Goshen Mayor Allan Kauffman spent a significant amount of time last year becoming an expert on how Indiana tax dollars snake through the system to their final destination. In the case of Local Option Income Tax, otherwise known as LOIT, Kauffman is convinced a significant amount of that money never does get to where it’s intended — local counties and municipalities.
Kauffman came to this determination after participating in a 10-member Local Tax Collection and Distribution Working Group. The group was formed in 2012 by former Gov. Mitch Daniels following the discovery of the programming errors that led to more than $526 million in misplaced tax revenue. Of that, $206 million was owed to Indiana cities and counties.
As Kauffman explained in an article published in last Sunday’s edition of The Goshen News, Local Option Income Tax is withheld from employee pay checks by employers and sent to the Indiana Department of Revenue, where it’s eventually lumped into the state’s general fund. After that, Kauffman said, the state estimates what is owed back to counties based on individual tax returns, not on what employers actually send it.
“My question,” Kauffman said, “is what if you don’t file a (state tax) return.” That’s a good point. His concern is that the tax money stays in the state’s general fund to be used at the state’s discretion and not for needs at the local government level where it was intended.
It’s easy to sympathize with the point Kauffman is making and it’s easy to see how he came up with this deduction. Tax money collected at the local level should be used at the local level — every cent of it. There is reasonable doubt in our eyes that this is actually happening.
Several bills have been introduced in the state Legislature this session addressing the concern. Rep. Wes Culver’s bill asking for an employer-based tracking system for LOIT was killed before getting a committee hearing. An independent audit of the Indiana Department of Revenue concludes that outdated technology and a “weak control environment” have much to do with the department’s inadequacies. Even department officials themselves acknowledge problems and have requested an additional $10 million in annual funding to hire more staff and upgrade technology. However, state Sen. Brandt Hershman, the Republican chairman of the Senate Tax and Fiscal Policy Committee, estimates a new system would cost closer to $50 million.
Well, with such a significant state surplus — some of it presumably at the expense of local governments because of a flawed system — now seems like the perfect time for the state to upgrade its calculators and balance sheets so that each county and municipality in the state is paid precisely what it is owed. That is not an unreasonable request. That’s just being fair. In fact, it’s just being lawful.