Gov. Mike Pence announced Thursday that he wants the business personal property tax eliminated.
If businesses were not required to pay taxes on their personal property, Pence believes the state would be more appealing to business owners, especially those who are looking for new homes for their operations.
But eliminating the tax concerns local agencies — including municipalities — that receive a portion of that revenue.
“We cannot afford to continue to have their revenue streams limited and reduced,” said Huntingburg Mayor Denny Spinner, who is also a board member of the Indiana Association of Cities and Towns.
“The property tax caps have had a definite effect on our income structure. Losing another source of revenue would cause us to have to take some serious looks at reducing services or making cuts in some other areas that we really can’t afford.”
Pence originally talked about the idea of eliminating the tax in November. He solidified his stance while announcing his 2014 legislative agenda Thursday morning.
“I’m calling on legislators to work with our administration to phase out the business personal property tax in the state of Indiana because I feel it is a barrier to investment and growth for our state,” he said in his remarks.
Huntingburg would lose $311,000 annually if the tax were eliminated. “Having no replacement for that revenue, when you’re looking at a reduction of that much, will affect services somehow,” Spinner said.
This proposed change would go beyond the cities. The more than 25 taxing units in Dubois County — towns, townships, schools, libraries — receive a portion of the tax’s revenue. If it is eliminated, the units in the county as a whole would lose more than $6 million. Statewide, the tax brings in $1 billion in revenue.
Jasper Mayor Terry Seitz said that Jasper could lose $1.2 million annually, 17 percent of its budget.
“I’m not saying that it isn’t something that businesses wouldn’t want or take advantage of,” he said.
“But, as it is presented, as it was pitched, I’m pitching back that this is how it will impact us.”
The governor noted that Illinois and Ohio do not have such a tax and that Michigan recently passed legislation to phase out its tax. Eliminating the tax in Indiana “is about making Indiana more attractive and more competitive for investment that will create jobs,” Pence said in his remarks.
Seitz said that those other states’ revenue structures should be looked at more closely. “We need to look at what taxes they have that we don’t, to be able to replace that,” he said.
Spinner agreed. “Are we comparing apples to apples?” he asked. “Is this an element that will make us more competitive? Or will it just eliminate revenue streams to local government?”
The Indiana Legislature would have to approve the change. State Rep. Mark Messmer, R-Jasper, said he is aware of the governor’s proposal but has some concerns.
“There have been enough changes in revenue for local governments in the last decade — homestead exemptions, tax caps — so many things set up to reduce property taxes,” he said. “To cut back any more without looking at the impact and looking at some way to replace that would be irresponsible.”
Pence said he does not want the elimination to cause hardships to local communities. “In the competition for jobs, I believe this is the next natural step in tax reform, but it’s absolutely essential that we do this in a way that does not unduly burden the local communities that receive the revenues from the business personal property tax,” the governor said. “I’m confident that we can do that.”
Spinner and Seitz wonder how that would be done, how that revenue could be replaced.
“My concern is that revenue source replacement would result in additional local taxes,” Spinner said.
“Eliminating the tax at the state level and passing it to the local level would be passing the burden to local communities and cause a more competitive situation between counties.”
Messmer said he can see the benefits of Pence’s proposal, but he also sees the challenges local governing bodies would face. “It is a good business development idea. But there comes a point where you have to be sensitive about making more reductions. Most units of government have been reduced already.
“It is an idea worthy of consideration, but we have to be careful,” Messmer said. “We don’t want to get to the point local government can’t keep basic services in place.”
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