Senators listen to debate at the Indiana Statehouse on Feb. 27, 2026. (IBJ photo/Marek Mazurek)
Before the gavel fell on the 2026 legislative session, lawmakers made final decisions on a number of hot-button topics including rental property restrictions in Hamilton County, data center payments to local governments and a variety of local tax structures.
The General Assembly ultimately voted to phase out the ordinances in Carmel and Fishers and and made a series of changes to local income tax structures. On data centers, legislators voted to give local governments a small percentage of data centers’ electric bills as a sweetener while requiring the Indiana Finance Authority to conduct a study on what effect data centers have on utility bills and land usage.
Legislators also carved out $50 million worth of Indiana Economic Development Corp., or IEDC, tax credits for regional and local projects after language shifted between different bills during the final day of session Friday.
The bills addressing those items now head to Gov. Mike Braun’s desk.
Data centers
A growing number of counties in Indiana have passed moratoriums on development of data centers, as concerns persist over their water usage, effect on utility rates and the widespread use of nondisclosure agreements in the negotiation phase.
Legislators filed close to a dozen bills concerning data centers this session but only passed a few sections of code on such projects, which house servers to store data.
In a provision described as an “olive branch” to local governments, House Bill 1210 requires data centers to pay back a portion of the 7% sales tax abatements they receive from the IEDC on their electric bills. The bill was authored by Rep. Craig Snow, R-Warsaw.
Of the money saved on the 7% exemption, HB 1210 states that 1% must go to the local government in which the project is located. How much money would be funneled to local units would depend on the size of the data center project, but documents filed by Indiana Michigan Power give a rough idea of the dollars at stake.
In a 2024 filing to the Indiana Utility Regulatory Commission, I&M estimated that a data center with 1,000 megawatts of capacity would see an energy bill of nearly $500 million a year under the utility’s current rates. Under the HB 1210 scenario, around $350,000 would be paid annually to local governments.
Whether that amount is enough to get more local governments on board with data centers isn’t clear. David Bottorff, executive director of the Association of Indiana Counties, said county governments always appreciate the extra dollars but he hasn’t had time to ask his members how much the payments will move the needle.
“We’re happy to know that there is some sales equivalency being charged now for those permitted sites,” Bottorff said.
Indianapolis City-County Council members have told IBJ a few hundred thousand dollars would not have been enough to get them to change their minds on a hyperscale data center proposal from Google in Franklin Township that ultimately was withdrawn.
At one point, HB 1210 called for 1% of the total electric bill cost as well as 1% of all data center equipment purchases, which would have yielded tens of millions a year for local units. That language was pared down in the session’s final days.
In a separate bill, lawmakers passed language calling for the Indiana Finance Authority to study the impact of data centers on land, water and electrical usage and determine whether the current level of tax incentives for the projects benefits the state or not.
IEDC
Following Gov. Braun’s agenda of giving the IEDC a more regional focus, House lawmakers approved language to appropriate $50 million worth of tax credits — of the IEDC’s total $300 million — to projects chosen by local officials.
The carveouts allow credits to go to local development authorities, or RDAs, and certain nonprofits focused on economic development. The RDAs would suggest projects to the IEDC, while the agency would still have final say over which projects get credits.
The IEDC credits could also go to the newly created Small Town Opportunity Initiative.
Projects eligible for funding under the small-town initiative include efforts to preserve, rehabilitate or redevelop buildings in downtowns of cities or towns with fewer than 30,000 people. The funding would be available only to projects with budgets of more than $15 million.
The small-town initiative was a measure carried by Rep. Danny Lopez, R-Carmel, who told IBJ that redeveloping old buildings in the cores of small towns will help pave the way for more investments.
Those provisions started in Senate Bill 281, but were moved twice before ending up in House Bill 1406.
Language pertaining to Indiana’s new designation as a federal drone-testing site was taken out of the legislation.
Local incomes taxes
During the past year, communities across the state have raised the alarm over income tax changes that were a part of the Legislature’s major property tax overhaul in 2025.
The changes, set to take place in 2028, would have seen more than half of towns in Indiana lose income tax revenue, according to municipal groups like Accelerate Indiana Municipalities.
On Friday, lawmakers delayed those income tax changes by a year so they will take effect in 2029.
In the meantime, legislators are asking local and county governments to work together and suggest how to split up the new 2.9% maximum income tax rate. A portion of HB 1210 requires every county to form a task force over the summer to negotiate a framework for how local income taxes should be divvied up. Those conversations will be reported to the state and will serve as the basis for future legislation.
Accelerate Indiana Municipalities CEO Matt Greller said he appreciates the new version of HB 1210.
“We’re happy to see that language in there; we see that as a positive,” Greller said. “Lots of those conversations have already started around the state. This formalizes that process.”
Greller believes most counties would be able to get by on 0.7% of the 2.9% total, leaving 1.9% for cities and towns with the remainder going to any local fire territories. Greller is concerned, however, that lawmakers may not have fixed language requiring local councils to set an income tax rate each year.
He said that setup creates uncertainty in the bond market and will make it harder for municipalities to borrow money for development projects.
Rental caps
The massive HB 1210 also left intact language that will prevent local governments from restricting the number of rental properties in their jurisdiction. That prohibition comes after Fishers and Carmel last year moved to cap the number of single-family homes in a subdivision that can be put up for rent at 10%.
Officials in Carmel and Fishers say the rental caps prevent out-of-state investors from pricing homebuyers out of the market. The bill allows the rental ordinances to continue until Jan. 1, 2028. As a consolation to the Hamilton County cities, only property owners who list a property as their homestead would be allowed to vote in homeowners association elections for leadership positions and HOA-specific rental property caps.
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