Taxation in Indiana
Encyclopedia
Taxes in Indiana are almost entirely authorized at the state level, although the revenue is used to fund both local and state level government. The state of Indiana
's income comes from four primary tax areas. Most state level income is from a sales tax
of 7% and a flat state income tax
of 3.4%. The state also collects an additional income tax for some counties. Local governments are funded by a property tax
that is the sum of rates set by local boards, but the total rate must be approved by the Indiana General Assembly
before it can be imposed. Property tax rates are capped at maximum of 1% of property value. Excise tax is the fourth form of taxation and is charged on motor vehicles, alcohol, tobacco, gasoline, and certain other forms of movable property; most of the proceeds are used to fund state and local roads and health programs. The Indiana Department of Revenue collects all taxes and pays them out to the appropriate agencies and municipalities. The Indiana Tax Court deals with all tax disputes issues, but decisions can be appealed to the Indiana Supreme Court.
determined on a payers federal tax return. The taxable amount can be lowered by applying several income tax deductions. The largest deductions in 2008 where a $2,500 deduction for rent paid and a deduction equal to the amount of taxes paid out of state. Additional deductions are provided to the elderly and handicapped.
Some counties within Indiana also fund their government using an income tax. The highest county income tax in the state is 1% and it is charged in addition to the state income tax. County income taxes rate are set by the county board of commissioners and submitted to the Department of Revenue. The department forwards the request to the state legislature where the requested rate must be approved by the Indiana General Assembly
.
For most individuals working within Indiana, the state income is withheld from their paycheck. For individuals working outside the state, and for certain types of individuals within the state, quarterly estimated payments are made, with any remaining amount paid when the tax return is filed. If the amount of taxes due at the time of filing is $1,000 or greater, penalty fees and interest charges are assessed in addition to the tax owed.
Income taxes are filed annually by the payer, and must be filed by April 15, or the next business day if the 15th falls on a weekend. Failure to file taxes is a criminal offense. Overpayment of taxes will result in the state issuing a refund of the overpaid amount, or the overpayment can be held as a credit for the next taxing period. In 2008 the personal income tax revenue for the state was $4.68 billion.
The rate of the property tax is determined annually based on the needs of the boards in a given year. The sum of the rate is totaled by the country board of commissioners and submitted to the state government. The proposed property tax rate are submitted to the Indiana Department of Local Government Finance in a report. The department in turn provides the report to the Indiana General Assembly. Before the tax rate can be imposed by the boards, the General Assembly must approve it. The assembly typically approves the rates of several counties, or all the counties at once. In counties were the rate is considered excessive or insufficient, the rate is rejected and the county and boards are required to reassess their needs.
Property tax rates in Indiana are capped a maximum of 1% of value for residential, 2% of value for rental and farmland, and 3% of value for all other types. The property taxes are assessed ad valorem. Payments are made semi-annually, although many individuals and business use escrow
accounts to collect the tax on a monthly basis, and are made in the prior years assessed value. Tax deductions can also be claimed on property taxes, the most significant being for businesses located in economic development zones and primary dweling residence deductions.
In 2005, property tax provided $8.25 billion in revenues to local governments statewide. The assessed taxes are collected by the Department of Local Government Finance and paid out to the accounts of the boards and counties.
that provided $647 million in revenues in 2008.
Excise taxes are charged on several products. Gasoline is taxed at 52.2 cents per gallon, with proceeds funding state road projects. An excise tax is also charged based on motor vehicle value at the time of their annual registration with proceeds funding the Bureau of Motor Vehicles and local and state road projects. A tax of 99 cents is levied on packs of cigarettes, and liquor is taxed at $2.68 per gallon. The total income of these and other minor taxes provided $1 billion in revenue in 2008.
Noah Noble
proposed reforming the tax system to base the tax ad valorem, enabling the taxes to be collected more cheaply and increasing state income.
