Key Points - CBER Data · 2016-03-01 · Economic Outlook and the Ball State Business Roundtable....

© Center for Business and Economic Research, Ball State University • 1 • www.bsu.edu/cber • www.cberdata.org

CENTER FOR BUSINESS AND ECONOMIC RESEARCH

POLICY BRIEF: FEBRUARY 29, 2016

About the Authors

Dagney Faulk, PhD, is director of research at Ball State CBER and a research professor. Her research focuses on state and local tax policy and regional economic development issues. She received her doctorate in economics from the Andrew Young School of Policy Studies at Georgia State University.

Michael J. Hicks, PhD, is director of Ball State CBER and the George & Frances Ball distinguished professor of economics in the Miller College of Business. His research interest is in state and local public finance and the effect of public policy on the location, composition, and size of economic activity. Hicks earned doctoral and master’s degrees in economics from the University of Tennessee and a bachelor’s degree in economics from Virginia Military Institute. He is a retired army reserve infantryman.

About Ball State CBER

The Center for Business and Economic Research (CBER) conducts timely economic policy research, analysis, and forecasting for a public audience. We share our insight with the community through the Indiana Economic Outlook and the Ball State Business Roundtable. The CBER Data Center offers primary data sets, data resources for grant writers & economic developers, and a projects & publications library at www.cberdata.org.

Center for Business and Economic Research2000 W. University Ave. (WB 149)Muncie, IN 47306765-285-5926 • [email protected]/cber • www.cberdata.orgfacebook.com/BallStateCBERtwitter.com/BallStateCBER

Center for Business and Economic Research, Ball State University

• Dagney Faulk, PhD, director of research and research professor, CBER

• Michael J. Hicks, PhD, director, CBER George & Frances Ball distinguished professor of economics, Miller College of Business

CBER Data Tags: #PropertyTax #Indiana

Residential Property Tax Deductions & Effective Property Tax Rates in Indiana

Key Points The analysis of property tax deductions and effective tax rates presented here shows that:

• The amount of residential property tax deductions has dramatically increased with the implementation of the supplemental homestead deduction in 2009 with total residential deductions increasing from 13.9 percent of GAV in 2003 to 29.3 percent of GAV in 2013.

• Increased deductions have reduced the property tax base at the same time that the imple-mentation of property tax rate caps has reduced property effective tax rates.

• Analysis of MLS data matched with property tax data shows that the effective tax rate and average tax payments for the typical residential property has decreased since 2006.

• Properties with lower sales prices have higher effective tax rates than properties with higher market value.

• There is much variation in effective tax rates across the spectrum of property values. Effective tax rates decrease with price for residential properties with sale prices below $150,000 and then increase. Indiana’s property tax system can be described as regressive with higher-valued properties paying a smaller share of value in property taxes than lower-valued properties.

This research was funded by the Indiana Association of REALTORS®. IAR represents nearly 16,000 REALTORS® who are involved in virtually all aspects related to the sale, purchase, exchange, or lease of real property in Indiana.

The term REALTOR® is a registered mark that identifies a real estate professional who is a member of America’s largest trade association, the National Association of REALTORS®, and subscribes to its strict Code of Ethics.


BackgroundProperty Tax Deductions and Exemptions in Indiana

There has been analysis of the impact of property tax rate caps and corresponding credits on local property tax revenues (Faulk 2013). However, the taxable property tax base has also changed substantially over the past decade. Deductions and abatement are subtracted from gross assessed value. Figure 1 shows the changes in residential and business deductions since 2003. Residential deduc-tions increased dramatically growing from 13.9 percent to 29 percent of gross assessed value (GAV) or $51 billion to $132 billion over this period (not adjusted for inflation). Business deductions have fluctuated between $6.2 billion and $9.7 billion and were a decreasing share of GAV over this period. Appendix Table A1 pro-vides more detailed information on property tax deductions.

We also include the assessed value of properties that are exempt from taxation. Exempt property includes government property and property owned by not-for-profit organizations. The reported data suggests that the assessed value of exempt property relatively stable, between $21 and $23 billion, but a declining share of GAV. However, reporting inconsistencies affect the accuracy of exempt property values.

Residential Property Tax Base Changes

The addition of the supplemental homestead deduction in 2009 and changes to the standard deduction beginning in 2007 substan-tially changed the amount of residential property tax deductions taken each year. The three largest residential property tax deductions are the homestead standard deduction, the supplemental homestead deduc-tion, and the mortgage deduction. These deductions are applied to gross assessed value of owner-occupied properties in the state.

IntroductionIn this policy brief, we examine property tax deductions that affect the taxable value of residential properties in Indiana and effective tax

rates on residential properties in the state. We do so in three parts. We begin with an overview of property tax deductions for residential and business property in Indiana followed by a discussion of changes to the property tax base resulting from adjustments to the major residential property tax deductions. Next, we proceed to examine effective tax rates for residential properties that sold between 2006 and 2012. Finally, we summarize our results.

Figure 1. Changes in Residential and Business Property Tax Deductions, 2003-2013Source: Indiana Department of Local Government Finance, Report on Property

Tax Exemptions May 2006 and April 30, 2014Note: * DLGF (2014) notes, “Exemption reporting continues to be an area prone

to reporting inconsistencies” (page 12).

1a. Share of Gross Assessed Value (%)

1b. Amount ($)

0%

5%

10%

15%

20%

25%

30%

35%

Total exemptions (% of GAV)

Total deductions & abatement (% of GAV)

Business deductions (% of GAV)

Residential deductions (% of GAV)

201320112009200720052003

$0

$30 billion

$60 billion

$90 billion

$120billion

$150billion

201320112009200720052003

Total exemptions ($ billion)

Total deductions & abatement ($ billion)

Business deductions ($ billion)

Residential deductions ($ billion)


A brief description of these deductions is provided in Box 1. As Figure 2a shows, statewide these deductions as a percentage of GAV increased from 13.5 percent of GAV in 2003 to 28.5 percent in 2009 and have since remained at about 28 percent of GAV. In total, these deductions have increased from $49.7 billion in 2003 to $128.9 bil-lion in 2013 (not adjusted for inflation). See Figure 2b for details.

