INDIANAPOLIS — Indiana Gov. Mike Pence’s call to eliminate the personal property tax for businesses could end up raising taxes for homeowners and residents throughout the state, depending on how local governments react, according to a legislative report completed Monday.
Analysts for the nonpartisan Legislative Services Agency determined that the tax would amount for about $1.06 billion in proceeds for local government in 2015, creating budget havoc if it were completely removed. Property taxes paid by homeowners and others could increase by $375 million a year and local income taxes could increase by an average of .77 percentage points if they were used to counter the lost money, wrote Bob Sigalow, an agency analyst, in a memo to state lawmakers.
Pence has made eliminating the tax a centerpiece of his second-year legislative agenda, arguing that it is necessary to help spur job creation, in part by attracting new business. The governor has said he would try to find some way to offset any impact on local governments, but he hasn’t offered specific details about how he would accomplish that.
A Pence spokeswoman was not immediately available for comment Tuesday afternoon.
The personal property tax is levied on business equipment throughout the state and is largely borne by the state’s heavy manufacturers. The agency determined that about 453,000 business personal property tax assessments were paid throughout the state in 2013 on about $49 billion worth of equipment.
If local income taxes are relied on to replace the tax, the average jump in income tax of .77 percentage points would easily wipe out the tax cut Pence secured earlier this year. Lawmakers approved a 5 percent cut in the state income tax, rolling the tax rate from 3.4 percent back to 3.23 percent. And local income taxes could jump as much as 2 percentage points in some counties, according to the agency.
The General Assembly begins its “short session” — a roughly two month meeting — the second week in January. Budget leaders in both the House and Senate have also been apprehensive about considering new spending or tax cuts until lawmakers meet for their “long session” in 2015, when they take up their next biennial budget.
David Bottorff, executive director of the Indiana Association of Counties, said that other states that eliminated the business personal property tax covered the losses for local governments. He noted that Illinois’ reimbursement for local governments is included the state’s constitution.
“We’ll be seeking the state to replace that money,” he said.
Bottorff recommended the state offer tax credits for the value of the personal property tax paid by each business, thereby footing the bill. But he said new budget estimates showing that state tax collections are expected to come in about $298 million lighter than expected could hurt that request.
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