol projects funds, several cumulative funds, and debt service funds Not all of these funds are subject to the maxium levy Debt Service Funds, for example, collect property tax revenue to payback money that’s been borrowed for big infrastructure projects Those levies are set by the borrowing/ repayment schedule Property tax levies support most local governments, school corporations, counties and cities and towns recieve the most Maybe you noticed that I said the levy was the amount, local governments intend to collect Sometimes actual revenues fall short of intentions The tax caps may limit the taxpayer’s payment to less than the full tax bill Taxpayers get a credit for any amount above the caps and local government doesn’t get the revenue and some taxes will be delinquent People owe taxes on their property, but don’t pay That’s a particular problem after recessions So the tax levy is the property tax revenue that local governments intend to collect The amount is controlled by state rules It goes into several funds, the biggest of which is the General Fund Not all of the levy is collected because of tax delinquency or tax cap credits Now, the Tax Rate (ding) ♪ (music) ♪ Here’s another way that the property tax is different from incomes taxes or sales taxes With the income tax, the legislature sets a tax rate a flat 3.4% in Indiana And taxpayers pay that percentage of their taxable income With the sales tax, the legislature sets a tax rate, 7% in Indiana and taxpayers pay that percentage of their taxable sales With the property tax, the local government sets the levy, the amount to be collected and then fixes the rate to collect that amount They divide the levy by the assessed value, and the result is the rate That way, multiplying the rate by the assessed value of each property delivers the needed tax levy That means the tax rate can differ for each local government in Indiana and usually changes from year to year Rates work like this Each local government sets its levy and then divides by the assessed value of the property within its borders to get the rate The taxpayers properties will be located inside the borders of several different local government units A property will be within a county, and a township, and a school corporation and it might be in a city or town, a library district or other special district The rates of each of these units are added up and that’s the rate that the taxpayers pays In Indiana, we express rates as dollars per $100 assessed value that’s really the same as a percentage For example, a $2 rate means the taxpayer owes taxes equal to 2% of the value of his or her property So, each local government sets its tax rate by dividing its levy by its assessed value Tax rates vary across local governments and year to year The taxpayer pays the sum of the rates of the local governments in which the property is located That’s it, the basics, is there more? Oh my gosh, yes! But if you know assessed value, levy, and rate You’re on your way to figuring it all out We’ll have more videos to help with that Thanks for watching I’m Larry DeBoer ♪ (music) ♪

One thought on “Property Tax Basics

  1. Jesus made a tax collector quite his job. That does not tell you what Jesus thinks about money and taxes? Jesus says Freely you have received, freely give. What do you think that means, charge the hell out of someone casting them out on the sidewalk had they not pay? That cannot be, but that is what people have done. The world is following Satan's cash. That needs to change.

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