These deductions reduce the property tax base, which puts upward pressure on tax rates because rates would need to increase to raise equivalent tax revenue. Rate caps restrict property tax rates and associated tax levies. As a result, both rate caps and a diminished property tax base have limited the revenue raising capacity of many local governments in Indiana.[1] Higher deductions act to redistrib-ute the tax burden among properties in the same jurisdiction that are not at the rate cap, and ultimately moves tax rates all properties in the jurisdiction closer to the rate cap.

DataThe data set used in the following analysis of property tax deduc-

tions and effective tax rates for properties sold between 2005 and 2012 is from the IAR data warehouse. This data set is the result of collaboration of the Indiana Association of REALTORS®, Inc., the Indiana Business Research Center and Seven Opals Software, LLC to match 2005 through 2012 real estate sales data from the multiple

listing service (MLS) with property tax data from the Indiana Department of Local Government Finance.

This data set covers sales of residential properties including both owner occupied and rental units. In 2012-pay-2013, residential property made up about 47 percent of net assessed value and 43 percent of the net tax levy (including residential homestead, agri-cultural homestead and non-homestead residential). Commercial, industrial, utility and non-homestead agricultural properties that make up the balance of the property tax base and levy in the state are not considered in this analysis. During 2007, the period prior to the General Assembly’s passage of property tax rate caps and other restructuring of the property tax system in the state, the residential share of AV and the levy peaked and has decreased with the imple-mentation of property tax caps.

There were major changes in Indiana’s property tax system during the 2005-2012 period covered by this data. Trending of assessments

Box 1. Mortgage, Standard, and Supplemental Tax Deductions

The mortgage deduction is applied to mortgaged real property or mobile homes owned by a person who is a resident of Indiana. The amount of the deduction is the lesser of $3,000, the amount of the mortgage balance, or half of the assessed value of the real property.

The homestead standard deduction is available for owner-occupied primary residence including up to one acre of land. The amount of the deduction is the lesser of $45,000 ($35,000 prior to pay-2007) or 60% of assessed value (50% prior to pay-2009).

The supplemental deduction is automatically applied to properties receiving the homestead standard deduction. It is applied after the homestead standard deduction and before any other deductions. The amount of the deduction is an additional 35% of assessed value up to $600,000 and additional 25% deduction of net AV over $600,000. This deduction became available in pay-2009.

For more detailed descriptions, see DLGF (2014), LSA (2014), or IC6-1.1-12-1 through IC 6.1.1-12-7 for the mortgage deduction; IC 6-1.1-12-37 for the homestead standard deduction; and IC 6-1.1-12-37.5 for the supplemental deduction. A description of other deductions and deduction amounts is in DLGF (2014).

Figure 2. Standard, Supplemental, and Mortgage Tax Deductions, 2003-2013Source: Indiana Department of Local Government Finance, Report on Property

Tax Exemptions May 2006 and April 30, 2014

2a. Share of Gross Assessed Value (%)

2b. Amount ($)

0%

5%

10%

15%

20%

25%

30%

Standard, supplemental, & mortgage deductions (%)

201320112009200720052003

$0

$30 billion

$60 billion

$90 billion

$120 billion

$150 billion

201320112009200720052003

Total: Standard, supplemental, & mortgage deductions ($ billion)

Mortgage deduction ($ billion)

Supplemental deduction ($ billion)

Standard deduction ($ billion)

1. The property tax replacement credit (PTRC) was eliminated after CY 2008. The PTRC was 20 percent of operating tax levies for real property and nonbusiness per-

sonal property. PTRC payments from the state to local governments during CY2008, the last year PTRC payments were made, totaled $1.704 billion.


was implemented in 2007 as a means to incorporate changes in property value between general reassessments. In 2008, property tax rates on homesteads were capped at 2.0 percent of gross assessed value (GAV). The rate caps were phased in for all property classes in 2009 with rate caps of 1.5 percent on homesteads, 2.5 percent on other residential, commercial apartments and farmland and 3.5 percent on all other real and personal property (primarily business property). Rate caps were fully implemented in 2010 at 1.0 percent on homesteads, 2.0 percent on other residential, commercial apart-ments and farmland and 3.0 percent on all other real and personal property. The Great Recession, which corresponded with the burst-ing of the housing bubble, began in late 2007 and was officially over in June 2009. These legislative and economic changes influenced assessments, tax rates and the market prices of homes in complex and regionally heterogeneous ways.

With data from the IAR Data Warehouse, we are able to examine the impact of the three largest deductions on properties with differ-ent market values. Table 1 shows the average and aggregate value for each of these property tax deductions for properties sold in 2012. In 2012 these deductions were 74 percent of GAV for properties with market values between $10,000 and $30,000 and 31 percent of GAV for properties valued at more than $1 million (Figure 3). The structure of the deductions determines their value. The supplemen-tal homestead deduction is not capped, so the average supplemental deduction increases with property value. The homestead standard deduction and the mortgage deduction are capped, so the average converges to the capped value.

Effective Tax RatesThe effective tax rate is one measure of the equity of the property

tax system. In the remainder of this report effective tax rates are cal-culated as net property tax due divided by sales price (Equation 1).

