Plan to cut business-equipment tax draws debate

Indiana House lawmakers took up a Senate proposal to cut business taxes on Monday, as fiscal leaders continued working behind the scenes to craft a compromise package of cuts this legislative session.

Members of the House Ways and Means Committee trudged through three hours of testimony from business leaders seeking further tax cuts, and school and local government officials looking to be spared further budget cuts.

The Senate plan would eliminate the state tax on business equipment for small business owners while also trimming back the corporate income tax from 6.5 percent to 4.9 percent—the second major cut across the board in recent years. House Republicans, including some who heard testimony Monday, drew up a different plan that would give county leaders the option of eliminating the state's business-equipment tax.

House Ways and Means Committee Chairman Tim Brown, R-Crawfordsville, hinted that he would like to see more of the House's approach—with the decision placed on local leaders—inside the Senate measure. Eliminating the tax would hit different counties in very different ways, he said.

"We have different transfers (of tax burdens) to other property taxpayers within those counties," Brown said. He said that was why the House Republican plan, House Bill 1001, "is a unique conversation to every county, so it therefore lends itself to better representation at the county level rather than us doing a blanket thing across the state."

Senate President Pro Tem David Long, R-Fort Wayne, noted that the state's budget leaders are in routine talks behind the scenes at the Statehouse.

"We're in discussions—the governor's office, the Senate leadership, the other fiscal people, the House leadership and their fiscal leaders. We're all meeting weekly and talking and seeing if we can find common ground," he said.

The proposals are responses to Republican Gov. Mike Pence's call for the complete phase-out of the tax, but the governor has taken on a limited role in the debate, much as he has with other issues this legislative session. Pence repeatedly declined to say what he would like done with the proposals during a tense meeting with Statehouse reporters last week.

Pence and the Senate's author, Sen. Brandt Hershman, R-Buck Creek, say the economic benefits could outweigh the losses if businesses start flocking to lower-taxed areas. They argue that the ending tax will keep Indiana competitive now that it's surrounded by states with lower or no equipment taxes.

But a report released last week from the Indiana Fiscal Policy Institute, which studies state-level budget decisions, shows that the tax has little effect on a business' decision to move from one state to the next. And any benefits could take years to kick in.

Local leaders—who rely on the tax for $1 billion in support each year—have emerged as the sharpest critics of the proposal. Cities and schools, they say, would be left to cut services or raise other taxes to make up for the loss in the meantime.

Mayors and school lobbyists asked lawmakers to study the issue over the summer or find a way to replace any money that is cut from their budgets as a result. They say that property tax caps set in 2008 have effectively crippled their ability to provide basic services.

"Indiana's public schools can't take any more hits," Denny Costerison, Indiana Association of School Business Officials executive director, said during testimony. "We can't take any more losses."

Brown said how the committee will handle the two approaches is yet to be seen, but there's a chance a proposal to chop the research and development tax cut in half will be taken out of the bill.