House Bill (HB) 1 had its first hearing today in the House Ways and Means Committee, with sponsor testimony provided by Rep. Adam Mathews (R-Lebanon). Please take time to listen to the sponsor testimony, linked here.
Rep. Mathews indicated in his response to questions from the committee that HB 920 will likely apply to the changes in the bill. This means that the proposed changes in HB 1 could result in an increase in residential and commercial property tax rates for taxpayers.
The proposed changes in HB 1 would do the following:
- Apply a single income tax rate of 2.75% (i.e., “flattens the income tax”) under most circumstances;
- Eliminate the 10% property tax rollback reimbursement for schools and local governments (on its own, this change would result in an automatic 10% increase for property taxpayers);
- Revise the 2.5% homestead property tax rollback to be a flat $125 credit for all owner-occupied homes;
- Revise the homestead exemption program;
- Reduce the property tax assessment percentage for Class 1 and Class II property from 35% to 31.5% (a 10% decrease; however, see impact of HB 920 below); and
- Apply an annual inflation adjustment to the assessment percentage, which can result in the assessment percentage being lower than 31.5%, but not greater than 31.5%.
As the bill sponsor explained in his testimony, striking the 10% rollback and reducing the assessment percentage by 10% are intended to offset each other. However, with the application of HB 920, residential and agricultural property taxpayers will have their taxes automatically increased to offset the reduction in valuation created by the decrease in the assessment percentage to 31.5%. Stated differently, HB 920 appears to “undo” the intended effect of the assessment percentage reduction.
In addition, HB 920 would apply to business and commercial property taxpayers who would similarly see their tax rates automatically increase and be in roughly the same position they were in prior to the assessment percentage decrease. Schools and local governments would experience a revenue loss on inside millage for both residential and agricultural property as well as business and commercial property.
The specific fiscal impact on any school or local government and their taxpayers will depend on their mixture of inside millage, voted fixed rate levies, and emergency, substitute, and/or bond levies.
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