Effective tax rate = (Net tax due ÷ Sale price) • 100 (1)

The sales price is a market-determined measure of property value. We present the mean effective tax rate for various years and ranges of property values. Table 2 shows that effective tax rates of properties

Table 1. Property Tax Deductions for Homestead Properties Sold in 2012Source: Author’s calculations from the IAR Data Warehouse • Note: p = Sales price, $M = Figure in millions of dollars

2012Mean Homestead

Standard Deduction ($)

Sum Homestead Standard Deduction

($M)

Mean Supplemental Homestead

Deduction ($)

Sum Supplemental Homestead

Deduction ($M)

Mean Mortgage Deduction ($)

Sum Mortgage Deduction ($M)

Total 43,381 1,581.4 36,592 1,333.9 2,999 82.9

$10,000 ≤ p < $30,000 32,532 64.8 8,381 16.7 2,997 3.0

$30,000 ≤ p < $50,000 38,819 87.0 11,944 26.8 2,998 3.9

$50,000 ≤ p < $70,000 40,895 125.5 14,131 43.4 2,998 6.1

$70,000 ≤ p < $100,000 43,959 272.6 18,034 111.8 2,998 13.5

$100,000 ≤ p < $150,000 44,887 460.3 28,177 289.0 2,999 24.6

$150,000 ≤ p < $200,000 44,980 256.5 42,879 244.5 3,000 14.0

$200,000 ≤ p < $300,000 44,994 198.5 64,766 285.7 3,000 11.2

$300,000 ≤ p < $500,000 45,000 92.9 103,708 214.2 3,000 5.3

$500,000 ≤ p < $1 million 45,000 21.7 184,864 89.1 3,000 1.2

p > $1 million 45,000 1.7 339,019 12.9 3,000 0.1

Table 2. Mean Effective Tax Rates, Tax Due, Sales Price, and Number of Properties Sold, 2005-2012Source: Author’s calculations from IAR Data WarehouseNote: Variation in the number of properties sold is partially attributable to

matching techniques used to create the data set.

YearMean Effective Tax Rate (%)

Mean Net Tax Due ($)

Mean Sales Price ($)

Number of Properties Sold

2005 1.574 1,697 134,185 34,803

2006 1.988 1,922 121,025 33,054

2007 1.486 1,593 140,861 33,116

2008 1.515 1,432 135,116 33,519

2009 1.438 1,289 125,048 42,818

2010 1.419 1,391 131,873 40,865

2011 1.463 1,417 131,449 39,462

2012 1.410 1,427 134,796 41,509

Figure 3. Property Tax Deductions as a Percentage of GAV for Owner-Occupied Houses Sold in 2012Source: Author’s calculations from IAR Data Warehouse • Note: p = Sales price

0% 10% 20% 30% 40% 50% 60% 70% 80%

0% 10% 20% 30% 40% 50% 60% 70% 80%

p >$1 M

$500 K ≤ p < $1 M

$300 K ≤ p < $500 K

$200 K ≤ p < $300 K

$150 K ≤ p < $200 K

$100 K ≤ p < $150 K

$70 K ≤ p < $100 K

$50 K ≤ p < $70 K

$30 K ≤ p < $50 K

$10 K ≤ p < $30 K

Total 54.6%

74.1%

71.0%

69.3%

66.4%

59.5%

53.1%

47.9%

43.3%

38.7%

31.0%

Mean mortgage deductionSupplemental deductionStandard deduction


that sold between 2005 and 2012 peaked in 2006 and decreased by about 30 percent (0.58 percentage points) between 2006 and 2012. The average net tax due decreased by about $500 since 2006.

Table 3 shows mean effective tax rates, the average tax payment and average sales price by sales price categories for properties selling in 2006 and 2012. Effective tax rates that decrease as market values increase indicate a regressive property tax system where the property tax payment is a larger share of market value for lower value proper-ties than higher value properties. In contrast, effective tax rates that increase with market value indicate a progressive property tax system where property tax payments are a larger share of market value for higher value properties relative to lower value properties.

Deductions taken on specific properties affect the property tax payment, so while residential property tax rate caps are codified at 1.0 percent of GAV on homesteads and 2.0 percent on other residential, commercial apartments and farmland, the effective rate varies. In addition, property tax rates are potentially higher than the 1.0 (or 2.0) percent rate caps on residential properties in jurisdictions that have approved capital referendums and counties with bond and lease payments entered into prior to July 1, 2008, and in counties where the caps would reduce property tax revenue by at least 20 percent.[2] We use sale price rather than GAV as the measure of market value, so effective tax rates on the residential

properties included in this analysis can be substantially higher or lower than the 1.0 (or 2.0) percent caps.

In their analysis of Indiana residential sales ratios, Faulk and Hicks (2015) found that lower-value residential properties tend to be over-assessed (assessed value greater than sale price) and that high-value residential properties tend to be under-assessed (assessed value lower than sale price). These assessment issues lead to dispari-ties in effective tax rates where taxes are a larger share of the sale price for lower-value properties and a lower share of the sale price of high-value properties.

Table 4 shows effective tax rates for homestead and nonhomestead properties which sold during 2012 by sale price categories. The data shows that the majority (87.8 percent) of residential sales are home-steads, and that homesteads are driving effective tax rate patterns among sales categories shown in the previous tables. For nonhome-stead properties effective tax rates decrease over the entire range of property values. Effective tax rates for homestead properties decrease until the sale price reaches $150,000, and then begin to increase. Owners of nonhomestead and homestead properties valued at less than $30,000 pay 6.19 percent and 2.15 percent of the value in property taxes, respectively.

With the exception of the highest value properties, effective tax rates are higher for nonhomestead properties which is expected

Table 3. Number of Sales, Tax Rates, Tax Due, and Sale Price for Properties Selling in 2006 and 2012Source: Author’s calculations from IAR Data Warehouse • Note: Figures not adjusted for inflation, p = Sales price

2006 2012

Number of Sales

Mean Effective Tax Rate (%)



Number of Sales

Mean Effective Tax Rate (%)



