Personal Property Taxes and Property Tax Abatements
Transcript of Personal Property Taxes and Property Tax Abatements
Personal Property Taxes and Property Tax Abatements
Presented by:
Adam C. Shields, Esq., CPA One Indiana Square, Suite 2800
Indianapolis, IN 46204
Phone: (317) 238-6312
AIC Institute for Excellence in County Government
August 14, 2014
Real vs. Personal Property Classification
Assessment Method and Process
Real Property - Market Value-in-Use
Self Assessment of Personal Property
Property Tax Caps
Tax Billings
General Overview of Indiana Property Taxes
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• 50 IAC 4.2-4-10 provides guidance regarding
determination of property as real or personal
• The use of a unit of machinery, equipment, or a structure
determines its classification as real or personal property:
• Personal property - If directly used for manufacturing or a
process of manufacturing
• Real property - a land or building improvement.
• List of classification of specific types of property also
provided.
• IC 6-1.1-1-11 also provides specific guidance
regarding classification
Real vs. Personal Property Classification
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Assessment Date - currently March 1st of each year *
Taxes are paid in arrears
Example: 2013 Pay 2014 property taxes
•March 1, 2013 assessment date
•Taxes are paid in 2014 (May 10th and November 10th)
Annual trending with cyclical reassessments (25% of
parcels each year) for real property
* - changing for 2016 Pay 2017 property taxes
Assessment Method and Process
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Senate Bill 420 (2014) *
Assessment date is moved from March 1st to January 1st
beginning with the 2016 Pay 2017 property taxes.
However, personal property tax return filing date remains
May 15th.
* - Amendment/addition of language to IC § 6-1.1-1-2 & IC § 6-1.1-2-1.5
Assessment Method and Process
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Market value of property in its current use (not highest and best use)
The market value-in-use of a property for its current use, as reflected
by the utility received by the owner or by a similar user, from the
property.
Considered as the price that would induce the owner to sell the real
property, and the price at which the buyer would purchase the real
property for a continuation of use of the property for its current use.
Real Property Assessment
Method and Process
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Mass appraisal technique - process of valuing a group of
properties as of a given date using common data, standardized
methods, and statistical testing
Special assessment methods for certain types of property
Developer’s discount
Agricultural Land
Rental property
Low income rental housing
Riverboats
Golf courses
Real Property Assessment Method
and Process (cont.)
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Triggered by first notice of assessment (Form 11 or
Tax Bill)
45 day appeal period to file appeal with county
assessor (or township assessor if applicable)
Appeal Process • Informal meeting with county assessor
• County Property Tax Assessment Board of Appeals (PTABOA)
• Indiana Board of Tax Review
• Indiana Tax Court
• Indiana Supreme Court
Real Property Assessment Appeals
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Owners of business tangible personal property are generally required to
file Form 104 and Form 103 (Long or Short) every year by May 15th:
Starting point is cost of personal property (as reflected on Taxpayer’s books)
Adjusted based on applicable pool (4x) that property is segregated and
associated table of percentage of original cost
Additional forms may be required in certain circumstances
Farmers file Form 102 (not required to file Form 103)
Leased property would require filing of Form 103-N and/or Form 103-O
Generally personal property tax returns must still be filed annually for
exempt property.
Personal Property Assessments
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Indiana Code 6-1.1-3-7(b) permits a county assessor the
discretion to grant an extension of not more than thirty (30)
days to file the taxpayer’s return (if timely requested).
Amended returns may be filed (if original return was timely
filed) no later than 1 year after the filing due date (or the
extension date).
Personal Property Assessments
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Assessing Official (county assessor or township assessor if
applicable) reviews personal property tax returns and has
ability to exam a taxpayer’s personal property.
Assessing Official also has ability to estimate assessed
value for personal property parcel if no personal property tax
returns are filed by taxpayer
Results of Assessing Official’s review and any non-
compliance are reflected on Form 113/PP (Notice of
Change of Assessment (by Assessing Official)
Personal Property Assessment (cont.)
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Taxpayer Option (triggered by receipt of Form 113/PP):
File applicable personal property return within thirty (30)
days from the date on Form 113/PP (if return was never
filed); or
Appeal change in assessed value provided on Form
113/PP within forty-five (45) days from the date on the
Form 113/PP (similar process to real property appeals
except for no action at Indiana Board of Tax Review).
