A new property tax study suggests that Republican lawmakers’ efforts to cut business personal property taxes would exacerbate an already-occurring shift in the tax burden away from businesses and toward residential homeowners.
Residential homeowners already pay 45.6% of the tax burden and that would rise to 51% by 2026 even without any reduction in the business personal property tax, according to a study commissioned by the Association of Indiana Counties.
The analysis was conducted by Indianapolis-based economic research firm Policy Analytics and tax policy expert Larry DeBoer.
The study examines property tax burdens over a 10-year period, property tax revenue capacities and the sensitivity of revenues if the business personal property tax was eliminated.
Homeowners paid 45.6% of the overall $8 billion tax burden in 2021, up from 42.5% in 2017, the study shows.
Most other sectors saw their share of the tax burden decrease during that same time period.
The agricultural share fell to 6.5% from 8.6%; commercial real estate’s share dropped to 17.7% from 18.9% and the personal property share fell to 17.1% from 17.3%.
The share of property taxes for apartments rose to 4.8% from 4.3%, while the share for industrial properties rose slightly to 7.5% from 7.4%.
The study projects these shifts will generally continue over the next five years, though the industrial share would drop to 6.7% in 2026 and agricultural share would rise to 7.2%.
The House’s tax cut package proposes eliminating the minimum tax floor on new equipment purchased by businesses, also known as the 30% depreciation floor. Businesses have to pay a tax on at least 30% of the purchase price of machinery and equipment every year, even if the equipment is several years old and no longer worth 30% of its original cost. This reduction is also a top priority for Republican Gov. Eric Holcomb’s agenda this year.
The Association of Indiana Counties study shows what would happen if the business personal property tax were eliminated altogether, though House Republicans are only calling for a reduction.
Unpredictability in how many businesses will buy new equipment and other factors make it difficult to pinpoint the exact impact of the tax cut. However, the study notes that a reduction should have the same pattern of effects as a total elimination.
The change would shift the tax burden onto other property taxpayers, according to the study. And the shift would not be enough to offset the loss of revenue for local governments.
Dave Bottorff, executive director of the Association of Indiana Counties said the study shows removing or reducing business personal property in the tax base will exacerbate that shift to homeowners.
The shift is already occurring due to rising residential assessed values, higher incomes, low interest rates and lagging home construction, the study says.
Business personal property assessed value is increasing at a slower rate than residential, so businesses already would be paying less in those taxes, which Bottorff said is like a tax cut.
“Without any reduction in business personal property, without reducing the floor, they’re already getting a tax cut because of what’s happening,” Bottorff said.
The association has been against the business personal property tax cut proposals because of its impact on local governments that rely on that revenue. Bottorff said he hopes the study will encourage lawmakers and the governor to reevaluate their tax cut plans and also look at how tax burdens have shifted over the years.
“Is this the direction they want to go?” he said. “I mean, is the plan to have residential paying 50% of the property tax burden?”
The study shows elimination of the business personal property tax would result in a decrease in the net property tax levy in all counties due to tax caps and other factors, but especially in rural Indiana.
Indiana’s tax caps, for instance, limit the amount of property taxes on homesteads to 1% of property value.
“Less assessed value to tax, higher tax rates, more properties at the tax caps, and that equates to lost revenue for local units,” Bottorff said.
The House tax cut package is now awaiting action in the Senate, where lawmakers there are more hesitant about the financial impact of cutting taxes.
Republican Sen. Travis Holdman, chair of the Senate Tax and Fiscal Policy Committee, has said he’d have a tough time voting for any version of the House bill that negatively impacts local governments.