Total 33,054 1.988 1,922 121,025 41,509 1.410 1,427 134,796

$10,000 ≤ p < $30,000 2,551 5.556 1,050 20,136 3,959 4.144 755 19,626

$30,000 ≤ p < $50,000 2,575 3.096 1,215 39,871 3,338 2.220 854 39,329

$50,000 ≤ p < $70,000 3,589 2.044 1,224 60,573 3,660 1.327 789 60,119

$70,000 ≤ p < $100,000 7,353 1.605 1,357 84,989 6,729 1.025 865 84,893

$100,000 ≤ p < $150,000 9,380 1.440 1,761 122,616 10,728 0.955 1,178 123,551

$150,000 ≤ p < $200,000 3,797 1.410 2,409 170,737 5,882 0.957 1,637 171,177

$200,000 ≤ p < $300,000 2,401 1.445 3,488 241,318 4,552 0.978 2,371 242,277

$300,000 ≤ p < $500,000 1,096 1.486 5,458 366,930 2,110 0.992 3,633 366,293

$500,000 ≤ p < $1 million 278 1.501 9,571 635,994 508 1.026 6,562 640,522

p > $1 million 34 1.481 19,689 1,388,916 43 1.006 14,564 1,432,042

Box 2. Effective Tax Rate CalculationThe effective tax rate is the average rate at which residential property is taxed. Properties in the same area may have the same statutory tax rate and similar property values. But depending on the characteristics of the property (owner occupied versus renter occupied, for example) and the property owner (senior citizen, veteran, and disability status) various deductions and exemptions can be taken to lower assessed value and the corresponding effective tax rate. Generally, the effective property tax rate is calculated as the tax payment divided by taxable property value and expressed as a percentage. It is the percentage of property value that is actually paid in tax.

We use the following formula: Effective tax rate = (Net tax due ÷ Sale price) • 100

2. Property taxes imposed after being approved by voters in a referendum are not considered when calculating a person’s property tax credit (IC 6-1.1-20.6-7.5). See IC

6-1.1-20.6-7.5 for details on exemptions from the credit (rate cap) due to bond and lease payment.


because the property tax rate cap is higher for nonhomestead properties (2.0 percent versus 1.0 percent for homesteads). Non-homestead properties include rental properties and second homes which do not qualify for the standard homestead and supplemental homestead deductions. These deductions substantially decrease assessed value and thereby lower the amount of tax owed on qualify-ing properties. The information in Table 1 shows the values of these two deductions for homestead properties in 2012. For properties that sold in 2012, the homestead standard deduction, which is the lesser of $45,000 or 60 percent of gross assessed value, totaled $64.8 million (57 percent of GAV) for properties with sale prices between $10,000 and $30,000. This deduction totaled $1.7 million (3.6 percent of GAV) for properties selling for more than $1 million. In contrast the supplemental standard deduction, which is 35 percent of net AV up to $600,000 and then an additional 25 percent of net AV over $600,000, increases as a share of GAV. Together the home-stead standard deduction, the supplemental standard deduction and the mortgage deduction reduced the AV of properties sold in 2012 by more than 50 percent (Figure 3). In contrast, during 2005 the

homestead standard deduction and mortgage deduction decreased gross AV of properties sold by 28 percent (Figure 4).

If house value is considered one measure of ability to pay taxes, Tables 3 and 4 (homestead properties) show effective tax rates decrease as property values increase until the sale price reaches about $150,000 when effective rates begin to increase again. By this measure, Indiana’s property tax system is regressive for properties with sales prices below $150,000, and then progressive for proper-ties valued at $150,000 or more. Households owning properties with the highest sales prices still pay a lower share of property value in property tax than properties with the lowest sales prices (below $70,000). For nonhomestead properties effective tax rates show a regressive pattern over the entire range of property values.

County Differences in Effective Tax Rates

Turning our analysis to county-level data, we observe substantial variation in effective tax rates (Appendix Table A2) with mean effec-tive tax rates ranging from 0.473 to 2.342 during 2010-2012.

We provide more details for owner-occupied properties in urban counties and an aggregation of rural counties[3] using data from 2010-2012 (Table 4). These counties show the same patterns as the overall sample with low value properties having the highest effective tax rates. While the pattern is similar among counties, there is varia-tion in the magnitudes of the effective tax rates, average tax pay-ments and sales prices. In Hamilton County the average sale price is more than $200,000, while in Madison County it is less than $85,000, for example.

Table 4. Number of Sales and Effective Tax Rates for Nonhomestead and Homestead Properties, 2012Source: Author’s calculations from IAR Data Warehouse • Note: p = Sales price

Nonhomestead Properties, 2012 Homestead Properties, 2012

Number of Sales Mean Effective Tax Rate Number of Sales Mean Effective Tax Rate

Total 5,055 4.181 36,454 1.026

$10,000 ≤ p < $30,000 1,968 6.161 1,991 2.151

$30,000 ≤ p < $50,000 1,098 3.892 2,240 1.400

$50,000 ≤ p < $70,000 591 2.919 3,069 1.021

$70,000 ≤ p < $100,000 528 2.491 6,201 0.900

$100,000 ≤ p < $150,000 473 2.118 10,255 0.901

$150,000 ≤ p < $200,000 180 1.886 5,702 0.928

$200,000 ≤ p < $300,000 141 1.781 4,411 0.952

$300,000 ≤ p < $500,000 45 1.582 2,065 0.979

p > $500,000 31 0.981 520 1.027

Figure 4. Standard, Supplemental, and Mortgage Deductions as a Share of GAV, 2005-2012Source: Author’s calculations from IAR Data Warehouse

0%

15%

30%

45%

60%

75%

Standard, supplemental, & mortgage deductions (% of GAV)

20122011201020092008200720062005

3. Rural counties as defined by the Census Bureau.


Table 5. Homestead Property Effective Tax Rates and Taxes Due by County and Sales Price, 2010-2012Source: Author’s calculations from IAR Data Warehouse • Note: p = Sales price, Obs = Number of observations

