Financial institutions would have to wait an additional three years to fully feel the effects of a statewide tax cut under changes made Tuesday to Indiana Senate Bill 1.
SB 1 would reduce the corporate income-tax rate to 4.9 percent by 2019, and businesses with less than $25,000 in personal property would be exempt from paying the business personal property tax.
But an amendment by Sen. Travis Holdman, R-Markle, would not fully reduce the corporate income tax for banks and credit unions until 2022. Holdman said the extension mirrors the franchise tax that financial institutions already have to pay.
Holdman also said the General Assembly used the same policy for financial institutions when it reduced the corporate income tax rate last year.
SB 1 also would create a blue-ribbon commission to study the impact the business personal property tax has on Indiana’s economy.
Sen. Karen Tallion, D-Portage, proposed an amendment that would require the commission to study the impact that reducing the business personal property tax would have on local governments. And, the commission would also have to look at property taxes that are paid by non-business organizations.
Tallian’s amendment was adopted.
The Senate also added language to the bill to exempt sales taxes for propane that costs more than $2.50 per gallon. The exemption would be retroactive to Jan. 1 and would be in effect until April 1.
It’s meant to address rising propane prices.
Opposition to SB 1 has largely focused on the bill’s lack of provisions to make up the revenue that would be lost by eliminating the business personal property tax. Democratic Sens. John Broden of South Bend, Timothy Skinner of Terre Haute and Tallian each proposed amendments to provide ways to supplement the lost revenue.
“I think one of the things that most Democrats across the state – and I think a few Republican friends of mine, as well – have had concerns about from the very beginning are the losses of revenue to local units of government – we’re talking about cities, towns, libraries, schools,” Skinner said.
Skinner said eliminating the property tax would cost the state $25 million to $30 million each year. He proposed giving political subdivisions a replacement grant from the state’s main checking account to make up the losses.
Under the proposal, any subdivisions losing more than 20 percent of their revenue from the personal property tax would be automatically qualified to get the full 20 percent back from the grant.
Tallian proposed deleting the provision to lower the corporate income tax rate – the main focus of the bill.
“In 2012, we cut the corporate tax rate from 8.5 to 6.5 percent with the idea that we would end corporate poverty forever and create new jobs,” Tallian said.
Tallian said the total cost of cutting the tax rate in 2012 and cutting it again this year would be $644 million from 2012 to 2020. After 2020, she said the state would lose $131 million each year.
None of the amendments to replace the lost revenue were adopted.
Skinner proposed a second amendment that would eliminate the corporate income tax and create a preschool program.
“There are many ways we can invest in our state,” Skinner said. “We know that there is a return investment on providing the best education we possibly can at the youngest possible age that we can for Indiana citizens.”
Skinner said after 25 years, the returns on the economy would outweigh the cost of the program by $31 million.
The amendment was defeated. Sen. Brandt Hershman, R-Buck Creek, who authored SB 1, said the amendment did not belong with the bill.
The bill is now eligible for a full Senate vote.