Across nearly three hours of testimony on Wednesday, an array of national experts and Hoosiers asked lawmakers to navigate a narrow tightrope in tweaking the state’s tax structure.
The business personal property tax, for example, contributes upwards of 50% of some Hoosier communities’ tax collections, said Accelerate Indiana Municipalities’ Campbell Ricci.
Patrick Bennett, a lobbyist representing the Indiana Cast Metals Association, told the task force that tax’s 30% floor was costing local foundries dearly.
When tax force chair Rep. Travis Holdman, R-Markle, asked Bennett how to address the financial impact of eliminating the tax, he quipped, “I don’t have an answer for that. I’m just here to complain about it.”
A group of more than a dozen advocates additionally asked the State and Local Tax Review task force to remove the 7% sales tax from menstrual products.
Taxes costing poor Hoosiers more?
The two-year tax force is scrutinizing Indiana’s tax system in hopes of proposing legislation for 2025’s budget session.
And it’s putting particular focus on the feasibility of eliminating the individual income tax, which experts have testified could increase reliance on the sales tax and other sources of state income.
Prosperity Indiana Policy Director Andrew Bradley said poorer residents are paying a greater percentage of their incomes toward taxes.
“Income disparities are wider after we apply state and local taxes,” he said. “This is in part because the lowest-income 20% of Hoosier taxpayers face a state and local tax rate 115% higher than the top 1% of Hoosier households.”
Indiana is among 44 states whose tax systems worsen economic inequality, according to the latest edition of areportProsperity Indiana co-released Tuesday.
“(For) our partners in the human services sector — who work everyday with Hoosiers who are living paycheck-to-paycheck — the state and local tax system actually pushes those budgets closer to the breaking point,” Bradley said.
Prosperity Indiana leader Andrew Bradley says low-income Hoosiers are paying a greater share of income than high-earners at a tax task force meeting on Wednesday, Jan. 10, 2024. (Leslie Bonilla Muñiz/Indiana Capital Chronicle)
Bradley commended the state for excluding groceries from the sales tax and for offering an earned income tax credit, but asked the task force to “do no harm” to poor residents or cash-strapped local governments.
He additionally recommended consideration of a child tax credit, among other changes, and said the task force should consult with organizations who work with impoverished residents.
About six in 10 American adults are “very bothered” by the idea that some corporations and wealthy residents are not paying their “fair share” in taxes, said Erin Macey, director of the Indiana Community Action Poverty Institute. She cited an Aprilsurveyby the nonpartisan Pew Research Center.
Opposing views on sales tax, business personal property tax
National Conference of State Legislatures Senior Policy Specialist Eric Syverson said state sales tax efforts — including Indiana’s — generally “don’t live up to the ideal” of taxing all final consumption.
Syverson said that consumers are increasingly buying services, which aren’t subject to Indiana sales taxes. People are purchasing more digital versions of products that used to be tangible, and are shopping online more. Governments have struggled to get foreign e-commerce companies to comply with sales tax requirements, he said.
Small businesses spoke out against that prospect.
The National Federation of Independent Businesses regularly surveys members in statewide ballots for their positions on legislative proposal. Indiana State Director Natalie Robinson said 90% of respondents to Indiana’s ballot opposed expanding the sales tax to services.
When survey-takers asked if they’d support that expansion in exchange for the elimination of the individual income tax — most small businesses are pass-through entities that pay this tax — Robinson said her group still got back mixed responses.
“Some owners were conflicted when asked if it would be a fair trade-off,” she said. But, “the consensus from our membership was that state income tax is still the single most burdensome tax for small employers.”
But members strongly supported eliminating the business personal property tax.
AIC’s Ryan Hoff testifies at a tax task force meeting on Wednesday, Jan. 10, 2024. (Leslie Bonilla Muñiz/Indiana Capital Chronicle)
Hoosier businesses must pay taxes on property unless their possessions all cost below $80,000. The property cannot be assessed at less than 30% of its initial cost, which is known as the 30% floor.
“Many small business owners tell us that they’re paying more to actually prepare the tax return than the actual amount that’s collected,” Robinson said of this tax.
But eliminating the tax could have “extreme impacts” in some parts of the state, said the Association of Indiana Counties’ Ryan Hoff — and minor impacts elsewhere. It depends, he said, on whether communities are manufacturing-intensive or mostly residential.
Accelerate Indiana Municipalities said it wanted the state to find a way to replace that lost income for local units if lawmakers choose to cut or get rid of the tax.
The Indianapolis Chamber of Commerce said it continued to support lowering the business personal property tax, but noted that the tax was not “top of mind for folks looking to relocate to Indiana.” The organization said it supported income replacement.
Other witnesses said that, to attract more residents, lawmakers should focus more on quality of life and jobs than on lowering taxes.
“There is a positive relationship between reducing the state income taxes and increased migration, but it’s a modest effect (with a) finite impact — we can only reduce our rates to zero,” said Indiana Association of Realtors CEO Mark Fisher. “… People are drawn across state lines to more dynamic economies, better job and wage opportunities.”
‘Luxury’ menstrual products and next steps
MADVoters Indiana Co-Founder Chelsea McDonnel recalls the impacts of growing up impoverished and unable to afford menstrual products at a tax task force meeting on Wednesday, Jan. 10, 2024. (Leslie Bonilla Muñiz/Indiana Capital Chronicle)
Sen. Shelli Yoder, D-Indianapolis led a group of nine witnesses and more supporters to testify in support of removing the 7% sales tax from menstrual products.
MADVoters Indiana Co-Founder Chelsea McDonnel told lawmakers of how she grew up impoverished with unstable housing.
Emotionally, she recalled the first time her menstrual cycle hit, and how she thought she’d “done something wrong.” The toilet paper she’d stuffed in her underwear did nothing to prevent the blood from soaking through her pants by the time the bus arrived at school.
“Because of the love and support from high school nurses, counselors and a few friends … I was able to access the menstrual devices I needed — sometimes,” McDonnel said. “When I couldn’t access them, I stayed home.”
“Poverty comes with restrictions you can’t ever imagine unless you have lived through it,” she added.
Yoder herself has authored a bill removing the tax, but Republican leaders have indicated they’re unlikely to make any changes until the task force finishes its work.