A. Allen County, IN (Fort Wayne)

Homestead Property Sales Price

Obs.Mean

Effective Tax Rate

Mean Net Tax Due

Mean Sales Price

Sum Net Tax Due

Total 7,960 0.954 1,255 131,367 9,988,628

$10,000 ≤ p < $30,000 376 1.506 303 20,573 114,077

$30,000 ≤ p < $50,000 430 1.133 452 40,710 194,555

$50,000 ≤ p < $70,000 713 0.840 504 60,454 359,051

$70,000 ≤ p < $100,000 1,864 0.826 707 85,069 1,317,516

$100,000 ≤ p < $150,000 2,352 0.939 1,148 121,955 2,699,601

$150,000 ≤ p < $200,000 1,064 0.977 1,670 170,913 1,777,263

$200,000 ≤ p < $300,000 776 0.983 2,392 242,961 1,855,905

$300,000 ≤ p < $500,000 314 1.011 3,713 366,458 1,165,866

p ≥ $500,000 71 1.077 7,110 654,605 504,795

D. Hamilton County, IN (Fishers-Carmel)


Obs.Mean

Effective Tax Rate

Mean Net Tax Due

Mean Sales Price

Sum Net Tax Due

Total 9,491 1.016 2,482 240,918 23,554,946

$10,000 ≤ p < $50,000 43 1.677 553 34,134 23,790

$50,000 ≤ p < $70,000 73 1.254 774 61,994 56,503

$70,000 ≤ p < $100,000 415 1.044 911 87,524 377,989

$100,000 ≤ p < $150,000 2,181 0.979 1,254 128,369 2,735,145

$150,000 ≤ p < $200,000 2,239 0.982 1,686 171,783 3,775,649

$200,000 ≤ p < $300,000 2,385 1.014 2,478 244,022 5,910,021

$300,000 ≤ p < $500,000 1,536 1.055 3,962 374,548 6,084,925

p ≥ $500,000 619 1.082 7,417 682,296 4,590,922

B. Delaware County, IN (Muncie)


Obs.Mean

Effective Tax Rate

Mean Net Tax Due

Mean Sales Price

Sum Net Tax Due

Total 781 1.005 1,045 113,704 815,799

$10,000 ≤ p < $30,000 75 1.967 365 19,365 27,389

$30,000 ≤ p < $50,000 75 1.216 481 40,108 36,100

$50,000 ≤ p < $70,000 102 0.854 515 61,061 52,568

$70,000 ≤ p < $100,000 175 0.828 707 85,569 123,683

$100,000 ≤ p < $150,000 182 0.832 1,041 124,244 189,446

$150,000 ≤ p < $200,000 87 0.902 1,560 172,872 135,761

$200,000 ≤ p < $300,000 57 0.998 2,467 246,628 140,616

p ≥ $300,000 28 0.977 3,937 408,193 110,237

E. Hendricks County, IN (Danville)


Obs.Mean

Effective Tax Rate

Mean Net Tax Due

Mean Sales Price

Sum Net Tax Due

Total 4,006 1.037 1,601 157,083 6,414,125

$10,000 ≤ p < $50,000 74 1.659 542 34,855 40,099

$50,000 ≤ p < $70,000 124 1.259 764 60,737 94,691

$70,000 ≤ p < $100,000 565 1.079 930 86,830 525,635

$100,000 ≤ p < $150,000 1,586 0.999 1,238 124,080 1,963,965

$150,000 ≤ p < $200,000 843 1.015 1,730 170,564 1,458,811

$200,000 ≤ p < $300,000 589 1.008 2,441 242,226 1,438,001

p ≥ $300,000 225 1.023 3,969 386,034 892,924

C. Elkhart County, IN (Elkhart-Goshen)


Obs.Mean

Effective Tax Rate

Mean Net Tax Due

Mean Sales Price

Sum Net Tax Due

Total 3,134 1.214 1,109 107,129 3,476,381

$10,000 ≤ p < $30,000 317 2.553 490 20,420 155,486

$30,000 ≤ p < $50,000 285 1.649 635 39,145 181,047

$50,000 ≤ p < $70,000 359 1.144 690 60,573 247,607

$70,000 ≤ p < $100,000 667 1.003 855 85,216 570,067

$100,000 ≤ p < $150,000 905 0.944 1,159 122,821 1,048,735

$150,000 ≤ p < $200,000 344 0.973 1,660 170,769 571,102

$200,000 ≤ p < $300,000 197 0.998 2,355 235,494 463,853

p ≥ $300,000 60 1.015 3,975 387,303 238,486

F. Howard County, IN (Kokomo)


Obs.Mean

Effective Tax Rate

Mean Net Tax Due

Mean Sales Price

Sum Net Tax Due

Total 1,521 0.732 601 93,027 914,408

$10,000 ≤ p < $30,000 163 1.473 271 19,705 44,128

$30,000 ≤ p < $50,000 198 0.822 320 39,908 63,371

$50,000 ≤ p < $70,000 232 0.574 340 59,548 78,815

$70,000 ≤ p < $100,000 384 0.607 511 84,032 196,176

$100,000 ≤ p < $150,000 325 0.623 750 120,389 243,863

$150,000 ≤ p < $200,000 125 0.655 1,125 170,856 140,587

p ≥ $200,000 94 0.633 1,569 253,335 147,467


Table 5 ContinuedSource: Author’s calculations from IAR Data Warehouse • Note: p = Sales price

