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Indiana Gov. Mitch Daniels is pushing for sweeping property tax
reform. The General Assembly will consider his proposal in its
January 2008 session.
The tax reform plan comes
in response to what many believe is a statewide property tax
crisis in Indiana. This year, tax bills have doubled and even
tripled for some property owners.
Daniels announced he wants
to provide about $1 billion in property tax relief by:
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Capping residential taxes
at 1% of assessed value
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Capping rental property
(4 units or less) at 2% of assessed value
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Capping commercial and
industrial property at 3% of assessed value
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Abolishing elected
township and county assessors and creating a single appointed
assessor in each county
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Increasing the sales tax
from 6% to 7%
The governor’s proposal
also requires that local tax jurisdictions control their
spending. Spending cannot grow faster than county income (based
on a rolling six-year average) and new construction projects
cannot be initiated without an affirmative vote from residents.
The Tax and Capital Control Board in each county would review
and approve the budgets of all taxing units so that the impact
on taxpayers is taken into account before spending increases are
permitted.
Tax Caps
Business leaders expressed
concern over Daniels’ call for a 1% tax cap for homeowners and a
3% cap for businesses. Many Indiana tax jurisdictions currently
have effective tax rates of 2.5% or less. So the implementation
of a 3% rate means the majority of commercial and industrial
property will face higher taxes even if the value remains the
same.
Analysts question whether
the disparity in a 1% cap for residential and a 3% cap for
business property meets constitutional requirements that taxes
be assessed at a uniform and equal rate.
"It does seem to me that
when one class of property owners pays three times the amount of
another, that is not uniform or equal," Indianapolis attorney
Thomas Atherton told the Indianapolis Star.
Gov. Daniels wants the tax
caps to be amended into the state’s constitution. However, that
could not happen before 2010 because any constitutional
amendment must be passed by two separately elected General
Assemblies and then ratified by the voters in a general
election.
Fewer Assessors
Indiana currently has 1,100
officials responsible for assessing property (1,008 townships
and 92 counties). The governor says it’s no wonder that
assessment values vary widely, both among and even within
counties. He contends there are simply too many assessors and
not enough of them have adequate professional training.
In a televised speech,
Daniels explained, “Our unfair and unfixable assessment system
must go. I will propose the elimination of all political
assessors and the appointment by each county council of a
single, qualified and certified assessor to oversee trained
professionals in conducting future appraisals.”
Nation’s Highest
Sales Tax
If the governor’s plan is
approved, Indiana businesses would have to charge the highest
sales tax in the country. Nevertheless, the governor believes
the 7% sales tax rate would not negatively impact the economy.
Neighboring states Michigan
and Kentucky currently have a 6 percent sales tax rate. Ohio and
Illinois have local option sales tax, putting bordering county
rates at an average 6.75% in Ohio and 6.55% in Illinois.
Property Tax
Should Not Be Eliminated
Gov. Daniels said he gave
careful thought to completely doing away with property taxes,
which supply more than $9 billion to Indiana schools and local
governments. But he ultimately concluded it would be too risky.
“Much as I would like to
have taken that route, the risks to our schools, to small
business and to our economy in general dissuaded me. In
particular, I could not support the large increase in personal
income taxes, paid by every Hoosier worker and most small
businesses that would be necessary for the total elimination of
property taxes,” Daniels said.
Click here to read the full
text of Daniels’ speech
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