Wednesday, February 19, 2014

AP Reports Business Property Tax Could Drive up other Taxes

By the Associated Press in the Indianapolis Star:

A new legislative report says cutting the business personal property tax could raise taxes for homeowners and workers across the state.

Republican Gov. Mike Pence has made eliminating the tax on business equipment a centerpiece of his second-year legislative agenda. He says the cut is needed to spur job creation.

But cutting that tax could force cash-strapped local governments to raise taxes elsewhere.

The personal property tax accounts for about $1 billion in local tax collections each year. If it were eliminated, analysts for the nonpartisan Legislative Services Agency project property taxes on homeowners could rise and locally based income taxes could increase by nearly 1 percentage point.

The proposal also would mean big losses for local governments — unless another tax was created or increased to make up for the revenue.

To do so with the individual income tax would mean a statewide average increase of more than three-quarters of a percent, according to the report completed Monday.

That could mean an additional $577 a year for a family with taxable income of $75,000. And for residents of more manufacturing-heavy counties, the amount would be substantially higher — as much as three times more.

Currently, the tax generates nearly $1.1 billion for cities, counties, schools, libraries and other local governmental units, according to the Legislative Services Agency report.

LSA estimates a tax-burden shift in this case could mean the owners of so-called real property — which includes homes, buildings and land — would pay about $375 million more annually. Homeowners would be the largest single class of property owners to pay more.

Without other changes or replacement revenue, cities and towns would be hit hardest by the elimination of the personal property tax, with about $175 million in total losses, according to the report. Schools would also be big losers — about $151 million.

David Bottorff, executive director of the Indiana Association of Counties, said that other states that eliminated the business personal property tax covered the losses for local governments. He noted that Illinois' reimbursement for local governments is included in the state's constitution.

"We'll be seeking (for) the state to replace that money."