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Sunday, May 1, 2016

Effect of LOIT depends on location

Thursday, November 26, 2009

It has been about a month since the Clay County Council instituted a Local Option Income Tax (LOIT) to combat funding losses due to the Property Tax Caps.

In that time, many residents have inquired about whether the additional income tax would be more than they would save on residential property taxes.

In reviewing the figures, The Brazil Times discovered it is dependent on each individual situation.

With the wide array of tax rates among the county's 23 taxing units, the highest (Brazil City-Brazil Township -- 2.8062 dollars per $100 of assessed value) and lowest (Lewis Township -- 1.4045) rates from the 2008 pay 09 tax year were taken into consideration.

Also considered are the median household income and median house/condo values in those two areas through information courtesy of www.city-data.com and www.stats.indiana.edu.

For Brazil City-Brazil Township, the median house/condo value in 2007 was $76,224; meaning with the 1 percent residential property tax cap next year, the maximum property taxes the average resident in this area would pay is $762.24. Assuming a resident is receiving only the standard deduction (one-half of the value, up to $45,000) the net value of the home ($38,112) multiplied by the rate results in the potential to pay $1,069.50 in property taxes, meaning the 1-percent cap would save $307.26 in property taxes on the home.

The median household income in this taxing unit is $33,866, meaning the maximum impact of the LOIT on gross income would be $338.66, but Clay County Auditor Mary Jo Alumbaugh explained the resident(s) in this example would not have to pay that much.

"The LOIT is taken out on adjusted net income, not gross," Alumbaugh told The Brazil Times. "To determine the actual amount a household would pay through the LOIT would be difficult as each resident and employee have different deductions and number of exemptions coming out of their gross pay."

However, assuming gross pay was considered for the LOIT to determine maximum potential impact, by subtracting the savings through the residential property tax cap from the 1-percent LOIT on gross income, the individual(s) in this home would end up paying total of an additional $31.40 during the course of the year.

However, the figures drastically change should the individual(s) not have a standard deduction on the property.

In this situation, the resident(s) would potentially pay $2,139 in property taxes, meaning they would save $1,376.76 when the cap kicked in. Subtracting the LOIT from this figure shows a savings of $1,038.10 in total taxes on the home.

According to information provided by the Clay County Auditor's Office, there are a total of 4,406 properties in this taxing unit, while approximately 40 percent (1,759) are receiving some sort of deduction on property taxes.

This means for every two "average" residents in this area paying $31.40 in additional taxes, there are three saving $1,038.10, exemplifying the report from Umbaugh and Associates, Indianapolis, that the city would be taking a loss between $200,000 and $250,000 the next couple of years. This, however, does not factor in the impact on other properties that would fall under the 2- and 3-percent caps.

"With additional rates, like for fire and police to name a few, cities are really the only places where the total rate is high enough for the circuit breaker to create a large impact, especially when residential deductions and exemptions come into play" Alumbaugh said.

Lewis Township, which had the lowest tax rate this year, is a perfect example of this.

With a median house/condo value of $81,609 and median household income of $39,552, the "average" household in Lewis Township would pay a maximum of $816.09 in property taxes under the cap and $395.52 in additional taxes through the LOIT.

Those in this area who have a standard deduction on a homestead would pay approximately $573.10, which is $242.99 less than the amount due with the 1-percent cap, meaning this individual is already catching a tax break. When the LOIT is factored in, this individual would pay a maximum of $152.53 more in total taxes if the entire 1-percent cap amount had to be paid.

Meanwhile, those without a standard deduction in Lewis Township would have the potential to pay $1,146.20 in property taxes on the "average home, which is $330.11 more than the amount with a 1-percent cap. With the LOIT in this situation, the total taxes paid would be $65.41 more than the property taxes due with the 1-percent cap.

However, Alumbaugh told The Brazil Times, the funds collected through the 1-percent LOIT, would create a type of Property Tax Replacement Credit in the future.

"The LOIT increased the percentage taken out of paychecks under the County Adjusted Gross Income Tax, and is collected in a lump sum," she said. "One-quarter of the one percent is going toward public safety, while the rest creates a revenue stream to offset property taxes."

