Kokomo Tribune; Kokomo, Indiana

February 21, 2014

Local gov'ts endangered if business equipment tax lost

Governor, Statehouse should rethink tax cut plan.

Kokomo Tribune

---- — Indiana legislators face a tough challenge as they attempt to deliver a knockout blow to the state’s business personal property tax.

And a lot of the problem can be laid at their own feet, according to a recently released study by the Indiana Fiscal Policy Institute.

The goal of the group — a private, governmental research non-profit — is to enhance government effectiveness and accountability by educating Indiana’s business, labor and government leaders on fiscal policy issues.

The business tax is one of those issues.

Gov. Mike Pence has said abolition of the tax is high on his priority list, and with a strong majority in both houses, Republicans see their way clear to doing just that.

But even the governor has said he doesn’t want to hurt local government or schools, which depend on the tax for a large chunk of revenue.

Most of the discussion has revolved around how to replace any loss rather than simply forcing educators, cities and towns to further tighten their already tight belts.

The problem, as the 36-page institute paper points out, is the state’s property tax cap, first a law and now a constitutional amendment, immensely complicates the chore.

The paper’s authors point out Indiana is almost surrounded by states that have already eliminated the tax, levied on property such as heavy machinery and equipment, that businesses use to make things.

Kentucky is the only neighboring state that still has the tax, and it’s lower than Indiana’s.

They also point out Indiana has the highest percentage of manufacturing jobs of all the states, and it is heavy manufacturing — where the best paying jobs are usually found — that has the highest tax liability. Taxes don’t attract new industry, they point out, but add recent studies also don’t show it is a major factor in plant location.

A goal in killing the tax is tax equity, not imposition of a squeeze on local government and education, both of which are still adapting to the tax caps that limit actual tax dollars collected from most homeowners to no more than 1 percent of their home’s value.

Ways to make up the revenue lost with elimination of the business tax are limited.

One, a state tax increase, hasn’t even made it to the table.

Another would be to allow local taxing units to raise local taxes or fees to make up the losses.

That would not be a good choice for local government officials who would be faced with raising taxes to finance a problem the state laid at their feet.

A third, and the one most discussed, is to shift that loss onto other property taxes.

And that’s the bind.

If a homeowner has reached the cap, that home’s tax bill is frozen, only going up if the home’s assessed value increases.

The law shifts the burden of those lost dollars to other property owners, at least until those owners hit the cap.

Even worse than the inequity of that is its snowball effect, forcing up taxes on uncapped property until all property in a taxing unit reaches the cap.

When that happens, shifting stops and no additional money comes in to local government.

In some Indiana counties, often the largest and/or poorest, all or most property is already at the cap. For those counties, killing the business personal property tax would reduce income to local government units by the amount that had been raised by the business tax. This is not a spending freeze, but a cut in real dollars.

Monroe County Assessor Judy Sharp estimates that while this county is still far from its cap, the loss to local government units and schools would be about 8 to 10 percent of income if it does.

We urge extreme caution — and even a rethink — before adopting a plan that could seriously hamstring local government and schools in many Hoosier counties. Those local governments and schools provide services and training critically important to us all, including businesses looking for new locations.

— The Herald-Times, Bloomington