A report out of Lake County found the amount of assessed value of residential homes has increased far more than for commercial properties. Photo by Getty Images.

By Casey Smith
Indiana Capital Chronicle

INDIANAPOLIS — As Indiana’s legislature continues to debate statewide property tax reform, officials in Lake County are pointing to new data showing that homeowners have taken on an unfair share of property taxes.

The analysis — compiled by Scott Schmal, the county council’s financial director — additionally identified at least eight other Indiana counties with a similar tax burden shift.

From 2019 to 2024, the amount of assessed value of commercial property increased by about 12% in Lake County, according to Schmal’s report. Taxes for those properties are capped at 3%, per state law. But the amount of assessed value of owner-occupied homes — which have a lower property tax cap of 1% — increased by almost 50%.

Assessed value growth doesn’t automatically cause a property tax bill to increase, but it’s closely related.

Department of Local Government Finance data reviewed by the Indiana Capital Chronicle backs up what Schmal found in Lake County. The statewide numbers show that homesteads in the 1% cap class contributed 49.6% of all Indiana property taxes collected in 2019, while commercial and industrial properties in the 3% cap accounted for 48%.

As of 2024, property taxes paid by residential homeowners across the state boosted to 58.4% of the total collected, and commercial and industrial property taxes collected dropped to a 39.3% share.

Schmal maintained the assessment process is fundamentally flawed and is the cause for tax burden shifts. “History will repeat itself,” he emphasized, unless reform efforts address property value disparities.

Even if the General Assembly freezes the property tax levy — one of several provisions currently baked into Senate Bill 1, Indiana’s front-running property tax relief proposal — homeowners will continue to see their tax bills increase, Schmal continued.

Rather than a freeze, northwest Indiana officials want lawmakers to hone in on how properties are assessed. Schmal specifically suggested that commercial property assessments trend off of the composite index for owner-occupied homes.

Tax Burden Shift

Indiana law sets caps on the amount of property taxes an owner pays, based on the property’s assessed value.

For owner-occupied homesteads, the cap is 1% of the gross assessed value. For other residential property and farmland, the cap is 2%. All other property — including for businesses and commercial use — is capped at 3%.

Property tax rates are the same for all three categories of property and are determined by taking the total levy divided by total net assessed value.

Any disproportionate inflation or deflation in a category is reflected in the opposite direction in the slower changing categories because “the pie is always 100%,” Schmal noted.

Schmal’s data for Lake County indicates the assessed value in the 1% classification increased 49.9% — or an average annual rate of 8.4% — and a similar situation for the 2% classification. The 3% classification, however, only increased by 11.5%, or annual rate of 2.2%.

Graphic from a January 2022 “Indiana Business Personal Property Tax Analysis.” Photo by Policy Analytics LLC.

The “most telling figures” show the assessed value mix for the 1% and 2% classifications grew from 2019 to 2024 by a combined 6 percentage points, while the 3% classification reduced by 6 percentage points.

Other Indiana counties recorded similar trends, according to Schmal’s analysis.

The property tax burden shifted 7 percentage points in Marion County. Burden shifts from the 3%-capped properties to those at 1% were additionally noted in Allen, Hamilton and Montgomery counties by 5 percentage points; and in Vigo County by 4 percentage points. The property tax shifted in Tippecanoe County from the 3% category to both the 1% and 2% categories.

Still, David Ober, senior vice president of business operations and finance at the Indiana Chamber of Commerce, held that businesses across the Hoosier State are paying their share. He referenced the group’s recent tax study which found that businesses account for 65% of property tax collections in Indiana, compared to the national average of 54%.

Pending Property Tax Reform

Calculating property taxes relies on a complex formula dependent on assessed value, levies, school referenda and locally set tax rates — with state lawmakers largely playing a reactionary role to rein in rampant increases.

The current tax relief proposal would restrict school referendums; allow homeowners to defer some of their property income tax when selling a home; and freeze the maximum levy growth quotient for 2026 before setting caps for the following two years.

After the 2026 freeze, levies could increase up to 1% in 2027 and 2% in 2028.

The Senate version of the relief plan is estimated to save taxpayers a collective $1.4 billion over the next three years. A final draft of the bill likely won’t be finalized until late April.

Schmal said the proposed levy freeze, while cutting local funds, would only provide short-term temporary relief for homeowners. He argued that the assessment system must be changed for any long-term relief to occur.

The senator recalled his time on the Highland and Lake County councils, during which the county’s property tax levy was frozen.

The freeze was enacted in 2007 by the General Assembly to encourage the county to adopt a local income tax and reduce reliance on property taxes. The hold prevented Lake County officials from increasing the property tax levy beyond the 2007 amount. It was lifted in 2023 when local officials adopted a county-wide 1% income tax.

He made clear that each county needs some property tax income for local decision-makers to fund local police, schools and otherwise. But how different properties are assessed — and how the share of those taxes are calculated — is ripe for review.