Indiana House Republicans unveiled a tax plan to eliminate or lower four separate taxes that would result in $1 billion in tax cuts by 2025.
On the chopping block are the sales tax, business personal property tax, individual income tax and the utility receipts tax. House Bill 1002 is being authored by House Ways and Means Chairman and lead budget writer Rep. Tim Brown, R-Crawfordsville.
The legislation proposes the four separate taxes be modified as follows:
Reduce the individual income tax rate from 3.23% to 3% by 2026. The cut would be phased in over time and is expected to cost the state $87 million in revenue in 2023 and $366 million by 2025, according to the fiscal impact report on the bill by the Legislative Services Agency.
Exempt the minimum tax on business personal property after Jan. 1 for new equipment purchased by businesses, also known as the 30% depreciation floor. The law now requires businesses to pay a tax on at least 30% of the purchase price of machinery and equipment every year, even if the equipment is several years old and no longer worth 30% of its original cost. The change would shift the tax burden onto other taxpayers who pay property taxes, including homeowners, farmers and renters, according to the fiscal impact report. The impact would be $10 million by 2024, $34 million by 2025 and up to nearly $103 million by 2037.
A state income tax credit for taxes paid on existing business personal property starting in 2025, when the 30% depreciation floor is applied. The cost would be $347 million in 2025 and $392 million in 2026.
Remove the double direct test applied in production sales tax exemptions, reducing the sales tax revenue from businesses to between $86 million and $249 million a year.
Repeal the Utility Receipts and Utility Services Use taxes that consumers pay, with an estimated impact of $223 million in 2024.
House Republicans have been pushing for tax cuts in the past few months in light of Indiana raking in tax revenues that have greatly exceeded projections. Following the rosy December revenue forecast, lawmakers expect to have a $5.1 billion reserve at the end of fiscal year 2022, and $4.1 billion after 2023.
“The revenue forecast showed we have an abundance of resources. We need to be wise. We need to be prudent. But I think not to [cut taxes] now would be a mistake, too,” House Speaker Todd Huston, R-Fishers, told IBJ in December just before the session kicked off this month.
House Republican leaders have said the burgeoning surplus gave them even more cause to cut taxes, while Senate GOP leaders have still leaned to urging caution amid concerns that inflation could slow consumer spending and sales tax collections. Senate Republicans released their legislative priorities on Tuesday, with no mention of cutting taxes.
Gov. Eric Holcomb proposed the business personal property tax cut on new equipment in his 2022 agenda on Monday, saying it was a necessary move for the state to remain competitive on the business front, particularly in the equipment-heavy manufacturing sector.
He was hesitant on the idea of cutting other taxes, with his views aligning more with Senate leaders wanting to ensure the state has an accurate picture on where it stands financially following several rounds of federal pandemic assistance dollars coming in.
“That is the goal [to cut taxes] … I want to pay our bills, and we have some bills out there, and some new ones,” Holcomb said. “We’ll talk to folks and if we can be persuaded, we’re open-minded about this.”