Understanding Indiana State and Local Taxes
Larry DeBoerDepartment of Agricultural Economics
Purdue University
October 15, 2015
Purdue Cooperative Extension Service
Indiana’s Economy
Indiana and U.S. Unemployment Rates
Indiana
U.S.
Indiana
U.S.
Personal Income, Indiana and U.S.
Indiana Home Building Permits
Indiana Home Price Index (percent change from previous year)
Indiana Construction Employment
State and Local Bond Interest Rate
Janet YellenChair, Federal Reserve Board
When the Committee decides to begin to remove
policy accommodation, it will take a balanced approach
consistent with its longer-run goals of maximum
employment and inflation of 2 percent.
The Committee currently anticipates that, even after employment and inflation
are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate
below levels the Committee views as normal in the
longer run. FOMC, September 17, 2015
Janet YellenChair, Federal Reserve Board
U.S. Inflation, All Items and Core
All Items
Core (lessfood & energy)
Exchange Rates: European Euros and Chinese Yuan per Dollar
Yuan/Dollar
Euros/Dollar
Indiana’s State Budget, FY2015-17
Indiana State Budget, FY 2015-17(millions of dollars)
Avg Chng
2015-17
Revenues 14,849 15,240 15,698 2.8%
Sales Tax 7,226 7,505 7,840 4.2%
Ind. Income Tax 5,049 5,122 5,283 2.3%
Corp. Income Tax 974 985 994 1.1%
Gaming 458 441 439 -2.1%
All Other 1,143 1,188 1,142 0.0%
Budget 2015
Budget 2016
Budget 2017
2014 2015 2016 2017 2018
Inheritance Tax Repealed for deaths in 2013 and after
Sales Tax 1% of revenue to road constructionCorporate Income Tax* 7.50% 7.00% 6.50% 6.25% 6.00%
(fiscal years) -6.7% -7.1% -3.8% -4.0%
Individual Income Tax 3.40% 3.30% 3.30% 3.23% 3.23%
(calendar years) -2.9% -2.1%
Recent and Scheduled Tax Rate and Allocation Changes
*Corporate Tax reductions continue through 2022, to rate 4.9%
Indiana State Budget, FY 2015-17(millions of dollars)
Avg Chng
2015-17Appropriations 15,447 15,393 15,828 1.2%
K-12 Education 7,754 7,940 8,117 2.3%
Higher Education 1,805 1,885 1,902 2.6%
Medicaid 2,162 2,027 2,242 1.8%
Mental Health 254 260 270 3.2%
Other Health/Social 993 998 997 0.2%
Public Safety 933 981 983 2.6%
All Other 1,546 1,302 1,318 -7.7%
Budget 2015
Budget 2016
Budget 2017
0%
5%
10%
15%
20%
25%
30%
1976 1980 1984 1988 1992 1996 2000 2004 2008 2012
Indiana State Fund Balances as Share of Operating Revenues, FY 1976-2014, Estimated 2015
Prudent Range
Rule-of-Thumb Minimum
End of FY '14
8,000
9,000
10,000
11,000
12,000
13,000
14,000
15,000
16,000
17,000
18,000
2000 2002 2004 2006 2008 2010 2012 2014 2016
Indiana State Budget Revenues and Appropriations, Actual 2000-14 and 2015-17 from April '15 Forecast
and As-Passed 2016-17 Budget(fiscal years, millions of dollars)
AppropriationsAppropriations less ReversionsRevenues, Indiana Own SourceRevenues plus ARRA
8,000
9,000
10,000
11,000
12,000
13,000
14,000
15,000
16,000
17,000
18,000
2000 2002 2004 2006 2008 2010 2012 2014 2016
Indiana State Budget Revenues and Appropriations, April '15 Forecast and As Passed Budget 2016-17Appropriations to Maintain 2009 Real Per Capita
(fiscal years, millions of dollars)
Appropriations
Revenues, Indiana Own Source
Appropriations, 2009 Real Per Capita
4.0%
4.2%
4.4%
4.6%
4.8%
5.0%
5.2%
5.4%
5.6%
5.8%
6.0%
6.2%
6.4%
6.6%
6.8%
2000 2002 2004 2006 2008 2010 2012 2014 2016
Indiana State Appropriations and Reversions as Percent of Indiana Total Personal Income (estimated 2015-17)
ReversionsAppropriations Less Reversions
Local Government
-32.6%
18.7%
47.1%
7.9%
-5.8%
-37.0%
36.4%
60.2%
7.7%
-7.1%
-0.1%
36.2%
60.9%
-7.5%
6.4%
-50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% 60% 70%
Homesteads
Other Residential
Ag Business/Land
Business Real/Personal
Total
Indiana Total Property Taxes, 2007-2014
Gross Assessed ValueNet Assessed ValueNet Tax After Credits
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Calculation of Property Tax Maximum Levy Growth Quotient (AVGQ) 2003-2016 and Estimates 2017-19
