The Report made the following findings:
• LOITs have reduced property taxes. Counties that use at least half of the LOIT dollars for property tax relief have average property tax rates of $1.70 per $100 net assessed valuation (NAV). Counties that devote between 10 percent and 40 percent of their LOIT proceeds to property tax relief have average property tax rates of $2.40 per $100 NAV. Over the last 30 years, property tax rates and year-over year growth in levies have been consistently lower in LOIT counties than in counties without rates.
• LOITs have bolstered local budgets. Over time the addition of new LOIT options has allowed local governments to diversify the use of these tax proceeds. LOIT revenue as a share of local tax revenue has increased from 6 percent in 1987 to 19 percent this year. While this diversity gives local officials greater flexibility to determine sources of tax revenue, the increased reliance on economically sensitive income taxes makes them more susceptible to economic swings.
• The LOIT system currently uses less than half of its capacity, so additional revenue dollars are possible for counties. In many cases counties have room to raise existing rates and to adopt other rates. An additional $2.4 billion in revenue could have been realized on 2013 distributions by all counties utilizing maximum rates. Clearly, all counties imposing local income tax rates in excess of 3.5 percent of taxable income is politically and economically untenable. However, the analysis shows that a substantial amount of revenue is available for local units in need of additional funds for operations and investments.
• The process for collecting and redistributing LOIT produces a two-year lag between when the state collects the tax and when it is distributed to the counties. This makes planning difficult, though recent changes including quarterly reports may produce more accurate local budget projections.
• The complexity of LOITs makes the system hard to manage. This complexity stems from the fact there are seven different LOITS and each has specific conditions for enacting the tax and the use of its proceeds. The interdependency between LOIT and property taxes and the rigidity of the system make these decisions very important.
See the Full Report here:
http://www.indianafiscal.org/pdf/LOIT.pdf
