Indiana lawmakers’ recent changes to property and business taxes could have consequences beyond what was intended, an economist says.
The changes have also received pushback from homeowners who feel there weren’t enough cuts, and local governments who feel there were too many.
Complaints over changes
There have been numerous complaints about the property tax changes since they were announced and became law.
Some homeowners have said the changes haven’t gone far enough. Joining this group is Lt. Gov. Micah Beckwith, who called on Braun to veto the bill, “call a special session and demand the legislature pass something that the average Hoosier can understand without hiring army of lawyers and accountants,” Beckwith wrote in an April 12 post on X. The bill was signed by Braun three days later.
On the flip side, local governments felt SEA 1 went too far. Johnson County, Franklin and Greenwood officials told the Daily Journal last month they were disappointed and frustrated over how local governments will be impacted by the changes, with some expecting to delay projects, freeze hiring and raise taxes — though Greenwood doesn’t think this would be enough to replace the revenue lost in its case.
“This is a massive, biggest, biggest tax cut in state history,” said Michael Hicks, the director of the Center for Business and Economic Research at Ball State University. “Let’s just be honest, our property taxes are very low now, so these are very lean governments that don’t have a lot of space to act.”
Indiana Senate Pro Tem Roderic Bray (R-Martinsville) is aware of the criticism from both sides, but lawmakers had to find a middle ground, he said.
“If you’ve got both sides kind of unsettled or dissatisfied, maybe that means you’ve landed in the right space in the middle,” Bray said.
For homeowners, Bray said two-thirds will have lower property taxes next year compared to this year.
“I would ask anybody who thinks that maybe we didn’t go far enough is, in this day and age, with the inflation that we’ve experienced over the last few years, where can you say that you’re going to be paying less than ‘26 than you are in ‘25? Anywhere but in this property tax space,” Bray said. “So that’s what makes us feel like we’ve made some substantial progress.”
Walker
Sen. Greg Walker, R-Columbus, who voted in favor of the bill, said it was an attempt not to “kneecap” the services local governments provide. There’s just going to be a “reigning in of the growth,” more than just a cut.
“If there are property owners looking for a cut, they can go right down to the city council or county council meeting and tell the boards what services they don’t want to pay for anymore,” Walker said. “And I’m sure that the locals can figure out how to cut their property taxes.”
Hicks believes that ultimately about two-thirds of Hoosier families will see cuts of $100 a year, with about half of this number seeing no cuts at all because their home values are so low that and they have not seen as big of spikes. The wealthiest third of households will see cuts of $250 to $300 a year, he said.
“What we’re talking about on the homeowner side is very modest tax relief,” Hicks said. “So if you’ve got a $300,000 home, let’s say you’re paying taxes on $300,000 of net value — that’s after your mortgage and whatever — then you’re paying $3,000 in taxes. This drops that by about $300.”
Renters who pay property taxes that are passed through by landlords will likely not experience any reductions either, he said.
Business personal property tax
Businesses got two big benefits from SEA 1. The first is the raising of the business personal property tax exemption from $80,000 to $2 million in 2026.
Currently, businesses that own less than $80,000 in personal property don’t have to file personal property taxes with the state. An individual plumber that has only a truck and a few $1,000 worth of tools wouldn’t have to pay the tax, but a larger plumbing company would, Hicks said.
But with the changes raising this threshold to $2 million in 2026, state lawmakers will exempt a large majority of Indiana businesses from having to pay the tax, he said.
“I know 85, 90% of businesses will pay no personal property tax,” Hicks said. “So that is a tax cut for you a gas station, an Applebee’s, a dentist’s office, a small clinic — and that’s a big chunk of business taxes that are being cut.”
Hicks
The other big change has to do with the minimum depreciation cap. Currently, if a business buys a large amount of capital, like $100 million, it can depreciate by a certain percentage over eight years — but once it gets down to 30%, a business would have to pay that tax on that last percentage forever. The community would always receive tax dollars from that 30%, Hicks said.
However, SEA 1 removes that provision retroactive to Jan. 1 of this year. Local governments will no longer receive that benefit, he said.
Local officials were concerned about these changes, too, with Johnson County Commissioner Brian Baird saying the county effectively lost a revenue stream from businesses while still having to provide them services.
Bray said the tax still exists, and that the changes were a way to provide some relief to businesses. But it’s not taking relief away from homeowners, he said. He again emphasized that while local governments are going to be getting less revenue than expected, they’re still getting more than they had last year and that it would continue to grow.
How locals voted
Johnson County’s delegation voted mostly in favor of SEA 1. In the House, Reps. Michelle Davis (Whiteland), Robb Greene (Shelbyville) and Peggy Mayfield (Martinsville), all Republicans, voted in favor, while Rep. Craig Haggard, R-Mooresville, voted against. In the Senate, Bray and Walker voted in favor while Sens. Cyndi Carrasco and Aaron Freeman, both R-Indianapolis, voted against.
Walker told the Daily Journal he voted in favor of the bill because of long-term trends he’s noticed that will lead to a “tightening of the belt” when it comes to budgets. The next biennial budget, also passed last month, had to have $2 billion trimmed last minute after a revenue shortfall was projected.
But there were parts of SEA 1 that Walker didn’t like. He wishes lawmakers would’ve put off increasing the business personal property tax exemption until they had a little more information on the impacts of the residential and farmland tax changes, he said.