Annual Growth Rates, Indiana Non-Farm Personal Income (Statewide)
2009 growth rate dropped fromAVGQ 6-year rolling average
Income growthestimates fromrevenue forecast through 2017
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
22%
Total Credits $2 or Less $2 to $3 More than $3 City/Town NotCity/Town
Cred
its,
Per
cent
of L
evy
Tax Cap Credits as Percent of Levy, 2014
Business Real/Personal (3%)
Residential/Farmland (2%)
Homestead (1%)
District Tax Rates
10.6%
0.1%
5.9%
20.7%
13.7%
3.1%
Tax Cap Credits as a Percent of Property Tax Levies, 2014
Brown
Jasper
Morgan
Ohio
Pulaski
Ripley
Warren
Switzerland
Clay
Wells
Harrison
Spencer
Parke
Orange
Wabash
Franklin
Fulton
Monroe
Steuben
Putnam
Lagrange
Owen
Warrick
Whitley
Martin
White
Kosciusko
Fountain
Newton
Decatur
Posey
Pike
Noble
Dearborn
Jackson
Benton
Marshall
Dubois
Jay
De Kalb
Tipton
Starke
Washington
Sullivan
Carroll
Jennings
Shelby
Bartholomew
Adams
Jefferson
Floyd
Tippecanoe
Gibson
Vermillion
Clinton
Montgomery
Porter
Union
Scott
Greene
Boone Hamilton
La Porte
Lawrence
Grant
Johnson
Vanderburgh
Miami
Hancock
Daviess
Rush
Allen
Hendricks
Crawford
Perry
Huntington
Clark
Lake
Wayne
Randolph
Knox
Blackford
Marion
Howard
Cass
Henry
Elkhart
Vigo
St Joseph
Fayette
MadisonDelaware
Tax Cap Credit %0%
More than 0% to 5%
5% to 15%
15% or More
Local Government Funding Issues
Should “big box” retailer property be valued using the sales comparison approach, or the construction less depreciation approach?
Such stores usually sell only when they’re abandoned (“dark store”). They often have unique features valuable only to the original owner, so they’re worth less to a buyer. There may be deed restrictions too, limiting the possible buyers.
Sales comparison assessments are usually much lower than cost less depreciation assessments.
“Dark Store” Retail Assessments
Indiana Board of Tax Review decisions have reduced assessments on some large retail stores, based on comparative sales assessment method
Association of Indiana Counties analysis found that effect could have been $50 million shift to other taxpayers and $43 million in lost local revenues, plus $25 million TIF loss
SEA 436 (2014) requires that big box retail buildings be assessed based on cost less depreciation method, not comparative sales method
“Dark Store” Retail Assessments
Assessed Value of Farmland Equals the base rate per acre of farmland
Base rate calculated each year by the Department of Local Government Finance based on rents, yields, commodity prices, costs and interest rates
Times the acre’s soil productivity factor Accounts for variations in quality of farmland
Less its influence factor, if any Reduce assessments for characteristics like frequent
flooding or forest cover
Farmland Property Taxes
0
500
1000
1500
2000
2500
3000
350019
8019
8219
8419
8619
8819
9019
9219
9419
9619
9820
0020
0220
0420
0620
0820
1020
1220
1420
1620
18
Dol
lars
per
Acr
e
Year Taxes Paid (Pay Year)
Base Rate per Acre of Farmland for Property Taxation,Actual 1980-2016; and Estimated 2017-2018
Negotiated Rate, 1980-2002
Annual Trending withCapitalization Formula, 2008-15
New Capitalization Formula Drops Highest Value, 2011-15
Capitalization Formula, 2003
Trending and Rate Freeze, 2006-07
Freeze and AVGQLimit, 2016 -
0
500
1000
1500
2000
2500
3000
350020
07
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
Dol
lars
per
Acr
e
Year Taxes Paid (Pay Year)
Base Rate per Acre of Farmland for Property Taxation,Capitalization Formula and AVGQ Formula, Projected 2016-2025
Freeze and AVGQ Formula
Capitalization Formula
HEA 1485 (2015) will change the LOITs effective January 1, 2017.
Understanding Indiana State and Local Taxes
Larry DeBoerDepartment of Agricultural Economics
Purdue University
October 15, 2015
Purdue Cooperative Extension Service
Twitter: @INTaxRockStars