Property tax case argued before Indiana Supreme Court has major implications

Local governments could lose significant property tax revenue under a case heard by the Indiana Supreme Court on Thursday about how much land falls under the state’s 1% tax cap for homesteads.

“I’m concerned that if we were to go as expansive as you’re suggesting that these schools, police stations, fire stations that would likely close in many communities because of lack of revenue,” said Supreme Court Justice Christopher Goff.

But homeowners would save money if more acreage was classified under the 1% cap. It would also put an additional administrative burden on assessors to examine the use of property—rather than the 1-acre limit in effect today.

Hoosier voters approved property tax limits in 2010 capping bills at 1% of the property’s assessed value for homesteads, 2% for other residential property and farmland, and 3% for business. Increases from separately approved referendums are outside those limits.

Plaintiffs in the case believe the corresponding state law limiting the 1% cap to your dwelling and 1 acre of land conflicts with the constitutional provision.

There were no estimates on how much land the case might impact. The median lot size in Indiana is 9,200 square feet while the average is closer to 13,000 square feet. An acre is 43,560 square feet.

Lawmakers recently passed a bill to reduce homeowner property taxes next year, but income taxes could make up the difference.

The case at hand

Taxpayers in this case–Dr. Tulsi and Kamini Sawlani—have 3.9 acres of land. The Lake County Assessor has limited the 1% cap to 1 acre, leaving the remaining 2.9 acres under 2% cap. Their attorney said this costs them about $ 1,000 annually.

Gerold Stout, arguing on behalf of the Sawlanis, said most Hoosiers assumed when voting for the tax caps that their entire property would count as their homestead regardless of size.

The Indiana Tax Court found the 1-acre limitation unconstitutional because it conflicts with the constitutional language that includes “curtilage” as part of a principal place of residence.

By definition, a curtilage is the area of land attached to a house—typically including the yard, garden and outbuildings, and considered legally part of the dwelling. But state law doesn’t define it.

Instead, lawmakers used the 1-acre limitation, which Supreme Court Chief Justice Loretta Rush noted dates back to 1979.

She and other justices noted that the Tax Court decision makes it a case-by-case decision by assessors in 92 counties, meaning it could apply differently from community to community even though there is also a constitutional mandate for a uniform and equal property tax system.

Rush asked Stout to define curtilage, which he could not. He instead said it depends on how a homeowner is using the land.

“How many times did you play volleyball? What if you didn’t mow it?” Rush asked. “It seems a little happenstance.”

Stout conceded assessors would have to talk to homeowners to decide how they use it.

Defending the law

That’s why lawyers for the Lake County Assessor and the Attorney General’s Office argued the tax court decision should be reversed.

Ayn Engle, representing Lake County, said lawmakers were well within their exclusive authority to define curtilage at 1 acre.

“The Tax Court usurped the Legislature’s broad authority … and acted more as a legislative body than a judicial branch.” she said.

While Engle conceded the court could narrowly rule against the specific homeowners in the case because they didn’t provide evidence supporting their curtilage claim, she encouraged the court to decide the merits of the 1-acre limitation.

“I think if assessors are required to look at more than 1 acre, you’re going to have assessors doing things differently across counties,” Engle said.

She said waiting would just kick the can down the road a year or two and that assessors need clear rules now.

“I’ve been a judge a long time. That’s just the way it works. People keep coming; people keep bringing cases,” Goff said.

Deputy Solicitor General Jenna Lorence conceded there “might” be specific circumstances in which the 1-acre limitation could be found unconstitutional, but said that is for another day.

Justice Mark Massa said, “I’m a little confused. As I understand you are tasked with defending the constitutionality of state statutes. And here, today, you’re suggesting that this statute could be unconstitutional as applied … You seem to be arguing both sides of this.”

Several groups have filed briefs in the case and also participated in the arguments, including the Association of Indiana Counties and the Indiana Association of Realtors.