Eliminating Personal Property Tax Would Cost County Millions | Local News
A complete repeal of the business personal property tax would cost Howard County tens of millions of dollars in tax revenue and shift more of the tax burden to owners and other tax classes. according to a recently published study commissioned by the Indiana Counties Association.
A tax analysis found that Howard County as a whole would stand to lose $28.7 million — from $127.8 million to $99.1 million — from its maximum levy in 2026 if the state completely abolished the personal property tax for businesses. The analysis was conducted by Larry Deboer, a retired professor of agricultural economics at Purdue University, and Indianapolis-based economic research firm Policy Analytics. The maximum levy is the amount that a government tax unit is allowed to collect each year in property tax revenue.
Such action would result in higher taxes for household, commercial and agricultural landowners, reduced government services or both, the study suggests, especially in counties that rely heavily on the BPP and whose tax bases are already close. tax imposed by the state. caps.
The study found that Howard County would be one of 14 counties in the state with a loss of more than 16% of its total drawdown, the highest percentage loss. Other counties in the same category include Blackford, Vermillion and Vigo counties.
Business property tax accounts for about one-third of the county’s total tax revenue, according to the study. This is due to the county’s heavy manufacturing base. Although large manufacturers, such as Stellantis, pay property taxes, they also pay taxes on the machinery and equipment in their facilities, called personal property.
According to the study, residential properties would pay 58% of all property taxes in 2026 if the business property tax were removed. This is an increase from 32% in 2021. Commercial and agricultural properties would also see their share of the tax burden increase, but not as much, from 16% to 20% and 15% to 21%, respectively.
The Indiana General Assembly has not proposed to completely eliminate business property taxes, although it did propose this year to reduce business property taxes by eliminating the 30% depreciation floor for new equipment installed with no revenue replacement noted for affected local governments.
The tax value on business equipment declines over time, but under current state law, the taxes businesses pay on their machinery and equipment can never fall below 30% of the cost.
Removing this floor, while not completely eliminating the business property tax, would still result in a loss of revenue for local governments.
Local governments, as a whole, would lose about $103 million in fiscal year 2037 due to the change, while the state would lose between $332 million and $423 million a year through 2034, according to a report by the Indianapolis Star.
The elimination of the 30% depreciation floor was included, along with various other tax reductions such as a reduction in personal income tax, in this year’s HB 1002, which passed by the House with the support of local representatives Mike Karickhoff and Heath VanNatter.
But the bill was gutted in a state Senate committee.
Ultimately, the state legislature opted for a personal income tax cut from 3.23% to 2.9% over 10 years. The first tax cut comes in 2023 when it drops from 3.23% to 3.15%. Subsequent cuts have triggers and will only take effect if revenues increase by 2% and pre-1996 teachers’ pension obligations are honored. The state also repealed its 1.4% utility tax.
Making changes to the BPP was a major legislative issue for Governor Eric Holcomb during this legislative session as a way to spur investment in new equipment and attract new employers. His office said Indiana’s 30% floor is the highest in the nation, and neighboring states of Illinois and Ohio do not have such a floor.
The Indiana Manufacturer’s Association, an organization that represents more than 1,000 manufacturing companies in the state, had pushed for the elimination of the 30% depreciation floor, arguing that state and local governments seeing budget surpluses thanks to the federal stimulus can afford the proposed change. .
“Economic development and fiscal policy focused on growth and private sector investment are extremely important to Indiana manufacturers,” wrote Brian Burton, president and CEO of the Indiana Manufacturers Association, in a February 24 letter to the editor of several press agencies. “The same goes for quality government services in Indiana State and local government units. Indiana leaders are capable of doing both. They can afford it. »
Although any changes to the business property tax did not go through this time around, the attempt by the General Assembly involved local elected officials in city and county governments.
Last month, Howard County Council sent a letter signed by council chairman Jamie Bolser to local state officials expressing concern over any changes to the corporate personal property tax without a mechanism. replacement income. The county council did not speak out explicitly against eliminating the 30% depreciation floor, but rather against the state’s failure to provide income replacement for the losses such a change would cause.
“Any change to this would place a significant undue burden on our owners at a time when inflation is tethering Hoosiers to gas pumps and grocery stores,” the letter said.
“Howard County residents and government units cannot afford to make any further changes to the business property tax structure, including proposed changes to the depreciation floor.”
In 2021, business property tax revenue was $34.7 million, or about one-third of all total revenue collected in Howard County, according to the county auditor’s office.
The loss of business property tax would be heavily felt by the town of Kokomo, where the vast majority of business equipment is located.
According to City Comptroller Wes Reed, the city collected $41 million in property taxes in 2021. About 44% of that amount, or just over $18 million, came from business property taxes.
“Given that this legislation could have such a significant impact on our budget, we are obviously concerned about the ripple effects as we all continue to grapple with the continuing effects of inflation; any drop in revenue could cause very real problems,” Reed said in an email to the Tribune.
For now, local officials can breathe a sigh of relief, but some expect the issue to come up again next year, especially since it was a priority item on the agenda. Governor’s Day and State Legislature.
“If they (the state legislature) are taking the money, they need to have a plan to replace it,” said Martha Lake, county councilor and former county auditor.