Business tax cuts take next step at Statehouse

Gov. Mike Pence announced his support Tuesday for a bill that would cut two Indiana taxes.

Senate Bill 1, which would reduce the corporate income tax and eliminate the business personal property tax for small businesses, passed out of the Senate Tax and Fiscal Policy committee 7-2.

Pence asked the General Assembly to pass legislation that would phase out the business personal property tax during his State of the State address last week. Both the House and Senate have proposed plans to eliminate the tax.

Office of Management and Budget Director Chris Atkins, who spoke on behalf of Pence at the committee meeting, said the governor thinks the Senate plan addresses issues the state needs to resolve in order to remain economically competitive.

“While we’ve made substantial progress on our tax climate in recent years, the governor believes we need to continue to make progress on two important features of our tax system that are addressed in this bill,” Atkins said. “And those are the corporate tax and the business personal property tax.”

SB 1 would reduce the state corporate income tax rate from 6.5 percent to 4.9 percent by 2019. Sen. Brandt Hershman, R-Buck Creek, who authored the bill, said that would reduce state revenue by $130 million a year.

Additionally, businesses with less than $25,000 in personal property would no longer be required to pay the personal property tax. Hershman said this would cost the state $25 million a year.

But Hershman said that’s less than 1 percent of the state’s total annual revenue.

“Our overall goal is job creation. Our overall goal is to be economically competitive,” Hershman said. “And at the end of the day, the way to do that is by looking at what it costs to run a business in the state of Indiana.”

The bill also creates a Blue Ribbon Commission to study the effect phasing out the business personal property tax would have on the state’s economy over time.

Hershman said he thinks the business personal property tax is “disproportionally paid by a relatively small group of large taxpayers.

“I think a legitimate question can be raised is whether ultimately that’s the kind of tax policy we want in the state,” Hershman said.

In order to supplement part of the revenue lost by reducing the corporate income tax, Hershman proposed reducing the Research and Development tax credit by 50 percent and eliminating the College Contribution tax credit. That would add just under $25 million to the state’s economy.

And while most Indiana businesses said they support SB 1, some told the committee they are concerned about the effect removing the Research and Development tax credit would have on their operations.

“Operating in this arena makes us heavily dependent on our R&D efforts,” said Gretchen Gutman, vice president of public policy for Cook Medical Device Company. “Cook has relied on Indiana’s credit to help fund these efforts.”

Jeff Linder, associate vice president for public affairs and government relations for Indiana University, said he is concerned about the possible negative impact eliminating the College Contribution tax credit could have on donations to state universities.

“We certainly don’t oppose trying to help business and make Indiana a better business climate,” Linder said. “But this does cost public and private universities in the state a significant amount of money.”

Linder estimated that universities would lose roughly $17.5 million if the credit were eliminated.

Representatives from several Indiana counties and cities raised additional concerns about a “slippery slope” of continuing to reduce the business personal property tax without generating the lost revenue from another source.

“Prior to session, our policy board…took a position that all reduction of personal property should be replaced somehow, some way at the state level,” said David Botorff, executive director of the Association of Indiana Counties.

New Haven Mayor Terry McDonald, a Republican, said eliminating the tax without finding ways to replace the revenue would cost his city $800,000 annually.

Sen. Karen Tallian, D-Portage, said she had similar concerns about reducing the corporate income tax because she thinks it would take money away from state agencies.

“We can’t keep doing this, and I don’t like the, ‘Let’s cut it now and study it later’ attitude,” Tallian said.

An amendment to SB 1 would require small businesses to file an annual certification with the county assessor verifying their exemption from the personal property tax. A second amendment would fine businesses $50 for failing to file the certification.

Please enable JavaScript to view this content.

Story Continues Below

Editor's note: You can comment on IBJ stories by signing in to your IBJ account. If you have not registered, please sign up for a free account now. Please note our updated comment policy that will govern how comments are moderated.