Property tax remained the primary source of all state revenue for the next century. It was not until during the Great Depression
that Governor Paul V. McNutt
advocated the creation of an income tax, that a new form of tax income was created. The law passed in 1933 and immediately became a growing source of state revenue. During the decade, the current system of granting property taxes to local governments, and funding the state government with income taxes was adopted.
In 1962 a constitutional amendment was passed to legalize a state sales tax. The following year, the Indiana General Assembly levied its first sales tax at 2%. The sales tax provided a major boost in state revenues and in the early years was used largely to fund the creation of the modern state highway system. In later years it came to be used more dominantly for education.
By the late 1990s, Indiana property tax rates had began to increase dramatically, largely due to increased school funding by school boards. In 2002 the average property tax assessment in the state was 8.82%, with some areas in excess of 10% leading to calls for property tax reform. Governor Mitch Daniels
ran for office in 2004 advocating reform as part of his platform. During the subsequent legislative session, the General Assembly approved a 1% cap on property tax rates. The change drastically cut local government revenues and a 1 percentage point increase in the state sales tax was approved to offset the difference.
Indiana
Indiana is a US state, admitted to the United States as the 19th on December 11, 1816. It is located in the Midwestern United States and Great Lakes Region. With 6,483,802 residents, the state is ranked 15th in population and 16th in population density. Indiana is ranked 38th in land area and is...
's income comes from four primary tax areas. Most state level income is from a sales tax
Sales tax
A sales tax is a tax, usually paid by the consumer at the point of purchase, itemized separately from the base price, for certain goods and services. The tax amount is usually calculated by applying a percentage rate to the taxable price of a sale....
of 7% and a flat state income tax
Income tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...
of 3.4%. The state also collects an additional income tax for some counties. Local governments are funded by a property tax
Property tax
A property tax is an ad valorem levy on the value of property that the owner is required to pay. The tax is levied by the governing authority of the jurisdiction in which the property is located; it may be paid to a national government, a federated state or a municipality...
that is the sum of rates set by local boards, but the total rate must be approved by the Indiana General Assembly
Indiana General Assembly
The Indiana General Assembly is the state legislature, or legislative branch, of the state of Indiana. It is a bicameral legislature that consists of a lower house, the Indiana House of Representatives, and an upper house, the Indiana Senate...
before it can be imposed. Property tax rates are capped at maximum of 1% of property value. Excise tax is the fourth form of taxation and is charged on motor vehicles, alcohol, tobacco, gasoline, and certain other forms of movable property; most of the proceeds are used to fund state and local roads and health programs. The Indiana Department of Revenue collects all taxes and pays them out to the appropriate agencies and municipalities. The Indiana Tax Court deals with all tax disputes issues, but decisions can be appealed to the Indiana Supreme Court.
Income taxes
| Actual | | Budget | | Avg. Ann. Change | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2000-05 | 2005-07 | 2007-09 | |
| Start of year balances | 1,991 | 1,638 | 910 | 534 | 720 | 533 | 750 | 1,089 | 863 | 799 | |||
| Revenues | |||||||||||||
| Sales tax | 3,651 | 3,687 | 3,761 | 4,172 | 4,721 | 4,960 | 5,226 | 5,341 | 5,578 | 5,827 | 6.3% | 3.8% | 4.4% |
| Individual income tax | 3,753 | 3,780 | 3,541 | 3,644 | 3,808 | 4,213 | 4,322 | 4,477 | 4,681 | 4,934 | 2.3% | 3.1% | 5.0% |
| Corporate income tax | 985 | 855 | 709 | 729 | 645 | 825 | 925 | 908 | 924 | 947 | -3.5% | 4.9% | 2.1% |
| Gaming | - | - | - | 431 | 602 | 585 | 590 | 625 | 647 | 678 | 3.4% | 4.1% | |
| All other | 810 | 801 | 784 | 1,072 | 1,143 | 905 | 1,370 | 1,099 | 1,079 | 1,071 | 2.3% | 10.1% | -1.3% |
| Total | 9,200 | 9,123 | 8,796 | 10,049 | 10,918 | 11,489 | 12,434 | 12,450 | 12,909 | 13,456 | 4.5% | 4.1% | 4.0% |
Personal income tax
Indiana imposes a flat 3.4% tax on the personal income. The base taxable amount is equal to the adjusted gross incomeAdjusted Gross Income
For United States individual income tax, taxable income is adjusted gross income less allowances for personal exemptions and itemized deductions. Adjusted gross income is total gross income minus specific items laid out in the tax code...