G. Johnson County, IN (Greenwood)


Obs.Mean

Effective Tax Rate

Mean Net Tax Due

Mean Sales Price

Sum Net Tax Due

Total 3,936 0.988 1,363 145,675 5,366,588

$10,000 ≤ p < $30,000 42 2.071 449 21,834 18,849

$30,000 ≤ p < $50,000 168 1.392 580 41,966 97,386

$50,000 ≤ p < $70,000 313 1.175 716 61,069 224,018

$70,000 ≤ p < $100,000 864 1.050 890 85,091 768,943

$100,000 ≤ p < $150,000 1,235 0.916 1,127 123,286 1,391,415

$150,000 ≤ p < $200,000 616 0.863 1,471 170,449 906,126

$200,000 ≤ p < $300,000 432 0.877 2,143 243,515 925,765

$300,000 ≤ p < $500,000 220 0.927 3,405 367,021 749,204

p ≥ $500,000 46 0.989 6,193 642,956 284,881

J. Marion County, IN (Indianapolis)


Obs.Mean

Effective Tax Rate

Mean Net Tax Due

Mean Sales Price

Sum Net Tax Due

Total 22,745 1.244 1,364 126,466 31,021,799

$10,000 ≤ p < $30,000 2,218 2.338 446 20,007 989,719

$30,000 ≤ p < $50,000 1,858 1.676 652 39,405 1,210,931

$50,000 ≤ p < $70,000 2,341 1.300 777 60,137 1,818,468

$70,000 ≤ p < $100,000 4,355 1.089 922 85,230 4,015,265

$100,000 ≤ p < $150,000 6,234 1.010 1,234 122,223 7,689,747

$150,000 ≤ p < $200,000 2,601 1.021 1,739 170,211 4,523,363

$200,000 ≤ p < $300,000 1,902 1.047 2,541 242,719 4,832,267

$300,000 ≤ p < $500,000 909 1.027 3,791 370,129 3,445,998

p ≥ $500,000 327 1.021 7,633 746,671 2,496,041

H. Lake County, IN (Gary-Hammond)


Obs.Mean

Effective Tax Rate

Mean Net Tax Due

Mean Sales Price

Sum Net Tax Due

Total 4,310 1.474 1,860 145,117 8,017,171

$10,000 ≤ p < $30,000 276 3.763 696 19,585 192,172

$30,000 ≤ p < $50,000 274 2.279 878 39,170 240,465

$50,000 ≤ p < $70,000 287 1.622 963 60,081 276,446

$70,000 ≤ p < $100,000 560 1.286 1,086 84,976 607,930

$100,000 ≤ p < $150,000 1,184 1.143 1,447 126,493 1,713,093

$150,000 ≤ p < $200,000 868 1.210 2,084 171,888 1,808,955

$200,000 ≤ p < $300,000 601 1.240 2,941 237,083 1,767,684

$300,000 ≤ p < $500,000 231 1.354 4,904 361,445 1,132,753

p ≥ $500,000 29 1.415 9,575 673,810 277,673

K. Porter County, IN (Valparaiso)


Obs.Mean

Effective Tax Rate

Mean Net Tax Due

Mean Sales Price

Sum Net Tax Due

Total 3,154 0.971 1,721 183,492 5,428,462

$10,000 ≤ p < $30,000 79 1.736 666 39,130 52,620

$30,000 ≤ p < $50,000 118 1.373 819 60,273 96,684

$50,000 ≤ p < $70,000 258 1.025 877 86,484 226,269

$70,000 ≤ p < $100,000 899 0.922 1,169 126,517 1,050,484

$100,000 ≤ p < $150,000 801 0.942 1,624 172,557 1,300,984

$150,000 ≤ p < $200,000 676 0.916 2,205 240,734 1,490,684

$200,000 ≤ p < $300,000 276 0.909 3,258 358,499 899,315

p ≥ $300,000 47 0.952 6,626 693,136 311,422

I. Madison County, IN (Anderson)


Obs.Mean

Effective Tax Rate

Mean Net Tax Due

Mean Sales Price

Sum Net Tax Due

Total 2,388 1.388 893 83,597 2,133,602

$10,000 ≤ p < $30,000 461 2.731 480 18,615 221,396

$30,000 ≤ p < $50,000 299 1.477 579 40,012 173,076

$50,000 ≤ p < $70,000 366 1.078 645 60,064 236,164

$70,000 ≤ p < $100,000 533 1.029 866 84,579 461,760

$100,000 ≤ p < $150,000 488 0.905 1,105 122,119 539,371

$150,000 ≤ p < $200,000 144 0.956 1,633 170,683 235,123

$200,000 ≤ p < $300,000 62 0.965 2,304 237,808 142,827

p ≥ $300,000 35 0.934 3,540 374,416 123,885

L. Saint Joseph County, IN (South Bend)


Obs.Mean

Effective Tax Rate

Mean Net Tax Due

Mean Sales Price

Sum Net Tax Due

Total 4,267 1.184 1,455 136,746 6,209,900

$10,000 ≤ p < $30,000 317 2.447 469 20,164 148,617

$30,000 ≤ p < $50,000 266 1.622 622 39,406 165,580

$50,000 ≤ p < $70,000 370 1.098 660 60,644 244,083

$70,000 ≤ p < $100,000 713 1.038 874 84,350 623,400

$100,000 ≤ p < $150,000 1,200 1.045 1,298 124,281 1,557,450

$150,000 ≤ p < $200,000 713 1.017 1,737 170,781 1,238,666

$200,000 ≤ p < $300,000 423 1.032 2,481 240,566 1,049,498

$300,000 ≤ p < $500,000 214 1.071 3,948 367,195 844,922

p ≥ $500,000 51 1.036 6,621 643,119 337,684


Table 5 ContinuedSource: Author’s calculations from IAR Data Warehouse • Note: p = Sales price

Conclusion Residential property tax deductions have increased substantially

since the early 2000s, especially with the implementation of the supplemental homestead deduction in 2009, and were more than 29 percent of gross assessed value in 2013. Higher deduction levels have decreased the property tax base at the same time that property tax rate caps were implemented. As a result property tax revenues have been affected by both a decreasing base and limiting rates in communities at the rate caps.

The information on residential property tax deductions and effective tax rates presented here shows substantial variation in the amount of residential property tax deductions, deductions as a proportion of GAV, and effective tax rates across the spectrum of property values. Indiana’s property tax system can be described as regressive with higher-valued properties paying a smaller share of value in property taxes than lower-valued properties.

These findings are not surprising and were suggested by earlier work on sales ratios of residential property in Indiana (Faulk and Hicks, 2015). Moreover, the study period experienced a major real estate bubble, bust, and recovery, accompanied by the deepest recession in 75 years. State-level public policy also changed, with both significant changes to assessment staffing and property taxes, which placed great pressure on existing assessment practices. That assessment processes continue to face challenges might reasonably be expected. This study identifies at least one set of these continu-ing challenges, with the hopes that they may be remedied through future administrative and policy adjustments.

