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Debate Continues on Business Equipment Tax Cut

As the State House and Senate start to consider each other‘s version of a cut in the business personal property tax, a new report provides details about how much local governments would lose if the tax were eliminated.

The report from the Indiana Fiscal Policy Institute says the prior elimination of other taxes on personal property and the property tax caps written in the state Constitution in 2008 would make an equipment tax difficult on cities and counties. "State and local governments have fewer options when addressing the lost revenue that would come from the elimination or reduction of the business personal property tax," said John Ketzenberger, the institute‘s president.

The tax is administered by local governments and brings in $1 billion a year in revenue. Right now, there is no plan in either the House or Senate bill to replace the revenue, and Ketzenberger says that means more than $600 million of it would disappear immediately. "As the property taxes increase and more people hit the property tax caps, that means there would be about $400 million in property taxes that would not be collected," Ketzenberger said.

The House‘s bill would allow local governments to exempt new business property from the tax without eliminating the tax entirely. The bill that passed the Senate would end the tax only for businesses with less than $25,000 worth of equipment - supporters say that‘s about 70-percent of the state‘s businesses. The Senate bill would also reduce the corporate income tax rate from 6.5-percent to 4.9-percent over the next five years. Between the two, Ketzenberger likes the Senate‘s approach more. "It would have less of an effect on local government revenue, which the Senate believes could be made up by other means, mostly by growth in the economy."

Neither bill goes as far as Governor Pence would like. He has spoken at length about the need to end the tax because Illinois and Ohio don‘t have one, and Michigan is phasing theirs out. Pence says he worries about losing businesses to those states, but Ketzenberger says his institute‘s analysis doesn‘t back up that argument. "The greater movement is within a state, county to county in Indiana, but (the tax) is not a major factor (in the movement of businesses) in any case."

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