Kokomo Tribune; Kokomo, Indiana

December 22, 2013

Tax reform had unintended consequences


Kokomo Tribune

---- — Saying it’s the one glaring exception to Indiana’s generally favorable business tax climate, Gov. Mike Pence and the Indiana Chamber of Commerce are embarking on a quest to end Indiana’s business personal property tax.

Pence has been using the word “reform” because it’s certain that this will be a shift, not a net tax savings. That means that most individuals will be seeing higher taxes to make up for business paying less property tax. The gamble is that the resulting tax climate will spur investment, and that incomes will rise to offset the tax shift.

The irony is that Gov. Mitch Daniels’ 2008 property tax reform is in part responsible for what the chamber is calling a skewed tax burden.

Bill Waltz, vice president of tax and fiscal policy for the chamber, said the 2008 reforms resulted in a $3 billion shift from residential homesteads onto industrial and commercial property.

In Howard County, homesteads and business both have about the same share of the overall assessed value in the county (42 percent each), Waltz said.

Business, however, shoulders 65 percent of the total (personal and real estate) property tax burden here, while homesteads pay 15 percent, he said.

“It’s not just personal property tax, it’s property tax as a whole,” which is causing the imbalance for business, he said.

Property tax caps are enshrined in the constitution, so there’s no going back on that deal. But Waltz said he thinks there are enough efficiencies to be gained at the local level to make up for the loss of business personal property, without cutting services.

That’s where the chamber and the local elected officials in Howard County will disagree, and Waltz said he understands there has to be replacement revenue to make it work.

State Sen. Jim Buck, R-Kokomo, has already had that conversation with Pence’s people, and says he’s been informed that the state doesn’t have enough money to make up for the estimated $1 billion in local revenue loss from a full repeal.

Waltz said he’s aware that some local officials are smelling a potential conspiracy, and are claiming the business personal property repeal proposal is a backdoor attempt at local property tax reform, an attempt to force local consolidation by a “starve the beast” tactic.

“We’re not trying to do that, but the property tax caps have already sort of had that effect. [Property tax reform] has helped locals find efficiencies, but it’s all unbalanced,” he said.

In Howard County, business personal property tax accounts for about 37 percent of all property tax paid. Raising income tax is a bad option, because taxpayers have already seen the local income tax rate skyrocket by 77 percent in the wake of property tax reform.

“This is going to have to be finessed,” Waltz said of any attempted reform. “It has to be recognized that there are counties that are really seriously impacted by this.”

Scott Smith can be reached at 765-454-8569, at scott.smith@kokomotribune.com, or on Twitter, @JasonSSmith1.