C.L. Coonrod & Company Article

How To Cut Taxes Without Cutting Your Throat

By now, most local government officials know that the State’s property tax levy limitation formula is a use-it-or-lose-it proposition.

Generally, if a local unit voluntarily reduces its property tax levy, it loses a portion of that taxing authority forever.

This counterproductive rule is a classic example of no good deed going unpunished.

For dedicated tax cutters, however, there remain some options.

Certain funds are not subject to the State’s property tax levy limitations. Debt funds, for example, are not limited by the usual rules.

So, here is an idea if you want to cut levies without giving up taxing authority for the future.

Make part of your debt payments from your general fund. In turn, you will be able to reduce levies in the debt fund. In the future, if you need to return to the previous, higher levies in the debt funds, you will have the authority to do so. Meanwhile, you will not lose any taxing power in your general fund.

An alternative that usually works is to reduce rates in the cumulative capital development (CCD) fund, or, for a township or fire district, in the fire building and equipment (fire cumulative) fund. Generally, if these rates are reduced, the local unit retains authority to raise them back up again in the future. Exercise caution in adjusting cumulative funds, however. Generally, the local unit will be penalized for reducing a CCD fund below an historic minimum. Also, in some instances, a portion of a CCD fund levy may be treated as being within the State’s levy limitations. Before adjusting a CCD fund rate or levy, consult someone knowledgeable about these rules.

Also consider the impact on income taxes, especially if your county has COIT or CAGIT. The amounts of the levies in cumulative funds and older debt funds usually have an impact on the amount of income tax your unit receives. If you reduce the old debt and cumulative fund levies, the result may be less income tax for your operating funds.

If you have questions or would like further information about local government budgeting, please contact us at: Coonrod@CoonrodCPA.com

This article is intended to provide information of general interest to local government officials in Indiana . The information is not guaranteed to be applicable or appropriate in particular circumstances. Local officials should consult competent professionals before acting on any information contained in this article. We are not attorneys. Advice of a legal nature should be sought only from qualified attorneys.

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.

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