TAX ABATEMENT IN INDIANA
For business owners looking to reduce start-up and/or expansion costs, applying for tax abatement is worthy of consideration. Tax abatement allows a property owner to qualify for a deduction from his/her taxes. The deduction is a percentage of the increase in assessed value resulting from rehabilitation or redevelopment of property that is designated as an Economic Revitalization Area (“ERA”). The goal of tax abatement is to increase the employment base of a particular area and, in the long run, improve the tax base in the area. It also incentivizes rehabilitation and development in certain areas. Businesses are able to reinvest money into operations and employees that would otherwise have been paid out in real or personal property taxes. Due to the value associated with obtaining tax abatement, many businesses engage the services of an attorney to provide assistance with the procedure.
A property owner may apply for tax abatement for: (1) making improvements to real property (i.e. building a new structure); and/or (2) installing new manufacturing equipment, new research and development equipment, new logistical distribution equipment, or new information technology equipment (personal property).
Designation of an ERA.
To apply for tax abatement, the property upon which rehabilitation or redevelopment occurs must be designated as an ERA. An ERA is an area, designated by a municipality, which has become undesirable for, or impossible of, normal development and occupancy. The designation process requires the property owner to complete an application and certain State forms. Generally, an application will ask for, among other things: (1) a description of the project and benefits associated with the project; (2) the cost of proposed structural improvements; (3) the cost of new equipment; and (4) the number of jobs created. The ERA application sets outs the property owner’s commitments for the project and provides a baseline for annual review. Submission of the application should be done before any rehabilitation or redevelopment occurs.
If there is an economic development commission or redevelopment commission, that body will review the application and make a recommendation to the town board, city council, or county council. After the initial review and recommendation, the municipal board or council will review the application at a public meeting and, if approved, pass a resolution declaring the ERA. Later, a confirmatory resolution is passed. Going forward, the property owner is eligible to claim the deduction.
Length of Abatement.
The municipality will determine the length of the tax abatement. The deduction percentage decreases each year of the abatement until it reaches zero. For example, for a ten year abatement for real property, 100% of the year one increase in assessed value may be deducted, 90% of the year two increase in assessed value may be deducted, 80% of the year three increase in assessed value may be deducted, etc. Typically, the abatement should be started when the rehabilitation or redevelopment is completed or when the largest increase in assessed valued can be captured. A property owner may have to ask the municipality for a deferral of the tax abatement until the project is completed.
Annual Reports for Compliance.
Each year, State forms and an annual report must be filed by the property owner to continue the abatement. The annual report will be reviewed to make sure that the property owner is fulfilling commitments set out in the original ERA application, such as creating an adequate number of jobs. After the municipality approves the filings for the year, the same are filed with the county auditor’s office. Property owners receiving tax abatement should carefully review tax bills to make sure the proper deduction is listed.
Note that this post is only a brief summary of tax abatement in Indiana. It does not constitute legal advice nor does it establish an attorney/client relationship. Should you have specific questions regarding the above, please contact Preston Sisler or Bonnie Coleman at Hodges and Davis.
Hodges and Davis, P.C. – November 2015