Additional work is needed to examine the determinants of the existing disparities in effective tax rates. The role of amenities, school quality, local government services, and other neighborhood charac-teristics will be examined in future research. n

M. Tippecanoe County, IN (Lafayette-West Lafayette)


Obs.Mean

Effective Tax Rate

Mean Net Tax Due

Mean Sales Price

Sum Net Tax Due

Total 3,308 0.752 1,088 140,872 3,598,576

$10,000 ≤ p < $30,000 45 1.486 326 22,265 14,652

$30,000 ≤ p < $50,000 141 0.977 379 39,554 53,462

$50,000 ≤ p < $70,000 266 0.630 384 61,137 102,117

$70,000 ≤ p < $100,000 635 0.628 536 85,296 340,120

$100,000 ≤ p < $150,000 1,138 0.716 886 123,033 1,008,286

$150,000 ≤ p < $200,000 501 0.823 1,414 171,401 708,443

$200,000 ≤ p < $300,000 414 0.837 2,002 239,268 828,765

p ≥ $300,000 168 0.851 3,231 381,307 542,731

O. Vigo County, IN (Terre Haute)


Obs.Mean

Effective Tax Rate

Mean Net Tax Due

Mean Sales Price

Sum Net Tax Due

Total 1,420 1.080 1,067 111,303 1,515,562

$10,000 ≤ p < $30,000 134 2.161 398 20,549 53,319

$30,000 ≤ p < $50,000 167 1.356 542 40,251 90,587

$50,000 ≤ p < $70,000 197 0.881 527 60,158 103,826

$70,000 ≤ p < $100,000 280 0.882 737 84,043 206,464

$100,000 ≤ p < $150,000 314 0.903 1,107 122,894 347,619

$150,000 ≤ p < $200,000 159 0.938 1,603 170,457 254,916

$200,000 ≤ p < $300,000 122 0.976 2,359 242,148 287,833

p ≥ $300,000 47 0.958 3,638 382,074 170,998

N. Vanderburgh County, IN (Evansville)


Obs.Mean

Effective Tax Rate

Mean Net Tax Due

Mean Sales Price

Sum Net Tax Due

Total 4,109 0.926 1,154 131,223 4,741,306

$10,000 ≤ p < $30,000 181 2.418 432 19,183 78,102

$30,000 ≤ p < $50,000 250 1.151 458 40,339 114,533

$50,000 ≤ p < $70,000 401 0.840 508 60,875 203,574

$70,000 ≤ p < $100,000 847 0.765 646 84,322 547,216

$100,000 ≤ p < $150,000 1,201 0.822 1,022 124,175 1,227,268

$150,000 ≤ p < $200,000 612 0.867 1,475 170,040 902,429

$200,000 ≤ p < $300,000 435 0.911 2,188 239,793 951,971

p ≥ $300,000 182 0.992 3,935 397,245 716,214

P. Rural Counties Aggregate


Obs.Mean

Effective Tax Rate

Mean Net Tax Due

Mean Sales Price

Sum Net Tax Due

Total 12,068 0.769 717 103,347 8,647,000

$10,000 ≤ p < $30,000 1,127 1.616 305 20,241 344,123

$30,000 ≤ p < $50,000 1,279 0.895 349 39,979 446,446

$50,000 ≤ p < $70,000 1,854 0.635 381 60,580 706,799

$70,000 ≤ p < $100,000 2,891 0.623 523 83,797 1,510,841

$100,000 ≤ p < $150,000 2,709 0.657 809 123,001 2,192,238

$150,000 ≤ p < $200,000 1,261 0.692 1,181 170,872 1,489,732

$200,000 ≤ p < $300,000 709 0.727 1,730 238,161 1,226,647

$300,000 ≤ p < $500,000 202 0.738 2,681 362,979 541,643

p ≥ $500,000 36 0.671 5,237 772,694 188,532

CreditsReferences

Department of Local Government Finance (DGLF). 2014. Report of property tax exemptions, deductions, and abatements. April 30. https://secure.in.gov/dlgf/files/ExemptionsDeductionsRe-port-2014.pdf .

Department of Local Government Finance. 2006. Report of prop-erty tax exemptions, deductions, and abatements. May. http://www.in.gov/dlgf/files/ExemptionsDeductionsReport-2006.pdf.

Faulk, D. and M.J. Hicks. 2015. Assessment quality: Sales ratio analysis of residential properties in Indiana. Ball State Uni-versity, Center for Business and Economic Research. March. http://projects.cberdata.org/reports/IAR-SalesRatio-030415.pdf

Faulk, D. 2013. The impact of property tax rate caps on local prop-erty tax revenue in Indiana. Center for Business and Economic Research, Ball State University. http://projects.cberdata.org/reports/PropTaxRevenue-May2013.pdf

Legislative Services Agency (LSA). 2014. Indiana Handbook of Taxes, Revenues, and Appropriations. Fiscal Year 2014. Office of Fiscal and Management Analysis. https://iga.in.gov/legislative/2015/publications/handbooks/#document-375b573e

Photo Credits

All photos from Flickr unless otherwise noted. Users: Nick Kenrick (pg.1).

Production Credits

© Center for Business and Economic Research, Ball State University.

Authors

Dagney Faulk, PhD, director of research and research profes-sor, Center for Business and Economic Research, Ball State University.

Michael J. Hicks, PhD, director, Center for Business and Economic Research, Ball State University. George & Frances Ball distin-guished professor of economics, Miller College of Business, Ball State University.

Graphics

Victoria Meldrum, manager of publications and web services, Cen-ter for Business and Economic Research, Ball State University.

Gerrod Jones, undergraduate publications assistant, Center for Busi-ness and Economic Research, Ball State University.

Want more? Visit our Projects & Publications Library at http://projects.cberdata.org.

