C.L. Coonrod & Company Article

How to Cope with the Circuit Breaker

The Circuit Breaker is a limit on the amount of property tax a taxpayer will be required to pay. This limit is expected to result in drastic reductions of revenue to many Indiana units of local government. It is scheduled to be phased in over the next three years.

Step one in coping with the Circuit Breaker is to estimate the impact on your unit.

Step two in coping with the Circuit Breaker is to plan out your unit’s revenues and expenditures at least for the next three years. Take into account not only property tax revenue, but also other forms of revenue, such as income tax and user fees.

Step three in coping with the Circuit Breaker is to contact other units of government that overlap your own, especially the school districts. They may have plans that would cause additional lost revenue due to the circuit breaker. For example, if a school district undertakes a construction project, it will probably result in an increase in property tax levies and result in more circuit breaker credits being owed to taxpayers. All units, including yours, share in the cost of the credits to taxpayers, even if your unit has nothing to do with the project. For example, if your school district undertakes a construction project within the Circuit Breaker cap, your unit of local government will be required to finance part of the credits to taxpayers.

Step four in coping with the Circuit Breaker is to consider alternative revenue sources. Recent legislation seems to encourage the enactment or increase of local option income taxes (LOIT). Consequently, it is expected that the units most affected by the Circuit Breaker are likely to turn to these alternatives. If you wish to see a copy of House Bill 1001, click here.

Step five in coping with the Circuit Breaker is to begin to consider what expenditures can be reduced or avoided in the future. The fiscal plan will help you identify and tract these savings.

Appeals: There is no assurance an appeal will be granted but each unit affected by the Circuit Breaker should consider an appeal. The deadline for budget year 2009 is December 8, 2008. The effect of an appeal could be for the revenue loss to be reduced or deferred. For the procedures, click here.

[April 22, 2008]

[Revised November 26, 2008]

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If you have questions or would like further information, 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.