By Maureen Hayden CNHI Statehouse Bureau
---- — INDIANAPOLIS — Republican legislative leaders may push Indiana to join the growing number of states eliminating the business personal property tax, but they admit that doing so may cost local governments and schools about $1 billion in annual revenue.
At a legislative preview luncheon Monday, both Senate President David Long of Fort Wayne and House Speaker Brian Bosma of Indianapolis said the tax is one of the few hindrances still in the way of making Indiana more attractive to job creators.
“It’s last piece of tax ‘fruit’ that you could deal with,” Long said, referring to the series of income, corporate and other tax breaks that the state Legislature has passed in recent years.
“It’s a priority to get it right,” he added. “Certainly low taxes for Indiana is something we have to keep foremost in our mind to keep us competitive and grow the economy.”
But a sweeping tax break for businesses would have major impact on local units of government already struggling with declining revenues, including those caused by local property tax caps that were imposed by the General Assembly five years ago.
The personal property taxes, paid by businesses on machinery, computers, furniture and equipment they use, bring in almost $1 billion a year to local governments and schools that use that money to pay their bills.
Communities with large manufacturing employers could especially be hard-hit. In some communities, the personal property tax produces more than 30 percent of their local revenue stream.
“It would be just devastating to some communities,” said Andrew Berger, government affairs director for the Association of Indiana Counties. “We’re talking about a dramatic cut in services in those places.”
Kokomo, which is heavily dependent on business personal property taxes paid by its largest employer, Chrysler Group LLC, led the charge against eliminating the tax when a Kokomo legislator, State Sen. Jim Buck, R, proposed lowering the floor on personal property depreciation, in the last Indiana General Assembly.
Buck said he simply wanted to start a conversation about elimination, but city officials estimated Buck’s proposal would have resulted in a $13.5 million shift onto other property taxpayers, potentially doubling some homeowners’ property taxes and pushing numerous properties up against property tax caps. The measure did not advance.
The proposal to eliminate the personal property tax paid by businesses is being supported by the Indiana Chamber of Commerce as one of its top legislative priorities.
Though a similar measure failed last session, there may be some momentum now for support. Several Midwestern states, including Michigan, Ohio, and Illinois have eliminated their personal property tax. Indiana Chamber president Kevin Brinegar said that puts Indiana at a competitive disadvantage for luring new business into the state. “It’s a remaining black mark on our tax climate. An area where we simply can’t compete,” Brinegar said.
So far, there’s no proposal to replace the lost revenues to local governments if the business personal property tax was to be repealed.
Berger doesn’t think there will be. “They just want to be able to say that they have another big tax cut,” Berger said of the legislative leaders pushing for the measure.
Long said fiscal leaders in the Legislature are aware of the impact on local governments if the personal property tax is eliminated. He said they’d be “very sensitive” to those concerns. “Particularly the small towns that are dependent on a few large taxpayers. We’ve got to be very careful that we don’t destroy their tax base,” Long said.
Senate Minority Leader Tim Lanane of Anderson said it was critical to consider the impact on local governments. “We’re going to have to come up with replacement revenue,” Lanane said. “To me it’s irresponsible to just say we’re going to abolish another revenue stream without looking at the impact on local government services.”
The General Assembly is scheduled to open its 2014 session on Jan. 7. Today, legislators meet for their Organization Day and may begin filing bills for the 2014 session.
Maureen Hayden covers the Statehouse for the CNHI newspapers in Indiana. She can be reached at email@example.com