Study Panel: Eliminate Personal Property Tax For Small Business
November 13, 2014 — Indiana Public Broadcasting’s Brandon Smith reports a study committee made up of Indiana governmental and business leaders wants the General Assembly to mandate the elimination of part of the state’s business personal property tax.
INDIANAPOLIS – About half of all Indiana companies would stop paying property taxes on the value of their equipment under a recommendation a legislative study committee made Wednesday.
The group’s chairman – Sen. Brandt Hershman, R-Buck Creek – said those firms might be required to pay a modest fee to help make up revenue lost to local governments. However, the latter was not among the 18 recommendations approved by the Commission on Business Personal Property and Business Taxation.
Hershman called the commission’s recommendations “aspirational” and said the group’s final report will serve as a “guidance document” the legislature could implement over time.
But the Republican, who chairs the Senate Tax & Fiscal Policy Committee, said he’d like to move forward with the small business property tax cut when lawmakers reconvene in January. The proposal would exempt taxpayers that have less than $20,000 in equipment.
Under a law passed earlier this year, counties have the option of eliminating the tax for those companies. But the personal property tax commission voted Wednesday to recommend that the change become mandatory for taxes paid in 2017.
Most of the 147,000 companies that would be affected pay less than $50 per year, said Kevin Brinegar, president of the Indiana Chamber of Commerce and a member of the commission. But he said they often spend much more to have their equipment assessed and tax returns prepared.
He called the proposal a “common sense recommendation.”
Still, the change would not come without costs to local governments and schools that rely on the revenue.
According to a fiscal analysis prepared by the Legislative Services Agency, the tax cut would save Hoosier small businesses about $13.5 million a year. But because of the way the change would shift tax burdens to other property owners – and move some of those taxpayers up to constitutional limits on their bills – local governments would lose less than that. LSA estimates the total be about $6.8 million per year, with cities, towns and schools hit hardest.
The commission did not propose specific ways to help local governments weather the cuts. But it did approve a general recommendation that called for continued discussions about ways to “mitigate any lost revenues realized by local units” of government.
Terre Haute Mayor Duke Bennett, a member of the commission, said his city has been hit hard by other property tax changes and would likely suffer losses under the new proposal. Still, he voted for the commission recommendations, in part because they call for additional conversations about new revenue sources.
“I just want to make sure we continue to keep that in front of us,” Bennett said.
After the meeting, Hershman said he would consider legislation that imposed a $25 or $50 fee on companies that are freed from paying property taxes on business equipment. He said that would be easier and cheaper for the firms because they would not need to pay for professional help to assess their equipment and prepare their returns. And he said it would relieve administrative burdens for local governments that have to process the returns as well.
It “would probably be a win-win for everyone involved,” Hershman said. But “we didn’t adopt that as a recommendation because we still have some due diligence and research to do it on that.”
The commission also recommended Wednesday that the legislature:
- Postpone changes – again – in the way agricultural land is assessed for taxation. The recommendation says that the state should use the same base assessments for farmland in 2015 as it did this year and should use so-called soil productivity figures that have been used since 2011. Otherwise, taxes on farmers are expected to increase. The committee said the state should also look for alternative ways to assessing agricultural property.
- Consolidate several existing local income tax rates into a single rate that could be used in part to reduce property tax rates and pay for debt and special projects.
- Remove the requirement that local governments use local income taxes in part to reduce property taxes in order to have permission to use those rates to fund public safety.
- Change a sales tax exemption for manufacturing and agricultural production so that companies don’t have to pay the tax if the product is used directly in the overall production process. Currently it must be used in the direct production of a product to qualify.
[Photo: Sen. Brandt Hershman, who chaired the Commission on Business Personal Property and Business Taxation, said he wants to free smaller companies from paying taxes on business equipment because it’s an administrative nightmare for little return. TheStatehouseFile.com]