It's not often you'll hear a Hoosier governor claim Indiana's business taxes should be more like those in Illinois.
Usually they tout Indiana's corporate tax rate, lower average wages and minimal regulatory burden to lure Illinois companies across the state line.
But in Republican Gov. Mike Pence's quest to phase out the business personal property tax, he regularly insists Illinois doesn't charge a property tax on business and manufacturing equipment and so is a prime reason to get rid of Indiana's, which provides $1 billion a year to schools and local governments.
"This is just a bad tax in a state where you make things," Pence said. "Illinois doesn't have one, Michigan just voted to phase theirs out ... I think it will make Indiana more prosperous, more competitive."
Repeatedly left unsaid -- and perhaps unknown to Pence -- is that while Illinois is one of seven states without a business personal property tax, Illinois companies annually pay a 2.5 percent income tax surcharge known as the "business personal property replacement tax."
The 1970 Illinois Constitution required the General Assembly eliminate the business personal property tax by 1979 and authorized a replacement tax to ensure schools and local governments continued to receive the same amount of money they did when the personal property tax was in effect.
As a result, while Illinois' corporate income tax rate is 7 percent -- the same as Indiana's, though Indiana's is set to drop to 6.5 percent next year -- Illinois businesses actually pay a corporate income tax of 9.5 percent with the business personal property replacement tax included.
Similarly, when Pence speaks about Michigan being on track to eliminate its business personal property tax, he omits that starting in 2016 Michigan local governments can charge an "essential services assessment" on business real estate, to make up 100 percent of the revenue lost due to the personal property tax cut.
Pence also is fond of talking about how Ohio eliminated its business personal property tax in 2010. He never mentions, however, Ohio replaced it with a gross receipts tax, charging a 0.26 percent fee on all taxable business revenue over $1 million for the privilege of doing business in the state.
House Democratic Leader Scott Pelath, D-Michigan City, said he believes Pence is too focused on business taxes and is failing to ensure Indiana maintains everything else that goes into being a state where people want to live and work.
"There's so many complex reasons why a business locates in one place as opposed to another," Pelath said. "It's not all about taxes; sometimes it's about the overall reputation of your state and we clearly have room for improvement."
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