Alumbaugh added that in upcoming years, the remaining three-quarters of the 1-percent LOIT would be factored in when computing tax rates.

"We will have to calculate it twice, once countywide, then again for each individual taxing unit," she said. "These calculations will then be prorated against the standard rates, which will then lower tax rates, and most likely, lower property taxes even further."

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What this has done, has shifted the responsibility of maintaining the property values via support of local infrastructure from the property owners who have been aware of their responsibility and have a stake in it, onto others in community who have not had this expense budgeted and have no stake in maintaining property values as they do not own property here. It has also shifted responsibility onto those with modest property investment who have chosen to invest their money for their future retirement etc elsewhere.

This has truly taken the choice of how an individual wants to invest away from them as well as going to the lower income community members who cannot afford to invest in property to support the infrastructure that helps to maintain property values.

The only thing worse than doing this would have been to replace the property tax revenue with a sales tax...Then even those NOT making any money at all would be paying for the community's infrastructure as well.

While I understand that the local government officials' hands are somewhat tied by what the state has done, we all need to contact our state officials to make sure that they know what a huge mistake this was and tell them it needs to be reversed and properties taxed on their value before a law is passed making this permanent like it almost was recently.

The health of the community directly reflects the value of its property. Property owners need to look at these property taxes as they do other investments into the maintenance of their property that help retain its value.

I would no more ask a neighbor to help finance a new roof for my house any more than I would ask him to pay for the road or a quality school that allows my property to have more value than another where roads and schools were totally worthless.

Seems that state officials have been lobbied by those who have invested in huge property holdings and have not considered what this is doing to those with modest properties who want to invest in other ways. It's also dipping into the pockets of those who cannot afford to invest in a home of their own.

Talk about big government. On top of that they make our local officials have to add to diminished revenue they caused so it appears that at the state level they are lowering taxes and at local level they are increasing as the expenses are still there. I feel that this is a plan to further weaken local government officials over time as due to these steps they will lose popularity on election days and their positions will be like revolving doors even though they have done all that is in their power to maintain local infrastructure. No matter what the changes are, they will benefit some and really cost others more. Best to have left it the way it was so at least those who were paying KNEW the payment was coming each year and could plan for it. Now some of us have an additional expense we already had budgeted somewhere else...and some in the community don't even know it's coming as don't read the paper....Where are some of the working poor in our community going to come up with the money? How much more can their grocery bill be cut when other expenses like rent and utilities are fixed?

-- Posted by Jenny Moore on Fri, Nov 27, 2009, at 9:28 AM

Bah,Humbug. Me thinks we're getting Scrooged.

-- Posted by reddevil on Fri, Nov 27, 2009, at 11:36 AM

Remember, who voted for this the next election. If they are in office lets get them out.

-- Posted by mgag on Fri, Nov 27, 2009, at 5:29 PM


Except that some of this happened before the last election. I believe Nancy Michaels was one who voted against the 1, 2, 3 mess becoming a law so it couldn't ever be reversed. While not taken far enough and removed, "Our man Mitch" created a lot of this mess as did the other state reps who have been in office for more than this last term.

Yes some of them need to be voted out for this. They have been made to look good for reducing taxes on state level and creating a fiasco on local level.

I'd say go to the cracker barrels or email and call these people at state level and tell them what this has done to both the working poor who do not own property AND those who have modest real estate holdings but choose to invest in other ways. This has really messed with their budgeting ability.

-- Posted by Jenny Moore on Fri, Nov 27, 2009, at 7:03 PM

Part of the problem here is a lack of backbone on the part of the county council to make tough choices. Every county/city in the state is facing the same issue. Few have chose to increase the income tax so dramatically in a poor economy. Let's stop saying they had no choice! There is much waste and inefficiency in the delivery of local services and we have not been well represented. Do we really want to trust the city with more tax dollars. They have not proven themselves worthy.

I am very disappointed in CC members Moss and McCullough. I have long viewed them and fically conservative and good representatives of taxpayers. No more.

This additional tax was not needed at this time, nor was it wise. Shame on the council!

-- Posted by fiscallyresponsible on Mon, Nov 30, 2009, at 10:18 AM

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