Indiana homeowners benefit from new tax law while sales tax increases

A new tax restructuring plan in Indiana cuts property taxes for homeowners while giving them more control over the rates of increases in the future.

Gov. Mitch Daniels signed the tax package on Wednesday to lower property taxes and raise the sales tax from 6 to 7 percent effective April 1. Homeowners will get an average 30 percent property tax cut, starting with May bills.

House Speaker Pat Bauer told the Louisville Courier-Journal that millions of people were afraid of property taxes costing them their home. "We knew we had to do something." Some homeowners saw their property tax rates double in 2007.

Permanent property tax caps of 1 percent on a home's value were also put in place. Caps for renters would be set at 2 percent and business property at 3 percent. The newspaper reported that the average homeowner by 2010 will still be paying about 28 percent less than they were in 2007.

At the same time, Hoosiers will get to vote at referendums on large projects that affect their tax rates. Daniels told Eyewitness News that communities will "build the buildings we need" but that some of the "gold" will come off projects once proponents understand they must get 51 percent of their neighbors to vote yes.

Education groups and local governments spoke against the measure because it would translate into fewer dollars for their organizations. In the end, $120 million will go to schools from the state to help make up for less property-tax revenue.

Business lobbyists opposed the proposal as well. "When you go to put homes at 1 percent, you're taking out a big chunk of tax capacity that's going to move to business over time," said Pat Kiely, president of the Indiana Manufacturers Association and a former lawmaker. "And we don't have the similar protections that homeowners do, and that is: Produce a lot of votes."

Some opponents, including State Rep. Dave Crooks, told WTHI-TV that local taxing units will suffer. "If there are people out there who want to punish and inflict as much pain as possible on cities, counties, and schools then this is their bill," he said.

Some observers say the measure will likely be revisited during the next session.