Some Indiana legislators say eliminating the business personal property tax could attract more companies to the state.
They debated the issue earlier this year and passed a law allowing counties to do away with the tax if they wanted. Now, a study committee is debating whether lawmakers should consider further changes to the bill.
And, that has some mayors across the state worried.
How Eliminating The Tax Could Impact Cities
Terre Haute Police Officer Drew Thornsbrough could be affected if the business personal property tax is eventually eliminated. He's been with the department for five years and is just one of 133 officers charged with keeping the city safe.
But, Terre Haute Mayor Duke Bennett says that number could change if lawmakers eventually decide to phase the tax out.
"It would mean we would probably have to lay off somewhere between 100 and 140 people," Bennett said. "And, a lot of those would be policemen and firemen. We've already cut all the other areas. We're bare bones everywhere. We pretty much have minimum staffing in police and fire now of what we need to deliver services."
Bennett says doing away with the tax would result in a loss of about $4.5 million for the city, which already saw about one-third of its general fund income disappear because of property tax caps.
It would mean we would probably have to lay off somewhere between 100 and 140 people.
-Duke Bennett, Terre Haute Mayor
The legislature passed a reform bill earlier this year that allows local governments to decide how they want to handle the issue, starting in July 2015.
Under the measure, city leaders can exempt new equipment from the business personal property tax, eliminate the tax on small businesses or abate the tax on specific projects for up to 20 years.
"What they ended up with is something we can live with at this point, it's a county-by-county option, even though we believe there's some other negatives to that down the road, but right now that's better than a total elimination," Bennett said.
He's worried the current law could pit counties against each other, or that the legislature will still do away with the tax down the road.
If that happens, mayors across the state say the money must come from somewhere else.
"I think if you listen to the economists and you listen to the business experts, it may put us at a bit of a competitive disadvantage to have this tax in place," said Matt Greller, CEO of the Indiana Association of Cities and Towns. "That being said, we're most concerned about the revenue that is provided to local governments. It just has to be replaced."
Study Committee Considering Potential Changes
A study commission is tasked with examining the complicated tax code and its impact on local governments.
They met for the first time this week and listened to testimony about how Indiana compares to other states. According to a Council on State Taxation study, Indiana's tax burden on businesses is the lowest in the region.
We put the delayed start date into the law specifically with the idea that if we wanted to make improvements, we could.
-Sen. Brandt Hershman (R- Buck Creek)
"I think we're in good shape, but as you subdivide into different categories, you can say our business tax climate is good, but business comprises a lot of things – everything from a small mom and pop shop on the corner to some of our largest employers, each of them has a different property mix, has a different tax burden," said Sen. Brandt Hershman (R-Buck Creek). "And, so while overall we rank very well, there may be some sub sectors that have issues that need to be looked at. And, I think that's what we're trying to do is hone in on where those real problem areas are."
Hershman is the chair of the study committee and sponsored the bill that gives local governments the option to eliminate the business personal property tax. He says it makes Indiana more competitive when it comes to attracting new businesses. And, he'd like to see the measure expanded during the upcoming legislative session.
"We put the delayed start date into the law specifically with the idea that if we wanted to make improvements, we could," he said. "And, I can see some modest improvements. For instance, I still am a very strong proponent of the exemption for small businesses. It costs very little, the cost of compliance is very high."
But, Senate Appropriations Chair Luke Kenley wants the commission to examine the whole tax system - not just its impact on businesses.
He says legislators should wait to see if the local option law works before considering more drastic reforms.
"I think it's a struggle for us to just cut taxes without considering, for example, on the spending side are there programs that you need to eliminate," Kenley said. "And, this is a constant pressure point for all states and we just need to keep working. I think we're in a sweet spot right now. I don't know that we can do more without sort of resetting our priorities."
Bennett is also serving on the study committee. He's hopeful they'll continue to take a comprehensive look at Indiana's tax code before suggesting any amendments to the current bill.
"Before we change anything else, let's kind of take a look at what happened or what the fallout is from the previous changes so that if we do go down this path with business personal property tax, let's make sure that everyone can still run their local government," he said. "That's what it boils down to."
The commission will meet two more times before delivering recommendation for the legislature to consider during the upcoming session.