Center for Business and Economic Research2000 W. University Ave. (WB 149)Muncie, IN 47306765-285-5926 • [email protected]/cber • www.cberdata.orgfacebook.com/BallStateCBERtwitter.com/BallStateCBER

BALL STATE UNIVERSITY CENTER FOR BUSINESS AND ECONOMIC RESEARCHThe Center for Business and Economic Research (CBER) is an economic policy and forecasting research center at Ball State University in Muncie, Indiana.

The CBER Data Center (www.cberdata.org) offers a projects & publications library, primary-sourced economic data sets, weekly business commentary, and data resources for grant writers & economic developers.

In addition to research and data delivery, CBER facilitates community business discussions in Indiana’s east central region—holding the annual Indiana Economic Outlook and quarterly meetings of the Ball State University Business Roundtable.

CBER connects with its peers across the nation through memberships with the Association for University Business and Economic Research and the University Economic Development Association.


Table A1. Various Deductions and AbatementsSource: Indiana Department of Local Government Finance, Report on Property Tax Exemptions, May 2006 and April 30, 2014Note: * These are 4 different deductions applied to real property: Rehabilitated residential property deductions, rehabilitated property deductions, economic

revitalization area for real property deductions and Economic revitalization area for real property in a residentially distressed area deductions and one deduction applied to personal property: the economic revitalization area for personal property abatement. See DLGF (2014) for details.

** Other includes the fertilizer and pesticide deductions (business), energy systems deductions (residential), model residence deduction (business), residence in inventory deduction (business) and coal or oil shale deduction (business).

Year

Mortgage Deduction ($M)

Standard Deduction ($M)

Supplemental Home-stead Deduction ($M)

Mortgage, Standard & Supplemental (% of

GAV)

Age 65 Deductions ($M)

Blind &/or Disabled Deductions ($M)

Veterans Deductions ($M)

Residential Residential Residential Residential Residential Residential

2003 2,994 46,778 - 13.53% 583 208 415

2004 3,102 48,620 - 14.26% 657 224 440

2005 3,124 48,998 - 14.43% 1,348 461 835

2006 3,221 50,161 - 14.57% 1,372 479 870

2007 3,369 65,070 - 15.95% 1,380 511 940

2008 3,511 67,264 - 15.84% 1,477 550 1,052

2009 3,612 72,073 54,099 28.57% 1,587 541 1,015

2010 3,653 72,661 54,524 28.62% 1,554 555 1,077

2011 3,677 72,950 54,308 28.71% 1,577 571 1,137

2012 3,653 72,762 54,104 28.59% 1,568 583 1,187

2013 3,629 72,278 52,985 28.49% 1,559 594 1,250

Year

Enterprise Zone Deductions ($M)

Business Investment Deduction ($M)

Rehabilitation & Economic Revitaliza-

tion Area* Abatements ($M)

Other Deductions** ($M)

Energy Systems Deductions

Total Deductions& Abatements Sum ($M)

Total Deductions & Abatements (% of

GAV)

Business Business Primarily Business

2003 730 - 8,971 11.8 56.2 60,679 16.5%

2004 597 - 6,847 27.1 71.1 60,487 16.7%

2005 358 - 6,783 13.9 72.4 61,907 17.1%

2006 402 - 6,746 15.5 99.1 63,249 17.3%

2007 684 860 7,293 16.9 110.9 80,107 18.7%

2008 65 1,714 7,122 38.3 134.6 82,724 18.5%

2009 162 1,159 7,595 40.1 160.3 141,737 31.2%

2010 112 460 7,886 77.0 188.2 142,483 31.2%

2011 203 49 8,097 57.0 198.5 142,569 31.3%

2012 199 - 7,008 62.7 229.1 141,064 30.9%

2013 233 - 5,970 34.0 255.2 138,498 30.6%

Appendix


Table A2. Mean Effective Tax Rates by County, 2012Source: Note: Counties with fewer than 30 observations for 2012 are not included in the table.

Counties Obs Mean Effective Tax Rate

Total 41,509 1.410

Mean - 1.30

Median - 1.254

Minimum - 0.473

Maximum - 2.342

Adams 91 1.616

Allen 2,622 1.188

Bartholomew 637 1.032

Benton 54 1.547

Boone 557 1.215

Brown 72 0.499

Carroll 78 1.401

Cass 206 2.084

Clark 569 1.166

Clay 37 0.616

Clinton 156 1.177

Daviess 137 1.144

Dearborn 306 1.359

Decatur 80 1.066

DeKalb 151 1.227

Delaware 368 1.718

Dubois 207 1.068

Elkhart 1,173 1.566

Fayette 86 1.399

Floyd 576 1.344

Fulton 94 0.968

Gibson 154 1.155

Grant 328 1.415

Greene 32 1.786

Hamilton 3,590 1.117

Hancock 744 1.275

Harrison 35 0.973

Hendricks 1,509 1.223

Henry 137 2.194

Howard 595 1.802

Huntington 121 1.327

Jackson 179 1.086

Jasper 66 0.473

Jay 42 2.107

Jefferson 91 1.182

Jennings 61 1.387

Johnson 1,583 1.151

Counties Obs Mean Effective Tax Rate

Knox 179 1.218

Kosciusko 604 0.937

LaGrange 85 1.340

Lake 1,421 2.342

Lawrence 176 1.348

Madison 1,039 1.804

Marion 9,344 1.633

Marshall 222 1.045

Miami 137 1.137

Monroe 912 0.841

Montgomery 218 0.786

Morgan 630 0.538

Noble 271 1.753

Owen 58 1.575

Perry 59 1.226

Porter 1,183 1.182

Posey 105 1.257

Putnam 124 1.069

Randolph 34 1.684

Ripley 72 1.302

Scott 55 1.445

Shelby 289 1.770

Spencer 54 1.252

Steuben 189 0.974

St. Joseph 1,847 2.090

Sullivan 43 1.322

Tippecanoe 1,177 0.952

Tipton 60 2.116

Vanderburgh 1,698 1.558

Vermillion 36 1.309

Vigo 572 1.684

Wabash 139 0.870

Warrick 523 0.930

Wells 71 0.601

White 63 0.869

Whitley 40 1.334

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