If no action taken, the assessment will generally stand
with all penalties (if applicable).
Personal Property Assessment Appeals
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Maximum property tax liability is limited to following
percentages of assessed value
Homestead – 1%
Other Residential and Farms – 2%
Commercial and Industrial (Personal Property) – 3%
Calculated using gross assessed value (i.e. before
deductions) and subject to increases for any approved
referendums eclipsing caps
Provided in form of credit against tax liability
Property Tax Cap/Credit
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House Bill 1234 (2014)
Requires county treasurers to mail property tax
statements at least 15 business days, instead of 15
calendar days, before the first payment is due.
Effective July 1, 2014
Property Tax Billings
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Examples:
Solar, Wind, Geothermal or Hydroelectric
Certified Technology Park (personal property)
Investment Property by Manufacturers of
Recycled Components (IC 6-1.1-44)
Enterprise Zone Investment (IC 6-1.1-45)
Abatements
Deductions
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- Form 136 generally required every year or every even
year (if owned nonprofit corporation) by May 15th *
- Certain exceptions to annual/biennial filing
requirements
- Similar review/appeals process for review of exemption
requests (from assessments appeals)
* - Exemption filing deadline is also being moved (to April 1st)
beginning in 2016 (for 2016 Pay 2017 property taxes).
Property Tax Exemptions
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Proposed Legislation (as of February 17, 2014) HB 1001 - provides that a county income tax council may adopt an
ordinance to exempt from property taxation any new business
personal property (other than utility personal property) that is located
in the county.
SB 1 - provides that if the value of a taxpayer's business personal
property in a county that would otherwise be subject to taxation is
less than $25,000 for a particular assessment date: (1) the taxpayer
is not required to file a personal property return for the taxpayer's
business personal property in the county for that assessment date;
and (2) the taxpayer's business personal property in the county is
exempt from taxation for that assessment date.
Elimination of Business Personal Property Tax?
Final Legislation
SEA 1
• Signed into law by Governor Pence on March 25, 2014
• Provides mixture of proposals in HB 1001 and SB 1:
Optional exemption for any new business personal property that is
located in the county;
Optional exemption of a taxpayer’s business personal property in a
county with acquisition costs of $20,000 or less for a particular
assessment date;
Enhanced abatement schedule that may not exceed 20 years; and
Establishment of Commission on Personal Property and Business
Taxation
Optional/Partial Elimination of
Business Personal Property Tax
Exemption for “Small Return” Personal Property (IC 6-1.1-3-7.2) Only applies to “Business Personal Property”:
• Subject to property tax assessment and taxation;
• Used in trade or business or otherwise held, used or consumed in connection
with production of income; and
• Was acquired:
In an arms length transaction from an entity that is not an affiliate of taxpayer (if
personal property has previously been used in Indiana before being placed in service in
county); or
Has not previously been used in Indiana before the taxpayer acquires the business
personal property
Acquisition cost of taxpayer’s “Business Personal Property” is less than $20,000
for applicable assessment date.
Excludes mobile homes, personal property held as an investment and public
utility personal property (although not personal property of a telephone company
or communications services provider that satisfies definition of “Business
Personal Property”).
Optional/Partial Elimination of
Business Personal Property Tax
Exemption for “Small Return” Personal Property
(IC 6-1.1-3-7.2)
Optional - county income tax council (CITC) may adopt an exemption
ordinance
CITC – as established by IC 6-3.5-6-2 (regardless of whether a
county income tax is in effect)
• Must first conduct public hearing on proposed exemption ordinance
• Ordinance must apply throughout county
• Certified copy of ordinance must be provided to DLGF and county
auditor
Optional/Partial Elimination of
Business Personal Property Tax
Exemption for “Small Return” Personal Property
(IC 6-1.1-3-7.2)
Effective for assessment dates occurring between:
• Later of: (i) assessment date after December 31, 2015 (2016 Pay 2017)
or (ii) date on which is ordinance is adopted; and
• Any rescission of ordinance
No exemption application or personal property tax return required to
be filed by taxpayer for exemption (if eligible for exemption)
However, before May 15th of calendar year in which assessment
date occurs, taxpayer must file with county assessor an annual
certification stating that taxpayer’s business personal property in
county is exempt for that assessment date
Optional/Partial Elimination of
Business Personal Property Tax
Exemption for New Personal Property (IC 6-1.1-10.3)
Effective July 1, 2015
No exemption application required to be filed by taxpayer for
exemption
Optional/Partial Elimination of
Business Personal Property Tax
Exemption for New Personal Property (IC 6-1.1-10.3)
Optional - county income tax council (CITC) may adopt an exemption
ordinance
CITC – as established by IC 6-3.5-6-2 (regardless of whether a
county income tax is in effect)
Procedures:
• Generally same procedures for CITCs as set forth in IC 6-3.5-6
• Must first conduct public hearing on proposed exemption ordinance
• Ordinance must exempt all new personal property
• Certified copy of ordinance must be provided to DLGF and county
auditor
• Ordinance may be repealed or amended
BUT - any new personal property placed in service under exemption
ordinance (when placed in service) remains exempt, regardless of whether
or not ownership of new personal property changes after the date the
exemption ordinance is amended or repealed.