determined on a payers federal tax return. The taxable amount can be lowered by applying several income tax deductions. The largest deductions in 2008 where a $2,500 deduction for rent paid and a deduction equal to the amount of taxes paid out of state. Additional deductions are provided to the elderly and handicapped.
Some counties within Indiana also fund their government using an income tax. The highest county income tax in the state is 1% and it is charged in addition to the state income tax. County income taxes rate are set by the county board of commissioners and submitted to the Department of Revenue. The department forwards the request to the state legislature where the requested rate must be approved by the Indiana General Assembly
Indiana General Assembly
The Indiana General Assembly is the state legislature, or legislative branch, of the state of Indiana. It is a bicameral legislature that consists of a lower house, the Indiana House of Representatives, and an upper house, the Indiana Senate...
.
For most individuals working within Indiana, the state income is withheld from their paycheck. For individuals working outside the state, and for certain types of individuals within the state, quarterly estimated payments are made, with any remaining amount paid when the tax return is filed. If the amount of taxes due at the time of filing is $1,000 or greater, penalty fees and interest charges are assessed in addition to the tax owed.
Income taxes are filed annually by the payer, and must be filed by April 15, or the next business day if the 15th falls on a weekend. Failure to file taxes is a criminal offense. Overpayment of taxes will result in the state issuing a refund of the overpaid amount, or the overpayment can be held as a credit for the next taxing period. In 2008 the personal income tax revenue for the state was $4.68 billion.
Corporate income tax
Indiana imposes a 6.5% corporate income taxe on the income of most businesses operating in the state. In 2008, this tax provided $924 million in revenue to the state.Sales tax
Indiana imposes a 7% sales tax on most transactions. City governments in the state are also permitted to impose sales taxes. Notable exceptions to the state sales tax are food and drugs. The sales tax is set entirely at the state level, although some of its proceeds are used to fund local government. The state sales tax is consistently the source of the largest percentage of the state government’s revenue. In 2008 the tax provided $5.57 billion dollars in revenue.Property taxes
Indiana property taxes provide the greatest overall income to the state, with almost all of the proceeds going to fund local government. The amount of the tax is determined by different taxing authorities. A portion of the tax is determined by the county board or commissioners, with an additional portion determined by the school district board. Other additional amounts can be imposed by county created boards, including sanitation boards, health department boards, and park and recreation boards. Because of the variety of taxing authorities, property tax rates vary significantly between townships and counties.The rate of the property tax is determined annually based on the needs of the boards in a given year. The sum of the rate is totaled by the country board of commissioners and submitted to the state government. The proposed property tax rate are submitted to the Indiana Department of Local Government Finance in a report. The department in turn provides the report to the Indiana General Assembly. Before the tax rate can be imposed by the boards, the General Assembly must approve it. The assembly typically approves the rates of several counties, or all the counties at once. In counties were the rate is considered excessive or insufficient, the rate is rejected and the county and boards are required to reassess their needs.
Property tax rates in Indiana are capped a maximum of 1% of value for residential, 2% of value for rental and farmland, and 3% of value for all other types. The property taxes are assessed ad valorem. Payments are made semi-annually, although many individuals and business use escrow
Escrow
An escrow is:* an arrangement made under contractual provisions between transacting parties, whereby an independent trusted third party receives and disburses money and/or documents for the transacting parties, with the timing of such disbursement by the third party dependent on the fulfillment of...
accounts to collect the tax on a monthly basis, and are made in the prior years assessed value. Tax deductions can also be claimed on property taxes, the most significant being for businesses located in economic development zones and primary dweling residence deductions.
