Did you receive your share of property taxes?
Mayors, trustees, clerk-treasurers, and controllers all should be concerned about whether the correct amount of property tax has been received from the county. It may surprise you to know that settlement of property tax is not an exact science. Rarely does a unit receive exactly the amount of property tax that was approved in its annual budget process. Variances up to 3% are not uncommon. For almost any unit, 3% of the property tax settlement is an amount worth investigating. If you receive less than the expected amount, your unit will be short cash. This article will explain how you may be able to recover that shortfall. It is also a problem if you receive too much. If a levy excess is received, it must not be expended. Instead it must be set aside in a levy excess fund. Otherwise you can get into trouble.
So how can we have a shortfall?
Here is the usual reason: When State and county officials certify your levy and rate, they are usually basing their certification on estimates. The nature of an estimate is that it is likely to be a little too high or a little too low.
Rate cap (“circuit breaker”) credits
If rate cap credits are deducted from your unit’s tax distribution, your unit will, of course, receive less than the budget levy. The rate cap credits are not considered part of the shortfall, but a shortfall can make matters worse. If your unit has rate cap credits, you should still determine if any additional revenue was lost due to a property tax shortfall.
Why do the County and State use estimates to set levies and rates?
They use estimates because the assessments are a moving target. Property owners are constantly making changes in their property and assessors are constantly updating their data bases. Often, there are taxpayer appeals, and sometimes they take years to resolve. It is simply impossible for State and county officials to know, exactly, what rate to set for your unit. So, they make an estimate. These estimates are usually quite accurate, but even a small variance can mean significant dollars.
Are delinquencies the problem?
Delinquencies are probably not the problem. In most jurisdictions, all the taxes get paid; otherwise, the owner risks losing the property. Taxpayers sometimes pay late, but they make it up the next year plus penalty and interest. The current year’s delinquencies tend to be offset by catch up payments from past years, plus penalties and interest.
So, how do we know if we had a shortfall?
Early in the year, your fiscal officer receives a budget order from the Department of Local Government Finance. The budget order tells you exactly what amount was approved as property tax revenue for each of your funds. If you cannot find your copy, you can call the Department and ask them to fax it to you. The county auditor sends forms along with the settlement checks, telling you how much of the settlement should be deposited into each of your funds. This form is called Form 22. If you don’t have it, you can call your county auditor. Compare the amount on the budget order with the amounts on Forms 22. If the total amount on Forms 22 is less, you have a shortfall. If it is more, you have a levy excess.
Tell me again, how is it possible we can receive more than we are supposed to?
When the property tax rate is estimated, the estimate can either be too high or too low. If it is too high, the amount of revenue will be too high. That is called a levy excess.
Why is it a problem if we have a levy excess?
The law says if you receive too much, it must be set aside in a levy excess fund and used in a subsequent year to offset shortfalls or to reduce future tax levies. If you are not aware of this requirement and simply expend the money, the result may be problems with the Department of Local Government Finance and the State Board of Accounts.
What do we do if we have a shortfall?
Fortunately, there is a remedy. If you have a shortfall, and it is not due to delinquencies, the law recognizes that the taxpayers were undercharged. You are allowed to make up that amount in the next budget cycle. However, it is not automatic. You must petition the Department of Local Government Finance for permission to increase your property tax levy in the subsequent year in order to make up for the shortfall.
If you have questions or would like further information about property tax shortfalls and levy excesses, 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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