In what homeowners may find cruel timing, property tax bills in Indiana arrive in mailboxes every April, about the same time state and federal income taxes are due.

Tax caps made part of the state constitution in 2010 continue to limit how much Hoosiers pay on their bungalows, ranch homes and McMansions to support local governments.

In Terre Haute this year, caps result in a more than 26 percent reduction in the amount owed on a $100,000 owner-occupied home with a mortgage deduction. In West Terre Haute, the reduction is more than 18 percent. 

In both cases, the tax bill is $1,000, according to a tax calculator on the Indiana Gateway government finance website.

In Riley, Seelyville and unincorporated areas of Vigo County, tax rates are low enough caps don’t generally come into play and bills on such a house range from $619 to $842. In most cases, that’s less than last year.

The hitch is that higher land values from the 2018 reassessment mean a home valued at $100,000 last year may be assessed at $120,000 this year so some property owners may end up paying more.

Local option taxes

Where Hoosiers are feeling the pinch is in income taxes and other options local governments turn to to raise money they can no longer generate from property taxes.

That is especially evident now in Vigo County as taxpayers are paying for a new jail and a new convention center, both of which are awaiting construction and, in the case of the jail, final site selection.

“Vigo County has absolutely become a high tax county within the last year or so,” said Robert Guell, professor of economics at Indiana State University.

“The property tax rate [4.15 percent in Terre Haute] is basically irrelevant because of the tax caps,” Guell said. “Nevertheless, with the local income tax increase, the addition of food, beverage and innkeeper’s taxes, and the inevitable tax to fund school reconstruction, the jurisdictions of Vigo County are taxing citizens very highly.”

Whether the taxes are justified by the services they provide “is a value judgment to be made by voters,” he said. “What isn’t up for dispute, though, is taxes in Vigo County are high and soon to be going higher.”

Last fall’s local income tax hike from 1.25 percent to 2 percent places the county in the top one-third of the state, according to 2019 rates provided by the Indiana Department of Revenue. Prior to the increase, Vigo ranked in the bottom third. The increase is going toward jail construction and operation and other public safety purposes.

Among Indiana’s 20 most populous counties (Vigo ranks 17th), only Marion has a higher rate — barely — at 2.02 percent. Clark and Elkhart are the same as Vigo. Statewide, 59 of 92 counties have lower rates, including Greene, Sullivan and Vermillion, while 28, including Clay and Parke, have higher income taxes.

While local income taxes are also being tapped to fund construction of the convention center, no increase was required for that purpose.

However, a new 1 percent food and beverage tax was implemented — a tax imposed in 28 other Indiana locations — and the innkeeper’s tax raised from 6.5 percent to 8 percent, second highest in the state, to help with construction and operating costs. 

Among central and south-central Indiana communities generally considered comparable — Anderson, Bloomington, Kokomo, Lafayette, Muncie and Terre Haute — the local income tax is highest in Vigo County and Terre Haute’s property tax rate is third highest.

The cities with the lowest property taxes, Bloomington and Lafayette, have benefited from population growth, a corresponding increase in residential construction and other development.

Caution with comparisons

One longtime observer cautions against comparisons with other cities.

Bernard Ridens, former executive director of the Taxpayers Association of Vigo County, notes the county was late to the table when it came to local option taxes.

“Vigo County did not collect income tax for in the neighborhood of 10 years while the others were,” he said. “So other cities and towns around the state really got caught up on things ... and built their infrastructure while we sat back and had no money collected.”

Vigo also has “a much different footprint than any other county in the state,” Ridens said. He pointed to county-wide school and library systems and the existence of four colleges and universities and a sprawling federal correctional complex, all of which account for significant tax-exempt property.

One tax left unchanged since its adoption in 2000 is a $15 motor vehicle excise surtax, or wheel tax, a rate that is lower than most comparable counties. The tax is higher for recreational vehicles and trucks.

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