|Northwest Indiana property tax exemptions the equivalent of a free lunch
Bill Dolan, Times of Northwest Indiana
Almost everyone in Lake and Porter counties is expected to pay some property tax no matter how wretched their home or struggling their business.But megachurches, schools and nursing homes can get a pass in terms of supporting their local government, thanks to Article 10, Section 1 of the Indiana Constitution.
The Constitution commands the state Legislature to provide “a uniform and equal rate of property assessment and taxation.” But in the next breath, it also gives lawmakers the power to lift that burden from “property being used for municipal, educational, literary, scientific, religious or charitable purposes.”
The outcome is a tax-exemption system that writes off more than $2 billion in property value in Lake and Porter counties for thousands of properties, ranging from nearly worthless inner-city lots donated to charities to the $62 million Franciscan Alliance medical center in Crown Point.
The exemptions have a huge impact in Lake County, said Mike Wieser, finance director for the county auditor’s office.
“It means that only half of everything out there that could be taxed is being taxed, and if everything was taxed the same way, then your tax bills would probably be half of what they are now.”
Federal and state courts have upheld a tradition that benevolent organizations earn their exemptions by providing public services that otherwise would fall on government and the taxpayers to finance.
Exemptions are the equivalent of the free lunch in the world of taxation, as defined by the Indiana Department of Local Government Finance, which oversees just that — local government finance. An exemption means the property cannot be taxed.
Exemptions remove more than $2 billion in assessed value from the the counties’ total of property wealth. If they were taxed at current rates, the bills would be in the tens of millions, Wieser guessed.
But exemptions are only one kind of tax break. The bulk of Lake and Porter county properties, while not exempt from taxation, are eligible to receive deductions, credits or abatements that reduce their bills annually. The most common one is the homestead deduction, received by hundreds of thousands of homeowners in both counties.
The state estimates that Lake and Porter exemptions, deductions, credits and abatements represent a combined total of $18 billion in reductions in the taxable value of homes, farms and other businesses.
Dagney Faulk, director of Ball State University’s Research Center for Business and Economic Research, said there are two different theories of taxation and exemptions.
“One is that the amount of taxes people should pay should be linked to their income. So nonprofit organizations are typically exempt from property taxation, because they don’t have the revenue.
“The other is the benefit principle, where taxpayers should pay taxes according to the benefits they receive, like roads and other services,” she said. Charitable and educational groups, in essence, earn their exemptions by doing good works in the community.
State law features an ever-growing list of organizations that can qualify for partial or complete dispensation from property taxes, including the following:
• Small-business incubators and other research centers
• Parsonages, rectories and homes for religious clergy
• YMCA and YWCA chapters
• Any building owned or rented to county, township or municipal government
• Salvation Army centers
• Knights of Columbus halls
• School campus and athletic grounds
• The Young Men’s Hebrew Association
• The Veterans of Foreign Wars and American Legion chapters
• Parcels donated to a nonprofit entity for the purpose of preserving land and water for their natural characteristics
• Public airports
• Fraternal organizations
Taxes apparently aren’t as certain as death, since there also is an exemption for cemeteries.
Gov. Mike Pence signed into law last March one of the most recent additions to the family of exempt uses — certain early childhood education providers.
Giving religious organizations exemptions is a tradition going back to pre-Revolutionary times and now enshrined in all state constitutions and have withstood court tests.
A landmark 1970 U.S. Supreme Court ruling turned aside an argument that exemptions force other taxpayers, including non-believers, to financially support organized religion.
The court opined that exemptions are the most neutral way to avoid unconstitutional interference in church affairs and that freedom from taxation has helped to guarantee the free exercise of all forms of religious belief.
Ball State’s Faulk said, “There has been a movement for all properties to pay some minimum tax, but that is not widespread here.”