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Thursday, August 06, 2009

Ind. Law - Should courts determine what legislators intended in passing a law they apparently didn’t understand?

An editorial today in the Fort Wayne Journal Gazette begins:

In weighing evidence, judges often are called upon to determine legislative intent. Some lawmakers are suggesting that county assessors should do that and more – determine what legislators intended in passing a law they apparently didn’t understand.

The misunderstanding, according to Niki Kelly’s Sunday report, is over the definition of a homestead, the standard by which the state bestows its most generous tax credits. Indiana assessment standards define a homestead property as a dwelling, including a house, mobile home or manufactured housing. It can include one garage, attached or detached, and 1 acre of land. Anything beyond that – a swimming pool, gazebo, extra acreage, a barn – is not included in the homestead definition for purposes of assigning property value.

But as tax bills begin to arrive and the first real effects of a circuit-breaker cap are beginning to appear, some legislators are complaining that what they meant was for a homestead property to include everything on the 1-acre property. * * *

Amanda Stanley, spokeswoman for the Indiana Department of Local Government Finance, pointed out that the same definition of a homestead has been in the law for years.

What’s different is the addition of the circuit-breaker tax cap, which raises the stakes significantly. Effective this year, tax bills for homestead properties are capped at 1.5 percent of their total assessed value. Some property owners who reached that cap were surprised to find that features like swimming pools and barns were listed separately on their tax bills, excluded from the 1.5 percent cap, which will be reduced to 1 percent in 2010 as the circuit-breaker credits go fully into effect.

As Kelly explained, it’s possible for a single property to fall under three different caps: A homeowner with a house and pool on 5 acres would find the house and 1 acre calculated under the homestead cap of 1 percent. If additional land is farmed, it could fall under the 2 percent cap set for other residential and farm property. The pool and any other structures would fall under the 3 percent cap set for all other classifications of property.

Allen County Assessor Stacey O’Day also noted that nothing changed within assessment procedures this year and pointed to the initial reasoning for those procedures – a swimming pool is a luxury item. It was never intended to be eligible for a tax break.

Consider this brouhaha another example of an unintended consequence. In setting up the circuit-breaker tax credits, Indiana has pushed the value of a homestead deduction even higher. If it means the difference of hundreds or even thousands of dollars on a tax bill, homeowners are going to do all they can to qualify for a homestead credit.

Adams County Auditor William Borne had the most apt observation, however. He pointed out that it’s easy for lawmakers to clamor for an expanded definition of a homestead because they won’t have to pay for it. If they extend tax breaks to pools and outbuildings, they get the credit for lowering some peoples’ tax bills, and it will be schools and local governments that take the hit on lost property tax revenue – a can’t-lose proposition for legislators.

Before they consider extending tax credits even further, lawmakers should note that the first homeowners to benefit from the homestead caps this year are owners of high-end real estate. Are those really the homeowners who need more property tax relief, granted at the expense of schools, libraries and parks? Is that legislators’ intent?

Here is the August 2nd story by Niki Kelly referenced in the editorial.

Posted by Marcia Oddi on August 6, 2009 01:45 PM
Posted to General Law Related