Indiana Capital Chronicle
For The Republic
INDIANAPOLIS — A third property tax plan introduced on Wednesday would further protect local units of government from cuts to property tax bills, a change that would provide little tangible relief to the average homeowner.
Rep. Jeff Thompson, the leading Republican lawmaker on property taxes and the state budget, pitched a long-term vision for the state’s property tax system that would overhaul how the taxes are calculated. In particular, certain deductions for homesteads would be phased out and then replaced; business personal property tax floors would fall and the authorization of local income taxes would shift.
“If we keep what we’ve got we’ve got to expect the same result,” said Thompson, R-Lizton.
But while Thompson’s plan tackled many of the factors and simplified the overall process, direct relief for taxpayers would be small and instead focused on decreasing projected increases.
Thompson’s proposal joins competing visions from Gov. Mike Braun, who made property tax relief part of his campaign platform, and Senate Republicans.
Each version of the property tax plan has grown in complexity and length. Braun’s version was 46 pages compared to the Senate’s 91 pages.
Thompson’s plan is longer than both alternatives combined, clocking in at 228 pages.
But Thompson seemed confident that Wednesday’s version wouldn’t be the final property tax plan, saying the bill “sets the stage” for future action.
“We’re working on language to deal with both property tax rate and (local income tax) distribution right now,” Thompson said. “… I suspect you’re going to see some language to deal with that, because I’m quite aware of what’s going on and that’s not the way to operate.”
Thompson, who chairs the Ways and Means Committee, indicated that his committee would introduce another property tax plan in the coming weeks.
Comparing the three property tax proposals
Critics slammed Braun’s campaign proposal last year for its heavy toll on local units of government, especially counties, cities, towns and schools. Large portions of local budgets go to public services, such as fire protection, law enforcement and infrastructure.
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Under Braun’s plan, counties could expect to lose $211 million in the 2026 calendar year, while cities and towns would get $263 million less, followed by larger losses in 2027 and 2028.
Combined, those entities would see smaller reductions than schools, which account for 46%, or $536 million, of the total $1.15 billion local units of government would lose under Braun’s plan.
In contrast, the Senate property tax plan would only cut $239 million from local units of government, with one-quarter of that, or $61 million, coming from school corporations.
Budgets for counties would be smaller by $60 million while cities and towns would lose $50 million.
Thompson’s version has the smallest loss for schools at just $4 million. Initially, local units of government would see some small growth, with $79 million more available — mostly due to growth in “Other Real” property taxes. Cities and towns would see an additional $15 million in 2026 while counties would lose nearly $6 million under the House proposal.
But Braun’s plan is also the only one that would meaningfully impact the average homeowner’s property tax bill.
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Homesteaders would collectively see their bills drop by nearly $1.3 billion in 2026, compared to $91 million under the Senate plan and $147 million in the possible House proposal. Braun would also keep property taxes low through an annual cap on how much bills can grow. Under the Senate version, property tax bills for homeowners would also fall further in 2027 and 2028.
The House property tax plan, on the other hand, would increase homestead property taxes slightly in 2027 and 2028, but fall thereafter.
That increase, Thompson said in committee, comes because his version of the bill would repeal property tax credits.
Committee discussion and feedback
Some of the committee’s concern stemmed from concerns about the shifting tax burden, or when a cut on one property class — like homeowners — places a heavier burden on another group — such as businesses.
“You can only push it onto other taxing groups in so much as the (constitutional cap) allows you to do that. Then you’re going to try and backfill it with (local income taxes),” said Rep. Ben Smaltz, R-Auburn. “And I think I need to see some sort of fiscal, a very specific fiscal for different units, so you can tell what’s going to happen to them and how they’re going to fix that.”
This shift toward taxing homeowners was also a concern for members of the public.
“We are concerned that the property tax portions of this bill amounts to a narrowing of the tax base, which will keep rates high,” said Ryan Hoff, representing the Association of Indiana Counties. “We do not believe that local income tax should be relied upon as a replacement to fund revenue losses stemming from business tax cuts.”
A proposed phase-out on business personal property tax will have a disproportionate impact on small communities that rely largely on one large employer. If that company’s taxes fall, it could reduce the budget of that local government unit.
Hoff continued to say that such areas might have small or low-income resident populations, diminishing its ability to recoup revenue through income or homeowner property taxes.
David Ober, the Indiana Chamber’s vice president of taxation and public finance, acknowledged that changes to the business personal property tax rate were “a bit of a double edged sword.”
“Reducing the net assessed value is going to increase the rate, which then is paid by all other taxpayers. And so real property will feel an increase,” said Ober. “… but if you eliminate that 30% floor, it’s not like it goes down to zero. A lot of that will still sit in assessed value. It’s just going to be at a lower floor.”
At least one Democrat pointed to the legislature as the impetus behind rising property taxes, saying the General Assembly had failed to properly fund schools. Schools then used referendums or bonds to pay for rising utility, infrastructure and transportation costs, she said.
“I think it’s incumbent on us as a legislature to look at the fact that we have money and a surplus, but we’re forcing communities to take these referendums out and to rely on the referendums, and they will wonder why the property tax bills are so high for individuals,” said Cherrish Pryor, D-Indianapolis.
Pryor went on to say that “schools are going to be in dire straits if we don’t do something.”
Another committee member pushed for the state “to get out of the property tax game entirely” by 2030, saying alternative revenue sources could be used instead.
“I don’t think anybody in our right minds would look at the taxing structure that we have today… (and) hit the reset button to rewrite it the exact same way,” said Rep. J.D. Prescott, R-Union City. “It’s such a complicated mess. It would be great to simplify the system come up with a more fair and balanced tax structure.”
— The Indiana Capital Chronicle covers state government and the state legislature. For more, visit indianacapitalchronicle.com.
