Assessments and State Government and Property taxes and Government & Economic Development

County property tax hit looming

April 30, 2007

Marion County businesses, brace yourselves. Taxes on your commercial and industrial properties soon may go up sharply.

The Indiana Department of Local Government Finance, which oversees the state property tax system, is concerned that Marion County business properties have been consistently undervauled.

To correct the problem, the department has ordered a complete reassessment of Marion County's commercial and industrial properties. The directive was part of a March 27 letter department Commissioner Melissa Henson sent to Marion County Assessor Greg Bowes.

Bowes, whose term as assessor began in January, told IBJ the problem likely is widespread.

"We probably are undervaluing our commercial and industrial properties, and we're going to focus on fixing that problem," he said. "Now, how much we're undervaluing them, how you break that down between types of properties--is one industry more affected than another? I don't know that, being too new."

If Marion County commercial and industrial properties are significantly undervalued, some of the local tax burden would shift away from homeowners and onto businesses.

That could become a major headache for local economic development officials, especially if complaints about rising taxes on businesses become widespread.

According to Indy Partnership, Marion County already has the highest taxes on commercial and industrial properties in the Indianapolis area. An increase could spur business migration toward the doughnut counties.

Owners of a Marion County building assessed at $1 million currently pay $52,800 in property tax annually. That's $25,600 more than they'd pay for that same building a few miles to the southwest in Morgan County.

The origins of the Marion County assessment snafu appear to date to 2002, when Indiana last underwent a full reassessment. It was the state's first big step toward adopting a market-value-based property tax system.

Assessors across the state have found the fix hard to implement--and they're still ironing out kinks.

This year, assessors are updating all Indiana property values in an adjustment process called "trending." And on April 24, the Indiana Legislative Services Agency revealed that, as a result, residential properties might see an average tax increase of 24 percent. Lawmakers immediately began debating how to reduce that potential blow.

If Marion County's commercial and industrial properties are assessed at higher values, its residential properties will see less of a hit. Putting more of the tax burden on businesses would restore the distribution the county had five years ago.

Joni Romeril, who served as Marion County assessor from 1999 to 2006, remembers the 2002 reassessment well. Before then, she said, 80 percent of all property tax appeals had been from businesses. Afterward, the vast majority of appeals were filed by homeowners.

Suddenly happy with their tax bills, businesses had no reason to question them.

"Why would someone underpaying taxes want to bring it to the government's attention?" she asked.

Residential properties now make up 65 percent of Marion County's $52.2 billion total assessed value, Bowes said. Commercial properties account for 26 percent, and industrial properties 4 percent. The remainder consists of agricultural, mineral, utility and exempt properties.

Commercial and industrial properties are much more difficult to assess than residential property. That's because businesses change hands much less frequently than do homes. And a property's precise market value can't be determined until it's sold. To approximate, assessors compare similar properties nearby.

It's also much more difficult to make apples-to-apples comparisons between businesses than it is between houses.

What's more, if there are fewer than 50 sales of any type of property in a particular township between assessments, assessors don't have enough data to calculate market values and must draw valuation information from another township--typically Center, which has the most business activity.

That may explain why the problem is countywide, even though each township has its own assessor.

Romeril said that when she was in office, Center was the only township to consistently produce data on commercial and industrial properties.

"The other townships didn't have business sales figures," she said. "So they used Center Township's and used them countywide, because those were the only figures they had."

Bowes said a $4.2 million computer upgrade his office soon will receive should help it get a handle on the extent of the undervaluing problem. So will implementing the trending process. As the state gets more experienced with it over the next decade, assessed values will become more accurate.

In the meantime, there's no way to guess which individual businesses will see sharp property tax increases, Bowes said, or how steep any particular firm's tax bill will be.

Center Township Assessor Eugene Akers said he's not surprised to hear about the problem. He ran for election last year because he suspected homeowners were carrying businesses' share of the property tax tab.

Even so, he worries about the effect on economic development.

"The overall impact ... is going to be devastating to some businesses--especially for the mom-and-pop shops, if their taxes increase dramatically."

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