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January 15, 2014

Proponents of erasing business personal property tax up against dry alternative revenue streams.

Proponents of erasing business personal property tax up against dry alternative revenue streams.

(Continued)

Agricultural economist weighs in Businesses paid about $1.1 billion in personal property tax, mainly on equipment, to local governments across Indiana last year. If the tax was eliminated, state fiscal analysts estimate local governments would lose close to half of that revenue, due to the property tax caps in the state's constitution. Here's why: "Indiana limits the revenue that local governments raise from the property tax. There's a maximum property tax levy restricting most local government operating funds. The maximum levy increases from the previous year's maximum based on a state formula. Most of the levy does not depend on changes in assessed value. "If we eliminate personal property from assessed value, 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 this tax burden to everyone else. "Or taxes would shift, except for the property-tax caps. Indiana's constitutional tax caps limit homeowner tax bills to 1 percent of assessed value before deductions. The caps limit rental housing, second homes and farmland taxes to 2 percent of assessed value and business land and building taxes to 3 percent. "Personal property elimination would raise tax rates and tax bills. In many cases, these higher tax bills would exceed taxpayer caps. Taxes paid by personal property owners would shift to other taxpayers, but the part above the caps would be unpaid. Local governments would lose that revenue." Source: Purdue University Professor Larry DeBoer

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