Optional/Partial Elimination of
Business Personal Property Tax
“Super” Personal Property Tax Abatement (IC 6-1.1-12.1-18)
Optional - designating body may establish an enhanced abatement
schedule for “new personal property” that may not exceed 20 years
Procedures:
• Generally same procedures for property tax abatements
• After 10th year of abatement - must conduct a public hearing to review
taxpayer’s compliance with statement of benefits provided to the
designating body.
Applies only to “new personal property” with respect to a statement
of benefits approved after June 30, 2015
Optional/Partial Elimination of
Business Personal Property Tax
“Super” Personal Property Tax Abatement (IC 6-1.1-12.1-18)
“New Personal Property”
• “Business Personal Property”
Otherwise subject to property tax assessment and taxation; and
Used in a trade or business or otherwise held, used or consumed in
connection with the production of income.
• Placed in service after later of the date the taxpayer’s statement of
benefits is approved by the designating body; and
• Has not previously been used in Indiana before the taxpayer acquires
the business personal property
Excludes mobile homes, personal property held as an investment
and utility personal property (although not personal property of a
telephone company or communications services provider that
satisfies definition of “Business Personal Property”)
Optional/Partial Elimination of
Business Personal Property Tax
Tax abatement is one of the most commonly used local financial incentives in Indiana
Tool used by local government to attract private investment and job creation by exempting all or a portion of the new or increased assessed value resulting from new investments
Can be granted on either real or personal property
Abatements (IC 6-1.1-12.1 )
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Taxes on assessed value existing prior to project and all land values continue to be paid in full
Can be granted for between 1 to 10 years.
Real and personal property tax abatement in Indiana has traditionally been based on a statutory sliding scale resulting in abatement of approximately fifty percent (50%) of the total tax amount.
Abatements (cont.)
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Schedules previously required lock step reduction in abatement percentage:
Indiana law now provides flexibility for virtually any type of schedule desired, including 100% abatement of new real and personal property taxes for up to ten (10) years and twenty (20) years for new personal property (for new personal property with respect to a statement of benefits approved after June 30, 2015)
Abatements (cont.)
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Year Abatement %
Year 1 100%
Year 2 80%
Year 3 60%
Year 4 40%
Year 5 20%
An “eligible vacant building” is generally limited to an abatement for two (2) years (three (3) years under certain circumstances).
Residential property in a “residentially distressed area” (IC 6-1.1-12.1-2 - similar but different requirements from “economic revitalization area”) is limited to five (5) years.
Abatements (cont.)
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Abatements of real property (not land) can be
granted for both new construction and
rehabilitation
Improvement or new construction of one or two family
dwellings or multifamily dwellings designed for up to
four families only in an area also designated as a
residentially distressed area.
Abatement is limited to the increase in assessed
value attributable to the new construction or
rehabilitation.
Abatements (cont.)
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Ineligible Real Property (IC 6-1.1-12.1-3):
Private or commercial golf courses
Country clubs
Massage parlors
Hot tub facilities
Suntan facilities
Tennis clubs, Skating facilities and Racquet sports facilities
Race tracks
Facilities with the primary purpose of (a) retail food and beverage
service, (b) automobile sales or service, or (c) other retail; unless
located in an “economic development target area” (IC 6-1.1-12.1-7).
Package Liquor Stores
Abatements (cont.)
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Personal property tax abatements can be granted
to any manufacturing equipment (new or used)
that has not previously been taxed in Indiana.
Other personal property such as (i) new research
and development equipment, (ii) new logistical
distribution equipment and (iii) new information
technology equipment.
