The lowdown on trending
By Debbie Lowe

Assessor Doris McLeland & ready to mail Form 11s

Indiana has changed its entire system of real estate assessment. Indiana courts determined the old system was unconstitutional because it was not based on property wealth. Market value assessments, used in 48 other states, was adopted as Indiana's new system by the Department of Local Government Finance (DLGF).

Much has been written and discussed about the state's initiative called "trending." DLGF, the state agency that is responsible for administering property taxes, would like for the residents of Carroll County to have a clear understanding of what that term means. And the first thing to understand is that trending and reassessment are like a two-sided coin.

Trending is easy to define in words and can be easily understood in theory. However, the practicality of living through it, and the uncertainty of what effect it will have, is confusing at best.

Trending is the act of property value adjustment. It is designed to more adequately reflect the true value of property as it changes each year. It is done every year. It is performed in the assessor's office, rather than in the field. The goal of trending is to alleviate large adjustments in property value, and therefore large variations in property tax bills.

Reassessment, the other side to the coin, is now done every four years, as opposed to every 10 years as was the case in the past. A certified assessor physically visits properties with a tape measure and does an on-site evaluation of changes.

When new homes were built after a ten-year assessment, homeowners were unable to take advantage of depreciation allowances until the next reassessment. Those property owners paid more property tax during that time than homeowners who made improvements to existing structures, but who received a depreciation allowance.

"It's a fairness thing," explained State Representative Rich McClain. "It is the responsibility of every property owner in Indiana to pay taxes on their property. Property tax is just like income tax, sales tax and excise tax. New construction was simply carrying more than equal the property tax burden."

Trending takes into consideration what similar properties in the same geographic area currently sell for, to determine the market value of each. That number is compared to the latest assessment of the property to evaluate for accuracy.

According to Mitch Frazier, the legislative liason and public information officer for DLGF, the first year that trending is employed presents the greatest number of challenges.

"This is going to be by far the most difficult year in trending," he said. "Property values will become more predictable every year after this year, as the trending factor is applied."

"It is important to move correctly in order to move forward," Frazier added. "But we understand, this is all going to be a challenge."

Because the tax rates have not yet been determined, the actual impact of trending on each property owner is not known. To lessen the potential "sticker shock," the state instituted a $10,000 increase in the homestead tax credit just for this year, the first year, explained McClain.

Frazier said a "circuit breaker" was established for the second year of trending to prevent any property owner from paying more than two percent of the assessed value of their property. For example, for a property assessed at $50,000, the owner would pay no more than $1,000 in property tax that year.

And there is an appeal process provided for property owners to formally object to their tax assessment from trending. If a property owner believes they could not have sold their house for the assessed value on Jan.1, 2005, and can support that belief with evidence and documentation, such as an independent appraisal, they may have a valid appeal, according to Carroll County Assessor Doris McLeland.

McLeland advised all property owners who plan to file an appeal must complete Form 130 and present it to her office within 45 days of the receipt of the reassessment form, Form 11, which is sent out from her office.

However, McLeland has not sent out Form 11s yet to the approximately 20,000 property owners in Carroll County. She said they are ready to mail, but she was notified by the state there may be errors in the proposed assessments, further complicating the matter. McLeland said it costs approximately $8,000 to mail the forms and she resists the idea of mailing them twice for the same purpose.

"I won't give out any information until we get an okay from the state," she said. "I think it is sad the state is making us do this. I think it will cost more for property owners."

"I have people come in who are on fixed incomes," she added. "They say they won't be able to pay more taxes."

"It is always difficult to change," Frazier said. "This is one of the most significant changes that assessment officials have faced."

McClain summed up the situation by saying, "It makes it (property tax) reasonable for the long term, and that's something we've never had." Frequently asked questions Q. How is trending different from the previous system of assessment? A. Under the old system, real estate was generally only reassessed every 10 years - that left taxpayers with a large change in their assessments every decade. The old system valued property based on replacement cost less depreciation. Indiana's annually adjusted market-based assessments curb the previous large lump sum change in assessments by annually adjusting values based on sales data for a particular property type in a neighborhood or area. Q. Why are we doing this? A. In 2002, the state moved to marketbased assessments joining 48 other states across the country. Under the old system, real estate was generally only reassessed every 10 years - this curbs large lump sum change in assessments by annually adjusting values based on sales. Q. Will I see an increase in my tax bill because of this? A. Hoosier taxpayers could see an increase or a decrease in their tax bills after the assessment based on their location and the expenditures by local government. In essence, the assessment only represents a property owner's share of the overall tax burden for a specific area - not how much they will pay in taxes. The annual adjustment will help ensure a property is valued according to the local market conditions in an area. With improved values, Hoosiers should see a more equitable distribution of the tax liability on property owners. Q. How do I appeal an assessment under the new system? A. Appeal rights don't change with the implementation of annual adjustments. Taxpayers will still be able to review their assessment and appeal errors to local assessors. It is important to remember when reviewing a new assessed value, that an increase in the assessment does not necessarily mean an increase in taxes. A person's tax bill is a direct result of local budgetary needs and spending. Q. How do I know if my new assessed value is correct? A. The assessed value should reflect the amount a willing buyer would pay for the property at the time of assessment. When a property owner receives the notice of new assessment, the best way to determine if it is accurate is to ask if the property could have sold for roughly that amount.

Reprinted from Department of Local

Government Finance fact sheet.