Changes in the state's property tax laws proposed by Gov. Mitch Daniels Tuesday could seriously hurt Indiana businesses, according to opponents of the plan, but others say it would substantially help the state's business climate.
Daniels' plan to increase the sales tax would put businesses at a disadvantage compared to competitors in other states and the property tax proposal, if approved, would lower taxes from homeowners and shift it to businesses, said Mark Cahoon, spokesman for the Indiana Manufacturers Association.
"We have grave concerns about the proposal." he said. "This is definitely a huge cost to Indiana business. We just don't know yet how much. It's very complicated and we're studying its effects."
The association will poll members and develop a position on the plan, which caps property taxes for homes at 1 percent. The rate calls for 2 percent for other residential properties and 3 percent for businesses, Cahoon said.
"But we have an existing policy in opposition to classified property designations, which is what this is," he said. "The 1 percent cap will force local income tax increases paid by non-property owners to fund relief for property owners. Our biggest concern is that it treats business properties differently."
John Livengood, spokesman for the Restaurant and Hospitality Association of Indiana, believes business should welcome Daniels' proposal.
"My take is that it's a good proposal, " he said. "We ought to look seriously at modernizing the assessment system and holding down government costs."
However, the hospitality industry is opposed to the increase in the sales tax rate, especially in Indianapolis, where the current sales tax, coupled with the area's innkeeper tax, is 15 percent,
"At 16 cents, there will be some concern," Livengood said. "We want to participate, but we don't want to be noncompetitive."
Don Coffin, associate professor of economics at Indiana University Northwest in Gary, said use of different tax caps, depending on the type of property in Daniels' plan, is "problematic."
"We're in a situation that would shift the property tax burden more toward business and away from owner-occupied property," Coffin said. "There is an issue of what the effect of that might be in terms of economic development, since it raises the tax on business."
The assessment issue also raises concerns because in order to have fair property taxes, like properties must be assessed in the same manner using the same standard, he said.
Morton Marcus, Indiana economist, author and former professor at the Kelley School of Business at Indiana University, contends the effects of the governor's proposal, whether on businesses or on residential properties, are almost impossible to determine.
But the plan does send the message that home ownership is the most important economic activity in the state "and business comes in the third tier," Marcus said.
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