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Sunday, October 04, 2009

Ind. Law - More on "Requests for retroactive property tax exemptions threaten county budgets"

Yesterday the ILB posted this comprehensive entry, linking to all past entries on the impact of the retroactive property tax exemption said to apply to for-profit nursing homes.

The Fort Wayne Journal Gazette has an editorial today on the provision, headed "Lawmakers’ unintended consequence."

A combination of under-the-radar court decisions and unintended consequences of this year’s budget bill is turning into a multibillion-dollar headache for a number of Indiana counties.

As Amanda Iacone’s story on Wednesday explained, a number of for-profit nursing homes and hospitals are seeking exemption from property taxes, and an obscure section of this year’s budget bill allows owners of land used for charitable purposes to seek refunds going back a decade. In a worst-case scenario, if applications from all the owners for 700 Allen County parcels of land seeking the 10-year refund are granted, the county would lose $1.5 billion in assessed value for land and equipment and owe an estimated $30 million in refunds for current and back taxes.

Here’s why:

In Indiana, non-profit entities such as churches and social service organizations do not have to pay property taxes. Their property values are assessed, but the owners can seek exemptions.

Over the past few years, the Indiana Tax Court has issued opinions that have ruled nursing homes – even those that are owned by for-profit companies – provide a charitable service and are therefore eligible for property tax exemption.

“I don’t think anybody paid attention” to those cases, said Pete Mallers, a Fort Wayne attorney who represents a number of clients around the state seeking the refunds.

Some lawmaker – it isn’t clear who – slipped language in this year’s budget bill apparently intended to give a break to a single non-profit, not necessarily a nursing home, that had failed to file for its exemption over the years. The law extended the deadline for filing the exemption and also allowed eligible property owners who hadn’t filed in the past to receive refunds going back to 2000. But the way the bill is written, it could arguably apply to any property owner who provides a charitable service and has paid property taxes over the years.

“This was just something that came out of the blue,” Mallers said of this year’s language.

So the Property Tax Assessment Boards of Appeals in a number of Indiana counties are faced with weighing the requests to be exempted from property taxes and receive retroactive refunds.

Allen County Assessor Stacey O’Day believes the worst-case scenario will be avoided. “I think the law will need to be clarified,” she said. Still, she noted, “we will be spending many, many hours” defending the previous assessments, and the county will have to pay lawyers to research and challenge the appeals. This comes at a time when assessors must essentially conduct annual assessments of all properties and struggle to meet state-imposed deadlines.

Hoosiers should remember that the Indiana General Assembly failed to pass a budget on time – its only responsibility required by law. Indiana lawmakers routinely pass budgets on short notice. Ten years ago, powerful Democratic state Rep. Pat Bauer, now speaker of the House, quietly inserted language into a measure aimed at cutting the inventory tax. Most lawmakers didn’t learn until weeks later they had also passed a big tax cut for owners of mobile homes and RVs.

The issue involving the charitable property tax exemptions should serve as a haunting reminder that the legislature must vet the language and study the ramifications of the laws they adopt.

Clearly, soon after they convene in January, lawmakers will need to clarify exactly which properties are entitled to property tax exemptions.

Some thoughts from the ILB: It is hard for me to believe these were "unintended consequences" for all. The language buried in the budget opened a two-month window for entities to get their exemption applications in. The window closed on August 31st. Somehow, the word spread to for-profit entities around the state and many hundreds of retroactive exemption applications were filed before the deadline. Meanwhile, it was late September before the impact began to dawn on legislators, according to this quote:
A Logansport lawmaker says he doesn’t believe an amendment to this year’s state budget opened the door to tax refunds for nursing homes across the state.

State Rep. Rich McClain says the exemption applies only to those entities that are indeed not-for-profit organizations. The for-profit language in the amendment, he said, applies only to those nonprofit organizations that failed to file for their nonprofit status on time.

McClain said he researched the details of the bill with a staff member in the House Ways and Means Committee after hearing from constituents who were concerned by reports out of last week’s meeting of the Cass County Council.

Re "vetting the language" before acting, the above quote shows that even after-the-fact, the potential implications of the wording were not readily discernible. As a reader noted to me, the provision is written in "legislativese."

The problem, and the key to answer, lies in reformation of the now traditional so-called "budget bill" which mashes together into one impenetrable document provisions on every conceivable topic, and is put before each house on an up-or-down vote at the late minute, then presented to the governor on a "take it or leave it" basis. It may be weeks or months later before all the "surprises" turn up.

This is but the latest of a long list of budget bill surprises. For more from this year, see this collection of ILB entries, beginning on August 10th. Most are headed "Apparently there are all sorts of surprises in the special session budget."

Posted by Marcia Oddi on October 4, 2009 12:18 PM
Posted to Indiana Law