GOSHEN — Eliminating the state’s business personal property tax is Gov. Mike Pence’s priority for the upcoming General Assembly session. But it’s an idea that is getting bipartisan rejection at the local level.
“From my perspective, this looks like a political move that will not create more jobs. I see zero benefit to this and think it is a bad idea,” said Republican Elkhart County Commissioner Mike Yoder.
Yoder, and other local officials, are worried that the $1 billion in statewide tax revenue from business personal property will not be replaced by the General Assembly. That would leave local governments in Elkhart County $7.5 million in the hole, as that is how much revenue is generated in the county. And, Yoder said the cut would come on top of the reduction in property tax revenue due to tax caps.
Another aspect of the elimination of the business personal property tax would be an across-the-board hike in property taxes in the county, according to Yoder. And ironically, Yoder said businesses not already at their tax cap limit would end up paying more on their property taxes.
“They will save money on the personal property tax, but they are going to pay more on their real estate tax,” Yoder said.
The business personal property tax is assessed on the value of equipment a business owns.
According to Purdue economist Larry DeBoer, who wrote a column about the issue this week, if the personal property tax is eliminated from the assessed value in a county, “total assessed value would be smaller. We calculate property tax rates by dividing the levy by assessed value. With the levy limited and assessed value smaller, most tax rates would go up. Personal property owners would pay less, but higher tax rates would shift the tax burden to everyone else.”
Property tax caps put a limit on tax payments, but according to Yoder, some businesses, homeowners and farmland owners have not reached their cap limit and would experience an increase in property taxes.
“My sense is the agriculture community in this county will be hit larger than most because that farmland probably has not been capped out yet,” Yoder said. “From a community standpoint, businesses will not be contributing as much to the mixture of taxes.”
Why eliminate the tax?
Pence and the Indiana Chamber of Commerce contend the elimination of the tax will help boost the state’s standing as a business-friendly state and will help lure businesses. Yoder thinks there is no factual basis for the claims.
“I can’t find any correlation to our tax structure and new jobs,” Yoder said.
He said he researched the issue and found Indiana is not in the top 10 states where people are moving to to find jobs, despite the state’s low corporate tax rate, being a right-to-work state and being generally business friendly.
“Local Chambers know we need strong local communities with well-trained work forces. It has nothing to do with tax structure,” Yoder said.
The Goshen Chamber of Commerce Policy Committee met Thursday to discuss Pence’s proposal and will make a recommendation in the near future to the Chamber’s board on support or opposition to the proposal, according to Chamber President David Daugherty. He believes there is a possibility the Chamber will oppose the proposal.
“It goes back to property tax caps having put a severe strain on local government,” Daugherty said. “It would be extremely damaging to our local communities.”
The issue is the loss of revenue for services in municipalities, for schools, for libraries, etc., according to Daugherty.
“I would say there is a real concern about tax caps and then taking away almost an additional billion dollars in revenue without local government having some way to replace it,” he said.
Local governments, school boards and other governmental units provide services that taxpayers expect and rely on, Daugherty indicated, and those all add to “quality of place” that Chambers and local communities are striving to develop.
“How do you continue to provide roads, schools, police and fire (services) and make it a place where you want to place your business?” Daugherty asked. “The ability to reduce costs for businesses so they can hire more people and be more successful is part of our core belief. But being able to provide the police, fire and services is a concern as well. It is like two sides of a coin.”
Daugherty said that people who look for sites for business locations do consider tax rates, but that factor is not the top priority.
“It is not factual to think that business property taxes alone is an issue that will attract jobs,” Daugherty said. “They will look at if you have good schools, good roads, adequate police and fire protection.”
Goshen Mayor Allan Kauffman, a Democrat, has to add up revenues every year and propose a budget to the City Council to provide such services.
“If they are going to be talking about eliminating this tax, they need to do a better job of planning for the consequences of the elimination of this tax,” Kauffman said.
One way to make up the loss would be allowing local governments to adopt a local option income tax.
“Will they give it to just counties, or also cities and towns,” Kauffman asked. “There is uneasiness across Indiana about this.”
Kauffman said because of the uneven distribution of manufacturing in the state, there would be a wide range of income tax rates in each county to make up the lost revenue, thus setting up a scenario where Hoosiers might begin selecting where to live based on county tax rates.
Elkhart County already has a 1.5 percent local option income tax and the County Council is considering raising the rate another 1.25 percent, 1 percent of which would replace revenue lost by tax caps and another .25 percent for public safety needs, according to Yoder.
Yoder said having the option to raise yet more local income taxes to replace the business personal property tax doesn’t mean it’s a good policy.
“With our mix in wages and incomes (in Elkhart County)... at some point we are taxing our community too much on the income side,” he said.
Kauffman said the General Assembly may be going too far in pursuing a better business climate. He said state officials claim Indiana has the fifth-best business climate in the nation.
“Do we have to be the very, very best?” Kauffman asked. “And how do we eliminate or reduce every tax we can and still provide services?”