C.L. Coonrod & Company Article

Tax Reform Will Lead To Higher Tax Rates, Not Lower Ones!

It is ironic that Indiana’s complicated tax reform will result in higher tax rates for most Indiana cities, towns, townships, and counties.

The reason is that the reform calls for a whopping 35% deduction in homeowners' assessed values, but no substitute revenue for local communities.

The result will be that even the most frugal local governments will have to raise rates to keep their heads above water.

Homeowners may still get a break, however. Business taxpayers do not receive the 35% deduction, so a lot of the tax will be shifted to them. The bottom line is, generally, homeowners receive a 35% deduction, but rates only go up (for example) 20%; so homeowners get a break, businesses pay more, and government receives the same revenue as before.

In fact, one of the essential purposes of the tax reform is to shift the tax burden from homeowners to businesses.

BUT HERE IS ONE TRAP MANY FISCAL OFFICERS WILL FALL INTO:

For decades, fiscal officers of local governments have been trained to calculate their tax rates based on the assessed value of the prior year. It is a time-honored practice, and usually reliable. This year, however, with up to 35% of the housing stock falling off the tax rolls, fiscal officers may fall into a deep trap. They may fail to calculate the needed tax rate increase, and the rates adopted by their councils will be far too low to sustain local services.

We have been recommending to our clients that they reduced estimated net assessed value in their 2009 budget ordinances by 35% from their 2008 level. In most circumstances, that reduction should be safe, but there may be instances in which estimated assessed value should be even lower. Generally, we recommend that fiscal officers use the lowest estimated net assessed value figure that their fiscal bodies will accept.

Some local communities already face bankruptcy due to the tax rate caps that phase in over the next two years.

The huge, unheralded drop in assessed value may be more than some can handle.

[July 15, 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.