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

[email protected]

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

2

• 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

3

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


4

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


5

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

6

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.)

7

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

8

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.)

11

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

12

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

13

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

15

- 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”).



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



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



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



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.



“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



“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”)



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 )

26

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.)

27

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

35

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


36

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


37

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.)

39

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.)

40

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

41

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

44

Adam C. Shields, Esq., CPA One Indiana Square, Suite 2800

Indianapolis, IN 46204

Phone: (317) 238-6312

[email protected]

Documents

Personal Property Taxes and Property Tax Abatements