Governor and Legislature and State Government and Statehouse Dispatch and Opinion and Government & Economic Development and Government

Lawmakers begin to shift focus beyond HJR 3

February 1, 2014

Ed FeigenbaumFollowing the initial rounds of jockeying surrounding HJR 3, the definition of marriage constitutional amendment, lawmakers can redirect their attention to other matters of substance for a few weeks.

This week marks the initial third reading deadline, the final stage for passage of legislation in its chamber of origin, and many important pieces of legislation continue to wend their way through the process.

One of the more high-profile issues surrounds the December call by Republican Gov. Mike Pence to eliminate the business personal property tax, a proposition that many fear would effectively mean a $1.1 billion hit for cash-strapped local government budgets.

Pence and tax-cut backers suggested that this frontier was one of just a handful of remaining realms of the tax world in which Indiana fails to measure up to many other states, particularly some of our key industrialized neighbors. Eliminating this tax, they contend, would remove one of the few controllable disadvantages we face in pursuing development of all types.

Critics labeled the exercise as just another excuse for Republicans to cut taxes for corporations, suggesting it was unnecessary given how favorably our overall tax climate already ranks in national comparisons of state systems.

But both the House and Senate, in taking different paths to the same destination, saw to it that there would be no simple elimination of the business personal property tax—at least absent alternative revenue sources to ensure continuation of needed local government functions.

And as lawmakers took aim at the objective, the governor offered support for both efforts, even though each chamber took a disparate approach to the conundrum.

Numbering them SB 1 and HB 1001 affirmed the priority lawmakers placed on the concept.

HB 1001, from Rep. Eric Turner, R-Cicero, would not immediately eliminate the business personal property tax, but rather authorizes a county to adopt an ordinance to exempt from property taxation any new business personal property (other than utility personal property) in the county.

SB 1, from Sen. Brandt Hershman, R-Buck Creek, chairman of the Senate Committee on Tax and Fiscal Policy, proposed to eliminate the tax on many small businesses by not taxing business personal property under $25,000 in value.

Extending a further olive branch to bigger businesses that wouldn’t benefit significantly from this exemption, the Hershman bill would phase down the corporate income tax rate from 6.5 percent in 2015 to 4.9 percent in 2019.

SB 1 looks to pay for these tax cuts by taking aim at assorted other tax breaks, most notably with a 50-percent reduction for the research and development tax credit that is of such importance to major companies such as Eli Lilly and Co. Other tax credits also would be eliminated, most notably the college contribution tax credit for individual contributions.

The biotech industry and some larger Hoosier manufacturers that benefit from the R&D tax credit are crunching numbers to determine how prospective changes might affect them. Meanwhile, the state-supported colleges and universities are disturbed that their special individual philanthropic incentive would face elimination.

Pence’s team was diplomatic in signing on to both packages as they wove through the process. His tune has changed from one touting “elimination” of the specific tax to more general support of tax reform that accomplishes his economic development objectives without depriving local units of governments and schools of necessary revenue.

Mayors and county commissioners continue to lobby their hometown lawmakers against any package of tax changes that fails to render their already stretched or depleted budgets whole. And this message is being relayed on a bipartisan basis as beleaguered local governments are pitted against what they perceive as a cash-flush state.

Intriguingly, this finds many Republican local officials pushing back against what one northern Republican CEO derisively refers to as “a checklist of business taxes” and “old school economic development” strategies in favor of a new “toolbox” to bolster business location and retention decisions.

As business personal property tax reform progresses, you should consider SB 1 the starting point for the end game.•

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Feigenbaum publishes Indiana Legislative Insight. His column appears weekly while the Indiana General Assembly is in session. He can be reached at edf@ingrouponline.com.

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