In 2005, property tax provided $8.25 billion in revenues to local governments statewide. The assessed taxes are collected by the Department of Local Government Finance and paid out to the accounts of the boards and counties.
Other taxes
The state and local government also receive revenue from a variety of other more minor sources. A gaming tax is imposed on winnings in state casinos, horse tracks, and from the Hoosier LotteryHoosier Lottery
The Hoosier Lottery is run by the government of Indiana. It is the only US lottery that uses the state's nickname, rather than the state name itself, as its name. It is a member of the Multi-State Lottery Association...
that provided $647 million in revenues in 2008.
Excise taxes are charged on several products. Gasoline is taxed at 52.2 cents per gallon, with proceeds funding state road projects. An excise tax is also charged based on motor vehicle value at the time of their annual registration with proceeds funding the Bureau of Motor Vehicles and local and state road projects. A tax of 99 cents is levied on packs of cigarettes, and liquor is taxed at $2.68 per gallon. The total income of these and other minor taxes provided $1 billion in revenue in 2008.
History
When statehood was granted to Indiana 1816, the population of the state was sparse and poor. The small economy was entirely agricultural, and the only source of tax revenue available to the state was a property tax. A small bureaucracy was created to oversee the assessment and collection of the tax which was imposed at a fixed rate per acre. The tax provided very little income to the state, and most government activity was funded through public land sale for the first decade. As the state ran into funding problems in 1836, Governor of IndianaGovernor of Indiana
The Governor of Indiana is the chief executive of the state of Indiana. The governor is elected to a four-year term, and responsible for overseeing the day-to-day management of the functions of many agencies of the Indiana state government. The governor also shares power with other statewide...
Noah Noble
Noah Noble
Noah Noble was the fifth Governor of the U.S. state of Indiana from 1831 to 1837. His two terms focused largely on internal improvements, culminating in the passage of the Mammoth Internal Improvement Act, which was viewed at the time as his crowning achievement...
proposed reforming the tax system to base the tax ad valorem, enabling the taxes to be collected more cheaply and increasing state income.
Property tax remained the primary source of all state revenue for the next century. It was not until during the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
that Governor Paul V. McNutt
Paul V. McNutt
Paul Vories McNutt was an American politician who served as the 34th Governor of Indiana during the Great Depression, high commissioner to the Philippines, administrator of the Federal Security Agency, chairman of the War Manpower Commission and ambassador to the Philippines.-Family and...
advocated the creation of an income tax, that a new form of tax income was created. The law passed in 1933 and immediately became a growing source of state revenue. During the decade, the current system of granting property taxes to local governments, and funding the state government with income taxes was adopted.
In 1962 a constitutional amendment was passed to legalize a state sales tax. The following year, the Indiana General Assembly levied its first sales tax at 2%. The sales tax provided a major boost in state revenues and in the early years was used largely to fund the creation of the modern state highway system. In later years it came to be used more dominantly for education.
By the late 1990s, Indiana property tax rates had began to increase dramatically, largely due to increased school funding by school boards. In 2002 the average property tax assessment in the state was 8.82%, with some areas in excess of 10% leading to calls for property tax reform. Governor Mitch Daniels
Mitch Daniels
Mitchell Elias "Mitch" Daniels, Jr. is the 49th and current Governor of the U.S. state of Indiana. A Republican, he began his first four-year term as governor on January 10, 2005, and was elected to his second term by an 18-point margin on November 4, 2008. Previously, he was the Director of the...
ran for office in 2004 advocating reform as part of his platform. During the subsequent legislative session, the General Assembly approved a 1% cap on property tax rates. The change drastically cut local government revenues and a 1 percentage point increase in the state sales tax was approved to offset the difference.