Indiana lawmakers could debate sales, business tax changes

Keywords Legislature / Taxes

With Indiana’s state tax collections surging, a top Republican legislator is looking at possible significant changes to the state sales tax and cutting property taxes for some businesses.

House Ways and Means Committee Chairman Tim Brown hasn’t offered details yet for what he could propose for the new legislative session starting in January, but such changes face concerns over the possibility of an economic slowdown and the impact on funding for local governments and school districts.

Topics in Brown’s sights include expanding Indiana’s 7% sales tax that covers merchandise purchases ranging from clothing to cars so that it also is charged for spending on services, which potentially could be anything from haircuts to hospital stays. Brown said his aim would be to lower the sales tax rate if it was applied to a broader range of spending.

Brown points to a trend of more spending on services, which federal reports show now make up nearly 70% of consumer spending.

“Our sales tax base is changing a lot, so I am interested in looking at sales tax and sales tax affects everybody,” Brown said. “It doesn’t matter how much money you make, you pay sales tax.”

About a dozen states have extended their sales taxes for many services, but such moves have faced debates over which ones are appropriate to tax, said Purdue University economist Larry DeBoer, who has studied Indiana tax policy for more than 30 years.

It would be difficult to collect a significant amount from taxing services without it covering areas such as housing costs, including rent payments, and medical and legal expenses. Those areas account for more than half of services spending, according to federal reports.

“When you start looking at the individual things you’d have to tax, you’re going to come up against some very powerful interest groups and some very powerful ethical arguments,” DeBoer said.

Any tax debate in the Legislature would come as the state is flush with cash.

State government saw overall tax revenue grow 14% during the last budget year as collections bounced back stronger than expected from the COVID-19 pandemic recession, pushing its cash reserves to $3.9 billion as of June 30. Tax revenue has kept growing, with the state collecting about $560 million, or 10%, more than expected during the four-month span through October.

Brown also has his eye on property taxes charged on business equipment. The Legislature has exempted thousands of small businesses from the equipment tax in recent years, but it still makes up about 17% of all property taxes that primarily go to city and county governments and school districts.

Despite Indiana having cut its corporate tax rate from 8.5% to 4.9% over the past decade, Brown said the equipment tax is a “burden” on businesses that many other states don’t have.

Republican Sen. Ryan Mishler, chairman of the Senate Appropriations Committee, raised skepticism on whether more business tax reductions are needed as the top concerns he hears from business leaders are about the education and availability of workers.

Mishler said the state needed to stay prepared for any economic troubles.
“With the national trends of increasing the fuel prices, the supply shortage, the increase in prices, I think we’re in for a downturn in the economy,” Mishler said during a recent Indiana Fiscal Policy Institute program.

Local government leaders worry about a possible loss of tax revenue if major changes are made to the equipment tax. Reductions to that tax could mean higher property taxes for residential homeowners unless the legislators find another revenue source for local governments and schools.

Changes to the minimum depreciation levels set by the state for the equipment tax could make a big difference at factories being considered for upgrades, said Andrew Berger, senior vice president of the Indiana Manufacturers Association.
Elimination of that minimum level could mean about $300 million a year in lower tax bills for businesses, according to a report prepared for the 2021 legislative session. That makes up about one-fifth of the $1.4 billion raised by the equipment tax.

Republican Gov. Eric Holcomb hasn’t weighed in on whether he’ll support any tax changes, with his office saying he’s awaiting updated state tax revenue projections coming out in December.

Democrats are suggesting the state’s revenue growth should go toward steps such as increasing the decade-old $3,000 annual limit on tax deductions for renters, greater tax breaks for student loan interest and allowing tax deductions for dependent and child care expenses.

“Previous policies have given generous tax breaks to the wealthy and large corporations,” said Democratic Rep. Greg Porter of Indianapolis. “New policies should be friendlier to working families who are the backbone of the state’s economy.”

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12 thoughts on “Indiana lawmakers could debate sales, business tax changes

  1. Maybe quit spending money is the best way to actually lower taxes, but the horrible Republicans prove conservatism is merely progressivism driving the speed limit.

    1. The phrase “do more with less” has become popular in businesses over the last decade. Maybe it is time for the Government to follow suit. As you said, maybe the governmental leaders should simply “quit spending money” – or at least start spending less.

      It’s amazing how quickly you can start saving when you quit spending.

    2. It’s also amazing how bad our roads are since we don’t spend the money to build them right, nor do we then spend the money on fixing them right. it’s a cut-rate operation the entire way down.

      Indiana is foolish to cut taxes yet again and it shows that the Republican Party isn’t interested in the future of the state of Indiana.

      This state is in competition with a lot of places for businesses, including keeping our own young. What most businesses and young people want is they want to live somewhere nice, with good schools and things to do.

      Where are people flocking to live in Indiana? Around Indianapolis, especially around the Northside of Indianapolis. Why? The schools are good and there’s nice infrastructure.

