Differential Property Tax Caps and the Indiana Constitution (Why We’re Still Opposed)

Late last summer, the Indiana Chamber tax policy committee revisited the issue that is currently being debated again by the newly elected General Assembly. Should the 1%-2%-3% (of assessed value) tax caps be enshrined in our Indiana Constitution? Based on a policy position that has been in place for many years, the Chamber opposed SJR 1 last year, and the committee concluded that there is no reason to change that well-founded position.

So, what’s so bad about tax caps? Nothing if they were the same for all taxpayers. But the fundamental problem here is that the caps are different for different taxpayers. The resolution to change our Constitution (SJR 1) proposes replacing the language that says that all taxpayers will be guaranteed assessments and tax bills that are “uniform and equal” with language that says properties with equal market values will be taxed differently based on how the property is used. The 1%-2%-3% caps establish a “classified” property tax system. This is what our longstanding position opposes. A review of other states’ property tax structures reveals that classified systems serve as a means to tax business property at a higher rate, and therefore higher burden, than other property types.

This is the root of our opposition.

We believe that the founding fathers of our state got it right when they worded our Constitution to say that property of equal value will be assessed and taxed the same regardless of how the owner chooses to use it. In the simplest terms, what the proposed constitutional amendment would do is to sanction, endorse and make permanent a system that says owners of business commercial and industrial real property, and business personal property (machinery and equipment) can and will be taxed up to three times greater – merely because it is used for business purposes – than what some other property owners will be taxed on equally valued property. Is this something the Legislature and the citizenry should be supporting? Is this the message we want to send in difficult economic times to those considering whether to expand their operations in Indiana?

Some say, “Business has always gotten the short end of the stick (previously through the property assessment system), so what’s new about this?” But never before has it been this blatant or drastic in degree. And it is particularly concerning to the Chamber that this proposed amendment to our state Constitution, a document that represents our core philosophies, would allow the General Assembly to establish advantages and disadvantages for different taxpayers in nearly any order of magnitude it chooses.

The message is: business property taxpayers are not going to be treated equally, they are a disfavored class, and they will therefore pay more. No one can yet say how businesses will react to this dramatic policy change. But typically the more unfavorably the tax structure treats them, the more unfavorably they respond. And this policy, if adopted, will treat business property less and less favorably over time.

In addition to the principled, philosophical policy reasons, there are also a number of practical reasons for pausing before putting the caps in the Constitution. These concerns have to do with the basic fact that nobody really knows what effect such major structural changes will have when imposed on such a large variety of taxing jurisdictions. The projections are at best guesses. Which units will be impacted, to what extent and what the subtleties of these numerous changes will reveal (and how businesses will respond) is just not known. These are complicated matters. The proposed Constitutional amendment specified by SJR 1 is popular and would assuredly be passed by those who stand to benefit in the short term. But whether it is a policy that should be made permanent remains a very legitimate question. After considering all the available data and all the policy arguments, the Chamber remains opposed to continuing on a course that sets in stone higher tax burdens for business property and removes the most fundamental and important constitutional protections that business property taxpayers currently have.