By SUSAN BLOWER

Indiana Correspondent

ANDERSON, Ind. — For 2019, the base rate of assessed value on Indiana farmland is projected to drop 13 percent – from $1,850 per acre in 2018 to $1,610 in 2019, said Larry DeBoer, professor of agricultural economics at Purdue University.

The base rate is the starting point for assessment of farmland statewide for property tax purposes. DeBoer projected that the base rate of farmland will continue to slide downward through the early 2020s, when it could end up around $1,200 per acre.

“In the current downward trend, this will be the biggest drop (in a year). Over the next three to four years, we project it will be in the $1,200s, supposing crop prices stay the way they are, with $4 corn and $10 beans,” he said.

In 2016, the Indiana General Assembly changed the formula to use the most recent data, such as commodity prices, and a higher capitalization rate to figure assessed value of farmland. As a result, the rising tide of farmland property taxes was stemmed early and reduced more quickly, based on the slide in commodity prices, DeBoer explained.

“The assessed value for farmland is not based on market value, unlike other properties; it is based on use value as long as the land produces something. The same assessed value is applied to farmland no matter where it is. Location doesn’t matter,” he said.

The Department of Local Government Finance recalculates farmland’s assessed value every year using a capitalization formula. For more on this subject, see www.ag.purdue.edu/agecon and check under the “Extension” tab.

Property tax rate

In addition to the assessed value, the tax rate figures into the total tax bill that property owners receive each year. Farm property tax rates are calculated in the same way as other properties, DeBoer said.

The property tax rate is calculated by the tax levy set by local governments divided by the net assessed value of all the properties within its borders. Local governments determine the property tax levy by adding up their appropriations and subtracting other revenue – subject to a state maximum levy.

The property tax rate is set anew every year, and the rates vary widely across counties and the state, DeBoer said. He led a workshop earlier this month in Anderson to educate local government leaders and citizens on how property taxes work in Indiana.

Using a seven-county region in east-central Indiana, he showed average property tax rates for 2017 that ranged from $1.85-$3.75 per $100 assessed value. These counties included Madison, Hamilton, Hancock, Delaware, Henry, Grant and Tipton.

Indiana’s average property tax rate was 2.4 percent this year. Tipton County’s tax rate, among the lowest, was 1.8 percent, but its net assessed value of properties was high, at $61,318. Tipton’s net assessed value has risen rapidly because of the addition of wind turbines, DeBoer said.

The result is that Tipton local governments will collect $1,133 per person, on average.

While Delaware and Madison counties have some of the highest tax rates – at 3.7 and 3.6 percent, respectively – their net assessed property values are “wretched,” DeBoer said. Delaware’s average assessed value was $29,616 per person, and Madison’s was only $27,048. The net taxes collected were comparable or lower than in other counties.

Hamilton and Hancock counties’ tax rates fall somewhere in between, while their net assessed value of properties per person was higher than average – $63,246 and $44,739, respectively – because of newer, more expensive houses.

But the actual tax paid by property owners is determined by a number of factors within their tax district. In addition to the county tax rate, the property is subject to taxes from its school district, city or town (if applicable) and other incidentals, such as townships, libraries and special districts.

Of these, the school budget dominates the percentage of appropriations (expenditures) in Indiana, DeBoer said, while the townships and libraries are the smallest factors. Within the seven-county region analyzed, school spending per pupil ranged from $10,728 in Anderson schools to $8,581 in Alexandria.

Local government appropriations include a general fund, debt service, cumulative/cap projects and other operating expenses. The sum of these appropriations – minus miscellaneous revenue – determines the property tax levy, or the amount needed to be raised, subject to the state’s maximum levy limits.

“Most local governments use the maximum tax levy,” DeBoer said.

The state’s maximum tax levy is based on annual growth rates of Indiana’s non-farm personal income. He said farm income is left out of the equation because year-to-year income is so volatile.

While a 4 percent annual income growth rate is average, Indiana’s growth was lower, mainly due to a 2 percent decline in Hoosier income in 2009. However, a 4 percent growth rate is projected for 2018 and for the foreseeable future, DeBoer said, based on the six-year average of personal income since 2011.

The property tax rate workshop, attended by about 30 people, was hosted by Madison County extension and the Anderson Public Library.

“We want people to understand how local government revenue works, and how it fits into the bigger picture,” said Tamara Ogle, Purdue extension community development regional educator.