A new report finds that past tax reforms will make it difficult to cut Indiana's tax on business equipment without causing big revenue losses for local governments and shifting a significant amount of the property tax burden to homeowners.
The report also found that reducing the equipment tax would have only a small effect on business relocation from outside the state, but could pit one Indiana county against another.
The report was conducted by the Indiana Fiscal Policy Institute, a nonprofit government research group, and is perhaps the most comprehensive study of the issue yet. It paints a picture of the tough choices lawmakers face in their efforts to roll back the tax, formally known as the business personal property tax.
It also casts doubt on the primary argument advanced by proponents of the tax cut —Gov. Mike Pence among them — that phasing out the business tax would spur economic development and create jobs.
The report finds that local governments are still grappling with property tax caps enacted in 2008, which are expected to cause losses of $800 million next year. Those losses would rise dramatically if the tax on business equipment were eliminated.
The property tax caps, which were enshrined in the state constitution, now limit the ability of lawmakers "to re-balance the tax burden among homeowners and business interests," the report says.
It also finds that business equipment taxes "have a small effect on business relocation from outside a state, but depending on the structure if enacted could have a larger effect on relocation decisions from county to county within the state."
That doesn't bode well for supporters of the tax cut, who have said it would make manufacturing-heavy Indiana more competitive with surrounding states like Ohio and Illinois, which have eliminated the tax.
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