Amendments to Indiana constitution include tax caps

On Election Day, Indiana residents amended the state constitution when they voted to add new property tax caps.

“Basically what it did was place in the constitution the property tax caps that were already a part of the Indiana code, so it made them permanent,” said Amanda Stanley, assistant director of communications for the Indiana Department of Local Government Finance.

It prevents the General Assembly from coming in and making changes this year, Stanley said. Specifically, these caps are 1 percent for owner-occupied homes, 2 percent for non-owner-occupied residences and agricultural land and 3 percent for other property.

The caps can be overridden by a voter-approved referendum.

Stanley said there has been some confusion about the meaning of the caps.

She said some people think these tax caps are minimum values or they are the amount by which taxes can increase year to year.

However, that’s not the case.

“If you have a $100,000 homestead, the most you would pay on that property is $1,000. You may pay less than that, but that’s the maximum you would pay,” Stanley said.

She also said the caps do not limit the extent to which a person’s taxes can increase annually.

“Your assessed value must still reflect the market value and the use of the property,” Stanley said.

The controversy about the tax caps doesn’t rest in the numbers themselves but in adding them to the constitution.

“In general, I think it’s a bad idea to constitutionalize tax rates because you don’t know what the future holds,” said Michael Rushton, associate professor in the School of Public and Environmental Affairs.

In Indiana, the constitution can only be amended after two successive state legislatures pass it and the voters approve it in an election. For an amendment to be repealed, it must follow the same process.

It’s not entirely unusual for states to have specific tax provisions in their constitutions, John Mikesell, SPEA chancellor’s professor said.

However, Rushton said many economists think the costs of providing social services will rise.

“When you cap tax rates you’re really putting yourself in a bind because you have social services that are going to continue to increase in cost, and yet you put limits on your own ability to raise revenues to pay for those services,” he said.

Rushton said the tax caps’ permanence will lead to cuts in services if governments are not able to fund existing programs.

“You can already see it, and it’s what led up to the proposition in Monroe County — Proposition 2,” he said, referring to the referendum that increased property tax by 0.14 percent to help fund public schools in the county.

But as far as the amendment’s immediate impact on taxpayers, residents won’t notice a difference, Stanley said.

She said these are the same tax caps that have been in place since 2008, they’re just more permanent now. As long as property value and the state’s methods of relief, such as mortgage deduction, remain in place, taxpayers will not see an increase in taxes this year.

“Should the General Assembly meet and decide to eliminate all the property tax deductions — the homestead deduction, the mortgage deduction — for whatever reason, these caps provide protection still for those properties,” Stanley said.