Every year, my sister asked me the same question, and after I’d answer, she swore at me. She’s not given to profanity, but property taxes do tend to bring out our sour sides. She lives in one of Chicago’s close-in suburbs, and her annual property tax bill was usually quadruple what I paid on a similar home in Plainfield.
Property taxes were the big topic in this year’s legislative session. Although Indiana’s average property taxes are in the bottom half of all the states (says the nonpartisan Tax Foundation), Hoosiers seem to believe they’re being gouged. In 2022, the Foundation says the average Indiana homeowner paid $2,121 in property taxes, while residents in the Land of Lincoln paid a whopping $9,006. (Alabama and Hawaii had the lowest averages, at $803 and $937, respectively.)
Nobody likes to pay property taxes, which cover many of the basic services we receive as citizens, from functional sewer systems, to police and fire protection, to libraries and about half of school costs, to road repairs. Much taxpayer anger focuses on the way the taxable value of our homes is determined. County assessors use a formula created and mandated by the state that’s based on recent property sales. If you have a three-bedroom frame tri-level on a quarter-acre lot, the formula assumes your home’s market value matches what similar homes sold for.
And no, the county isn’t involved in any sneaky plans to inflate your home’s value to collect more taxes. It’s all about feeding legally recorded sales data into a standard formula. Does that sound inherently unfair? Well, let’s compare it to the system it replaced.
Before 2002, home values were determined based on the following formula: the assessor began by estimating a base cost for your home, based largely on the number of plumbing fixtures (nicer homes usually have more plumbing). They then computed what it would have cost to build your home in 1979. If it had been built before 1979, they subtracted a depreciation percentage for every year older. Then they divided the resulting number by three. Why three? Who knows?
That approach meant owners of older homes typically paid a fraction of what owners of similar but newer homes paid. A homeowner in Lake County objected to the inherent inequity, and successfully sued. The judge told Indiana to develop a more equitable system, and the state developed the present system, which the judge found to be fairer.
After owners of large older homes (particularly politically connected owners in the elegant neighborhoods surrounding the Governor’s Mansion) objected to the significant jumps in their tax bills, legislators rushed property tax caps into law. Now a homeowner can’t pay more than one percent of their home’s value (unless there’s a referendum in the community).
While the property tax uproar died down for a couple decades, the dramatic increases in home prices stirred things up again. It was fascinating to watch our legislators try to fix things this time around. My prediction: nobody will be happy with the solution they devised.