“I still have those reservations,” Walker said Wednesday.
Looking at the bill in its entirety, Walker ultimately voted for it because lawmakers needed to get a handle on increasing taxes. He’s seen properties that have gone up by 25 to 40% two to three years in a row over the last four years, he said.
He also said lawmakers provided more revenue replacement opportunities to local government than what existed before, referring to the ability to levy more local income taxes. Property taxes were meant to be a local decision, and the state has always had a system that encouraged local units to never take less growth than what was available to them, Walker said.
“We’re looking to create a system that does not require local units to always grab for the highest collections that they can get, for fear of losing it,” he said. “In the future, I think there’ll be more flexibility to respond to the needs of our own communities at the local level under the new proposals, and not all that’s been drafted yet. There are still some changes to come that I think will help that decision-making process.”
Walker said he can’t guarantee a modest growth in revenue for the next three years for the businesses, families and homeowners. But SEA 1 can “create certainty and stability for local government funding while simultaneously putting in place protections against seemingly ever-rising property tax bills.”
Going forward
Looking ahead, Bray said lawmakers are going to continue to look at property taxes. As they continue to look at it, there could be changes if they discover there were adverse effects of the policies they enacted, he said.
Senate Enrolled Act 1, authored by Sen. Travis Holdman, R-Markle, was signed into law by Gov. Mike Braun on April 15. Among the several items the law does, it phases out and replaces the homestead standard deduction and other property tax deductions with credits, caps the maximum levy growth quotient at 4% in 2026, and raises the threshold for business personal property tax exemption from $80,000 to $2 million in 2026.
Homeowners would largely save on property taxes with a credit for 10% off every homestead’s bill up to $300 each, with state lawmakers saying about two-thirds of homeowners would see a reduction next year compared to what they would’ve paid without the changes. However, with local units of government potentially raising or implementing a local income tax, or LIT, it is unclear how much tax relief residents will actually get.
Johnson County, as a whole, is expected to lose $28.2 million in previously expected revenue because of the changes. Leaders for the county, Franklin and Greenwood also previously expressed concern about the impacts SEA 1 would have on their ability to provide government services.
To explore the impacts more on everyday Hoosiers and businesses, the Daily Journal reached out to an economist to talk about the bill.
We also reached out to local lawmakers to discuss the bill. Of Johnson County’s eight lawmakers — four in the House of Representatives and four in the Senate — two agreed to interviews.
The bills’ impetus
Lawmakers looked at changing property taxes in response to spikes in assessed values for homes over the last few years, leading to complaints from constituents with high bills. It was also a priority for Gov. Mike Braun, who campaigned on property tax reform last year.
Homeowners generally paid about a third of property taxes statewide, with commercial and industrial properties paying the other two-thirds. But recently, homeowners have been paying nearly 50% of property taxes, said Senate President Pro Tem Rod Bray, R-Martinsville.
In Johnson County, homeowners have generally tended to have a higher share of property tax payments compared to other property classes in the county — commercial, industrial, agricultural, utility and exempt.
In 2018, residential property owners made up about 60.8% of the net tax paid. That number has increased by 5.3% to 66.1% in 2024, officially surpassing two-thirds, data from the Indiana Department of Local Government Finance shows. While most of this growth is likely because of inflation and higher assessed values, it should also be noted the county’s population grew by at least 93% during the same period, estimates show, leading to more payments from residents.
With SEA 1, lawmakers gave cuts that would provide $1.3 billion in property tax relief across the state. Farmers are getting about $116 million in relief as well, as lawmakers raised their capitalization rate from 8 to 9%, Bray said.
For local governments, Bray said lawmakers tried to “thread a needle” so homeowners got relief while local governments still had enough money and revenue to provide services. There are a couple of small exceptions, but overall, governments aren’t getting a cut in revenue — they’re just not getting as much as originally anticipated, Bray said.
“They’re still getting more revenue year-over-year, with a couple of very small exceptions here and there,” he said.
Across the state, revenue will grow by 1.6% for locals in 2026 and 5.1% in 2027 while the state grows at less than a percent both years, Bray said.
“Local governments are going to have to spend within their means and be frugal. But it’s nothing that the state is asking them to do what the state isn’t actually having to do more of,” he said.
However, local governments often plan their spending years in advance, with three to five-year outlooks presented by financial consultants during the annual budget process. Local officials say they were counting on that growth.
Hicks say there are likely at least two unintended consequences of SEA 1. He believes the rise in the business personal property tax threshold exemption to $2 million will incentivize businesses not to expand for fear of going over the $2 million limit and suddenly having to pay thousands in taxes. Another consequence is that by eliminating the 30% minimum depreciation cap, it could incentivize more businesses to automate.
As for local governments, Hicks thinks Hoosiers will start feeling the impacts on local governments by the fall, with full effects being felt by the end of next year as costs shift away from businesses and toward households.
“I’m not a fan boy for local government, but the services they provide are very visible to taxpayers. And once they get cut, that’s going to be very hard to reckon with,” Hicks said.
There are silver linings within the proposal for Hicks: those who don’t want government will realize that less government means fewer services, there will also be more local control. Local governments will have to renew certain taxes annually, and officials will have to think about what people in their community want to see. Residents will also be able to take part in those discussions, he said.
“The silver lining is instead of the legislature deciding the future of every Hoosier’s community over a couple of weeks and in back sessions, we’re going to see a full public debate about this across the state.”