The General Assembly has sent the governor a package of business tax cuts that supporters say will create jobs by luring more companies to the state.
Senate Bill 1 cuts the corporate income tax rate and lets local officials reduce or eliminate property taxes on business equipment.
But it doesn’t go as far as had been proposed by Gov. Mike Pence, who sought a complete phase-out of the personal property tax. Still, Pence said he pleased with the legislation and he’s expected to sign it into law.
“This is a strong bill that will allow Indiana to be the destination of choice for new investment in this state,” said Senate Tax Chairman Brandt Hershman, R-Buck Creek.
“We’ve seen tremendous success from our prior efforts in business tax reform,” he said. “This secures Indiana’s spot as not only a leader of the pack when it comes to our neighbors in the Midwest, but nationally, Indiana’s on the move.”
The Senate passed the bill 36-12 and the House approved it 63-37.
The bill extends the reduction of the corporate tax rate, which was already scheduled to drop to 6.5 percent in fiscal year 2016. The legislation will phase in an addition reduction, lowering it every year through 2022, when the rate reaches 4.9 percent.
The bill’s House sponsor, Rep. Eric Turner, R-Cicero, said the legislation – when fully implemented – will give Indiana the lowest corporate tax rate in the country. That assumes other states won’t act, something that Turner acknowledged is unlikely.
“Other states are not standing still,” Turner said.
Supporters said that’s why Indiana needed to act not only on the corporate tax but on the personal property tax as well. Pence has said repeatedly that it’s a disincentive for investment.
The state creates three options for local governments to use to reduce personal property taxes:
– Counties can exempt all personal property worth less than $20,000.
– Counties can completely eliminate taxes on all newly acquired business personal property.
– Local governments can offer extended abatements on a particular business’s new personal property for a period of up to 20 years.
Lawmakers have been working on the legislation for months – ever since Pence asked the General Assembly to find a way to eliminate the personal property tax.
But local officials cried foul, saying they couldn’t afford to lose the $1 billion the tax generates for cities, counties, townships, schools, libraries and other levels of government. Mayors called on lawmakers to replace revenue lost to the tax cuts, and school districts complained the cut would be another loss they couldn’t handle.
The compromise legislation is meant to give those local officials the option of reducing the tax – without mandating lost revenue.
But even in its revised from, the bill received heavy opposition from Democrats in both chambers.
“A strong business tax climate doesn’t help Hoosiers if those tax cuts don’t translate into jobs or more money in the pockets of Hoosier families,” Sen. Tim Lanane, D- Anderson, said in a press release after the debate. “We have to go beyond corporate giveaways and focus on building up all Hoosiers.”
And Sen. Greg Taylor, D-Indianapolis, said lawmakers who voted yes will have to explain to constituents “why you’re giving somebody a break and not getting anything in return.”
“I’m going to vote no on this bill because I don’t want to take money from our local community and give it to somebody who takes my money and makes money off of it,” Taylor said.
John Ketzenberger, president of the Indiana Fiscal Policy Institute, said the legislation will mean tough decisions for local officials, especially in counties dependent on manufacturing.
“Whether it’s good public policy remains to be seen,” Ketzenberger said. “But I’m a little worried about the nature of allowing local governments to adopt this when some counties depend so much on business personal property tax and some don’t.”
The legislation also provides a tax break for propane customers as well. Propane retailers would be permitted to receive credit in April for sales taxes collected on propane sold at less than $2.50 a gallon during the months of January, February, and March of 2014.
That’s a reaction to rising propane costs that have driven up heating bills for propane users.