      Why are Republicans at the Statehouse trying to repeat what Carmel/Zionsville/Fishers are doing, statewide? Doing nothing but cutting taxes is a tacit admission that Indiana cannot compete and we’re just waiving the white flag.

      Being a “low tax state” doesn’t do anything but attract distribution centers that will be filled with robots in 20 years.

    3. Watch out! Joe B. has all the answers even on taxes. Ummm…

      You don’t need the high level math beyond middle school “how to open your first bank account” to know taking in more than you spend equals surplus.

      When Marion county throws money into a dumpster fire 🔥 from Boss Hogsett and the rest you end up with Pothole Joe in rehab.

      The reason people are flocking to the areas “around Indianapolis” is because the property taxes are HALF of Marion county and they are fiscally responsible.

      While it is not truly fair to compare a suburb to the city center, it’s easy to see the waste of failed transit like the Red Line (life support) and the social programs which are a joke.

      Keep making excuses Joe! (Is B related to H??)

    4. Go ahead and offer your alternatives. You’ve got as many as the Marion County GOP, which would be zero. The rate they’re going, their city county councilors will be able to share a SmartCar to go downtown for meetings.

      Suburbs are nowhere without the city of Indianapolis. The closest thing to a self-reliant suburb would be Carmel, and even I wouldn’t call them “fiscally responsible”. They are gambling that if they build a bunch of stuff they can stay up on the debt payments… we shall see how it plays out. But every city around the Indianapolis area is following their example.

      What businesses do I see in the suburbs, springing up everywhere? Distribution centers. They’re springing up on Worthsville Road, Mount Comfort Road, and they’ve always been prevalent in Plainfield. Some real high end jobs we are getting there. Where did Elanco locate when they had their choice? They moved from Greenfield to downtown Indianapolis.

      If you’re not happy with Indianapolis streets, your beef is with the state, not Indianapolis. The road funding formula is rigged. Did you know a mile of rural road in (pick any county) gets the same amount of state money as a mile of a thoroughfare like Keystone or Emerson, per mile? Indianapolis is literally subsidizing road construction in the rest of Indiana. Greg Ballard’s solution was to sell off a city utility for good and use the money to throw some asphalt on top of the rot and declare victory. You can only pull that stunt so many times before you run out of stuff to sell, and it makes as much fiscal sense as cashing out your retirement accounts to buy a new sports car ten years before your retirement.

      The most recent Census numbers are clear – residents of the state of Indiana are clustering around the big cities and leaving the rural parts of Indiana. What’s needed is something to help the rest of the state of Indiana to compete if they want to become anything but a dying town lucky to have a Dollar General. That drain is what the state of Indiana needs to be worried about, not tax cuts. They need the READI grant program on steroids (do your own research on that one, I know that’s a super popular concept with the masses these days).

      We should be paying more in taxes and using the money to have better schools and better infrastructure. Make Indiana a state that people want to move to, not a state that government officials have to bribe people to move to with tax incentives.

      Legislators a hundred years ago invested in the future and build the State Parks system. Nowadays we have short-sighted legislators who don’t care about the future, and it shows via their actions. The Indiana Legislature has decided, rather than invest in the future, they’d rather just fritter it away. They act as though they’ve looked into the future, given up all hope, and decided the best course of action is to take the money and run and make it someone else’s problem.

      https://www.in.gov/dnr/state-parks/about-us/history-and-culture/

    5. The notion that the collar-county suburbs are “fiscally responsible” with “half” the residential property tax rate of Marion County is nothing short of laughable. (Hamilton County is 0.97% and Marion County is 1.03%; barely enough to even notice on escrow). Indianapolis is making real investments in long-term infrastructure with a proven track record of ROI (e.g. bus rapid transit) while Hamilton County is bonding against income tax for parking garages.

    6. Carmel is neat. Carmel is nice. But I can’t help but wonder if the math behind all those bonds doesn’t work out, boy will that be a mess to clean up.

  2. Maybe give the surplus back to small businesses that invested in equipment and people so they can continue to do so. Making a permanent tax change will bite us all when the economy changes.

    1. I was upset that surplus was not handed to local governments. The taxes have been paid and many local governments are slowly starving under the property tax caps with underfunded infrastructure and public safety needs.

  3. “It doesn’t matter how much money you make, you pay sales tax”. The converse is also true: It does not matter how little money you make, you pay sales tax. Sales tax can be a pretty regressive tax and it hurts lower income people worse than the rest of the population. If they could lower the sales tax to say 5%, but tax more things and still increase revenue, that might be something to look at.

    As far as lowing tax on businesses, that is still more of the failed trickle down theory of economics. The state losses money when it collects less taxes, businesses make more profit, but it rarely shows up as real gains for anybody but shareholders and big business owners. Business understand you get what you pay for. If we could pay for well maintained infrastructure, and a well educated population, that would go a long way toward keeping, attacking, and growing businesses in Indiana.

  4. It would be nice if localities could actually collect sales tax, instead of being tied to property and income tax. For a city so heavily reliant on conventions and major sporting events like Indianapolis, that would be a huge boon for public services.

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