Reducing the state’s dependence on the taxation of business machinery and equipment came into the spotlight recently with legislative leaders and the Indiana Chamber of Commerce announcing it was a top priority for 2014.
Since then, some attention has focused on the approximately $1 billion in revenue that local governments would have to do without if a full elimination were to take place.
But absolutely no one has called for that money to be taken away without some type of replacement revenue stream. What’s more, there is no way that all personal property tax can be eliminated overnight – that is not going to be the proposal. So those fears can be calmed.
With that aspect clarified, let’s look at why the matter is being brought up in the first place.
Indiana is the only state in the Midwest, other than Kentucky, that taxes machinery and equipment (personal property) – and Kentucky taxes it at a much lower rate. In fact, only a hand full of states tax personal property at a higher rate than Indiana.
In fact, the effective property tax rate for our business commercial and industrial property taxpayers is near the top in every category (big, small, urban or rural), and this is largely due to the state’s tax on business equipment. Numerous studies clearly support that fact. Tax policy experts, economists and academics all acknowledge that personal property tax deters investment in new capital.
And new investment in the capital – machines and equipment – that is necessary for a business to expand and thrive should not be discouraged, but encouraged. New investments mean the business is growing. This means workers are being added and the company is spending money on the services and products of other local businesses. In other words, the businesses that local communities depend on to employ their residents are more motivated to invest in the community.
All true economic growth comes from a strong business community. Without it, the government will have nobody to serve. Nobody wants to deny local governments the means to operate effectively. Everybody wants them to provide the services and infrastructure necessary to a make their community an enjoyable place to live. So fair revenue replacements can and will be found to protect the integrity of needed local government operations.
While nobody likes taxes, some taxes are truly more detrimental than others. That’s why our legislators and other elected officials have identified the need to wean us off the taxation of capital investment; they are looking to further improve our tax climate and make Indiana as competitive as it can possibly be.
This is not a goal that should be attacked or obstructed. It is one that should be embraced by all who want their communities and state to reach their greatest potential. So, let’s keep these things in mind as the debate progresses on this initiative.
Bill Waltz is the vice president of taxation and public policy for the Indiana Chamber of Commerce.