A property tax case heard by the Indiana Supreme Court this week could have a huge impact on local government and school finances — and, some worry, throw the state’s property tax assessment system into chaos.
The case deals with how property is classified under the state’s property tax caps. And much of it may turn on a single word: curtilage.
Article 10 of the Indiana Constitution says a taxpayer’s property tax liability is capped at 1 percent of the assessed value for “tangible property, including curtilage, used as a principal place of residence.”
What does curtilage mean? That’s part of the problem — there is no single definition. Different dictionaries use different explanations, as do court cases across the country.
State law uses different language for the property tax caps entirely. It says the 1 percent cap is for “homesteads,” which it says consists of a dwelling and up to one acre of land immediately surrounding it.
The Sawlani family has a home on nearly four acres of land in Lake County. One acre was taxed under the 1 percent cap, while the remainder was under the 3 percent property tax cap.
Attorney Gerold Stout, representing the Sawlanis, told the Supreme Court that the state law’s one-acre limitation is unconstitutional. Rather, he said, property should be classified depending on how it’s used.
“The assessors need to have conversations with the people to determine how they are using it,” Stout said.
But Ayn Engle, representing the Lake County assessor, said that’s not practical.
“They require pragmatism, where you have clear and defined rules for assessors to apply,” Engle said.
Bolstering Engle’s position, she said, is language from the state constitution that says property assessment and taxation must be “uniform and equal.” It also specifically empowers the General Assembly, through state law, to enforce that system.
“And, in turn, gives the broad discretion to find the mechanisms through which the 1 percent cap is implemented,” Engle said.
But attorney Benjamin Blair said the constitution is clear — in the other direction. Blair represents the Indiana Association of Realtors, which has weighed in on the case on the side of the homeowners.
Blair said the Supreme Court doesn’t need to define curtilage at all to decide the case.
“We believe that the answer is in the use of the property and that one acre is not tied to the constitutional definition,” Blair said.
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Because the case potentially involves the constitutionality of a state law, the Indiana attorney general’s office has also stepped in.
Deputy Solicitor General Jenna Lorence said the state constitution gives the legislature a role in determining the bounds of the property tax system.
“One way of setting up a reasonable definition of what is used as a principal place of [residence] and curtilage may be this one-acre limitation,” Lorence said. “But it also might not be and we don’t know because we don’t have those facts in front of us to apply it in this particular case.”
Lorence’s argument was summed up by Justice Geoffrey Slaughter as this being a “kick the can” case — meaning the justices could narrowly decide that this specific case doesn’t implicate the constitutionality of the state law, but a future case might.
Part of Lorence’s argument also seemed to concern some of the justices, including Mark Massa.
“As I understand, you’re tasked with defending the constitutionality of state statutes,” Massa said. “And here today, you’re suggesting that this statute could be unconstitutional, as applied.”
Lorence agreed.
There is no timetable for the court’s decision.
Brandon is our Statehouse bureau chief. Contact him at bsmith@ipbs.org or follow him on Twitter at @brandonjsmith5.