Effects of Property Tax Caps & the Homestead Deduction

Beginning in 2009, state mandated property tax caps were implemented locally to provide tax relief to property owners in Vanderburgh County and the City of Evansville. These caps were set at 1%, 2%, and 3% of the gross assessed value, with the type of property dictating which cap each property receives. In 2012, the total reduction to property tax bills equaled nearly $10.5 million. In 2013, the number climbed to an estimated $22.5 million. This increase indicates that many more taxpayers are receiving either an increase to their tax cap credit or they are receiving a first-time credit on their bill. These credits are calculated after the tax rates have been certified by the state and given to the county auditor’s office, and represent revenue that cannot be collected and distributed to the taxing units which includes Vanderburgh County, the City of Evansville, the EVSC, the Levee Authority, Library, Airport Authority, Town of Darmstadt and township trustees.
Tax cap credits increased primarily due to an increase in tax rates throughout the city and county. For the first time since the caps have been in place, tax rates for residents within the city limits are over 3%. In the past, non-residential or commercial/industrial property within the city did not receive a tax cap credit because these properties were part of the 3% category, and the actual tax rate had been below 3%. For 2013, the tax rate within the city limits climbed above 3%, and resulted in credits in this category going from zero to over $5.3 million. The increased tax rates also affected those properties that received a homestead deduction within the city limits. Homes with an approximate assessed value above $100,000 received a cap credit on their bill. Last year, the assessed value threshold to receive a cap credit was $119,000. The increase within the city for the 1% tax cap category is $1.9 million for 2013. These two categories equal 60% of the overall increase to tax caps for 2013.
House Enrolled Act 1344-2009 also affected the tax caps. This law requires all Indiana homeowners who receive the homestead standard deduction to submit verification of their eligibility. Taxpayers with a homestead deduction on file in the auditor’s office received a Homestead Verification form, also known as the “Pink Form”, the last three years with their tax bill. This form required the taxpayer to provide certain information, sign off that they are the owner of record, and reside in their home as their principal place of residence. If this form was not received in the Auditor’s office by December 31, 2012, the homestead deduction was removed per statute, and the taxes due in 2013 reflected an increase accordingly. There are nearly 2,800 homestead deductions that were removed for 2013, which put them in the 2% tax cap category where they may have received additional tax cap credit. However, removing the homestead deductions increased the net assessed value for these properties, which could increase the tax base within the city and county, and help lower future tax rates.
The impact of tax caps beyond this year is difficult to predict without having total assessed values throughout the city and county and future budgets from each taxing unit. However, if property values increase and additional assessed value through the construction of residential, commercial and industrial property is created, coupled with reduced tax levies, overall losses due to tax caps could be reduced over time.