Indiana legislators this year created a “blue-ribbon commission” to study the state’s taxes on businesses this summer.
We hope the commission will listen to Larry DeBoer, a Purdue professor who might understand Indiana’s tax structure better than anyone.
In a column for the latest issue of Greater Fort Wayne Business Weekly, DeBoer points out that we can’t study business taxes without looking at the whole tax system.
If Indiana cuts taxes for business, someone else usually winds up paying them instead, DeBoer notes.
After looking at the options, Indiana leaders might decide it’s worth whatever it costs to make the state more attractive to business. In his analysis, DeBoer takes a hard look at the price of that strategy.
Legislators showed they have some sense of the complexity this winter, when they backed away from an outright elimination of the tax on business equipment. Instead, they gave each county three options for ending or reducing that tax.
Counties that are manufacturing centers probably can’t afford to eliminate the business equipment tax. It brings in too big a share of their budgets, and the loss to local government and schools could be crippling. Most counties in northeast Indiana would fall in that category.
What those counties fear is that their neighbors will cut the tax, pressuring them to do the same to compete for new industry.
DeBoer noted that statewide, businesses pay about $1 billion in property taxes on equipment. Eliminating that would shift one-third of $1 billion to a tax burden on other property taxpayers. The other two-thirds of the money would be lost to local schools and governments.
As a state average, ending the business tax would add 7 percent to the bills of others who pay property taxes. But in counties with lots of factories, the shift to other taxpayers could be 20 percent or more, DeBoer said.