Two proposals in General Assembly would reduce taxes of equipment and machinery

Both proposals stop short of phasing out the entire business personal property tax that Gov. Mike Pence has placed at the top of his economic development agenda for the 2014 General Assembly.

The House plan gives individual counties the choice on whether to eliminate the tax, but limits the exemption to new investments. House Speaker Brian Bosma (R-Indianapolis) has said the approach would allow counties that depend more on the tax to keep it in place, while giving counties that aren’t as reliant an opportunity to give businesses an incentive to locate to their area.

“We think this is the smart route and would give local counties the option to do what they know their communities need,” Bosma said.

The Senate plan would exempt small businesses from paying the tax. To qualify, a business would need to have less than $25,000 of personal property in a county — which would cover as much as 71 percent of the tax’s filers, according to the Senate proposal.

The Senate pairs the tax cut with an additional reduction to the state’s corporate income tax. Under the plan, the corporate income tax would lower to 4.9 percent by 2019. State lawmakers already approved legislation to reduce the tax to 6.5 percent by next year.

Further reducing the corporate income tax would cost the state an estimated $130 million when fully implemented, but about $25 million of the cost would be offset by cutting in half the research and development tax credit and eliminating a handful of other unnecessary or little-used tax credits, according to state Sen. Brandt Hershman, R-Buck Creek.

Senate President Pro Tem David Long (R-Fort Wayne) said the House proposal likely leads to the full elimination of the personal property tax by placing pressure on adjoining counties to exempt the tax if a neighboring county chooses to do so.

“What I like about the proposal in (the Senate) is let’s just find out maybe with a little more time exactly what that means. Can we afford it? How do we pay for it? How do we not hamstring local government in a way that if we did this that it comes out as a win-win for everyone,” Long said. “We don’t have those answers now that I’ve seen.”

Pence told reporters Friday he supports both plans, and said his administration and legislative leaders are “taking on the challenge of reforming” the personal property tax. Pence reiterated his hopes that the tax would be phased out in the years ahead.

Supporters of the cut argue the personal property tax serves as a disincentive to businesses looking to locate to Indiana. Yet, local government officials have criticized the proposed cut because the tax sends approximately $1 billion annually in funding to Indiana communities and schools.

Evansville Mayor Lloyd Winnecke said that in his years serving as an elected official, he doesn’t recall a business deciding against locating to Vanderburgh County because of the state’s personal property tax. Winnecke has said he’s against cutting the tax without 100 percent replacement revenue to local cities. Evansville officials estimate the city will take a more than $7-million hit if the tax is totally phased out.

“Would a business not like to pay? I’m sure they would,” Winnecke said. “Lawmakers can be creative. We count on them to be creative, but part of the greater good has to be a solution for local communities.”

Bosma said there have been talks of “decoupling” some of the existing local-option income taxes counties can adopt as a way to replace revenue lost from a partial exemption of the tax.

“Today you have to exercise one to get another to get a third,” said Bosma of the local-option income taxes, which are not part of the initial proposal. The House proposal also will include a protective device to not allow the exemption if a business chooses to move from one Indiana county to another, Bosma said.

However, Vanderburgh County Commissioner Marsha Abell said the proposal still will pit local governments against one another because new businesses would look to see which counties had adopted the exemption. Abell said Vanderburgh County would be hard-pressed to adopt the House’s plan, and she’s seen nothing on how the funding would be replaced to local governments.

“If the state wants to make regulations to cut our income, the state needs to be the one to make the taxes,” Abell said. “Those state representatives never want to step up to the plate and increase a tax. They want to pass it down and let local people do it. We’ve done what we need to do to keep our places going. They need to be the ones to talk about taxation and how to replace it.”

John Ketzenberger, president of the Indiana Fiscal Policy Institute, said he initially thought lawmakers would pass any changes to the personal property tax in 2015 while deliberating on the next state budget.

“I’m starting to become inclined that they will enact something (this session) because they clearly put a lot of effort into it,” Ketzenberger said. “I think you have two fairly interesting proposals.”