Abatements (cont.)
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Project must be located in an economic revitalization
area to receive abatement
Abatement process for a specific project can occur
simultaneously with process of designating a
geographic area as an economic revitalization area
Can designate large geographic areas or just footprint
of a specific project as an economic revitalization area
Economic Revitalization Areas
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Statutory definition of an economic revitalization area is
“… an area which is within the corporate limits of a city,
town, or county which has become undesirable for, or
impossible of, normal development and occupancy
because of a lack of development, cessation of growth,
deterioration of improvements or character of occupancy,
age, obsolescence, substandard buildings, or other
factors which have impaired values or prevent a normal
development of property or use of property.
Economic Revitalization Areas (cont.)
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Must be designated by the fiscal body of the county,
city of town where the property is located (the
“Designating Body”)
Common Council in a City or Town; or
County Council of a County
Designating Body adopts resolution declaring area an
economic revitalization area (the “Declaratory
Resolution”)
Economic Revitalization Areas -
Procedures
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Adopted Declaratory Resolution filed with County
Assessor and each taxing unit that has authority to fix
budgets, tax rates and tax levies in the economic
revitalization area
Notice of adoption of the Declaratory Resolution and
substance thereof must be published one time in
required newspapers
Economic Revitalization Areas (cont.)
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Designating Body holds public hearing at least ten days after
publication date to hear (1) all remonstrances and objections
from interested parties and (2) evidence that the geographic area
meets the qualifications for an economic revitalization area.
At conclusion of public hearing, Designating Body adopts a
resolution determining whether qualifications as an economic
revitalization area have been met and confirming or modifying
the Declaratory Resolution (the “Confirmatory Resolution”) or
rescinding the Declaratory Resolution.
Final action of the Designating Body may be appealed to the
Circuit or Superior Court by a person who filed a written
remonstrance
Economic Revitalization Areas (cont.)
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Project must be located in a designated and confirmed economic
revitalization area (if project area is not located in an already
confirmed economic revitalization area this designation may occur
simultaneously with the process for conferring abatement for a
specific project)
Applicant must file a Statement of Benefits Form (Form SB-1) with
the Designating Body which includes:
Description of proposed project
Estimate of number of individuals to be employed or retained as a result
of the project including an estimate of annual salaries for such jobs
Estimate of value of project
Conferring of Abatement For
Specific Projects
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Designating Body reviews Form SB-1 to determine
whether a deduction should be allowed based on (and
after it has made) the following findings:
Whether Applicant’s estimate of value of project is reasonable
Whether Applicant’s estimate of number of individuals to be employed
or whose employment will be retained can reasonably be expected to
result from the project
Whether Applicant’s estimate of annual salaries is reasonable
Whether any other benefits the project is expected to provide can
reasonably be expected to result from the project
Whether the totality of benefits is sufficient to justify the deduction
Conferring of Abatement for a Specific
Project (cont.)
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If property is also located in a TIF Allocation Area must
be approved by the Legislative Body before the
abatement application is approved
Conferring of Abatement for a Specific
Project (cont.)
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Applicant must timely file a certified deduction
application on forms prescribed by the Department of
Local Government Finance (Form 103-ERA for tangible
personal property and Form 322-ERA for real property)
with the County Auditor
Utilizing the Approved Abatement
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Applicant must file a Compliance with Statement of
Benefits Form (Form CF-1) annually with the County
Auditor and the Designating Body which shows the
extent to which there has been compliance with the
Statement of Benefits Form (Form SB-1)
Designating Body reviews Compliance with Statement of
Benefits Form (Form CF-1) to determine level of
compliance with benefits promised in the Applicant’s
originally filed Statement of Benefits Form (Form SB-1)
Ongoing Monitoring and Compliance
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If Designating Body determines the Applicant has failed
to substantially comply and such was not caused by
factors outside the control of the Applicant the
Designating Body may give written notice to the
Applicant of a public hearing to be held to show cause
why the property tax abatement should not be
terminated
If the Designating Body adopts a resolution terminating
the abatement the Applicant may appeal to the Circuit or
Superior Court
Ongoing Monitoring and Compliance
(cont.)
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Thank you!
Any Questions
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Adam C. Shields, Esq., CPA One Indiana Square, Suite 2800
Indianapolis, IN 46204
Phone: (317) 238-6312