While the push for broad tax cuts has been coming primarily from Indiana House Republicans so far this legislative session, some Senate Republicans are offering more modest alternatives exclusively aimed at reducing the personal property tax businesses pay on equipment.
But it still isn’t clear if Senate Republicans as a whole are keen on cutting any taxes this year. Sen. Travis Holdman, chairman of the powerful Senate Tax and Fiscal Policy Committee, told IBJ that the property tax cut proposals need more work and will be considered for a second time by his committee in a couple of weeks.
Senate Bill 150, authored by Sen. Aaron Freeman, R-Indianapolis, would increase the business personal property tax exemption from $80,000 to $250,000. It is meant to offer relief to small business taxpayers with less than $250,000 in taxable equipment.
The measure would mark the third increase in the threshold since 2019. Lawmakers doubled the threshold last year from $40,000 to $80,000, after also doubling it in 2019 from $20,000 to $40,000.
Another proposal, Senate Bill 378, authored by Sen. Brian Buchanan, R-Lebanon, goes a few steps further. It would increase the exemption the same way as SB 150 and phase the 30% depreciation floor down to 27.5% in 2023 and 25% in 2024.
Current law 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.
SB 378 would also create a one-year “tax holiday” where all new equipment purchased in 2023 would be exempt from the 30% floor. The legislation then would allow for individual counties to create their own business personal property tax holidays or exemptions.
Both bills were considered Tuesday by the Senate Tax and Fiscal Policy Committee on Tuesday, and no vote was taken following some mixed testimony.
These two bills could be the Senate’s alternative to House Republicans’ proposed package to cut $1 billion in taxes by 2025, which includes cutting the entire 30% floor on the equipment tax and reducing the individual income tax, among other things.
GOP Gov. Eric Holcomb also has made cutting the 30% floor on equipment one of his top priorities this year, and his fellow Republicans hold supermajorities in the House and the Senate.
Freeman said on Tuesday his bill upping the exemption threshold was directed at helping smaller businesses by lessening the tax burden on them. He added he supported Buchanan’s bill to reduce the depreciation floor as well.
Increasing the threshold alone would result in approximately 48,000 additional business property tax returns being exempt from the tax starting in 2024, according to the fiscal analysis by Legislative Services Agency. It would save businesses an estimated $39 million starting that year.
Reducing the 30% floor to 25% would result in an estimated $7 billion gross assessed value reduction for businesses.
The Indiana Chamber of Commerce and the Indiana Manufacturers Association are in favor of both bills. Both organizations are also in favor of the House proposed business personal property tax cuts.
“I don’t think anybody thinks the business personal property tax is good for investment. It’s direct tax on the business equipment,” said Andrew Berger, senior vice president of the Indiana Manufacturers Association
The rest of the handful of organizations who testified on Tuesday, including the Association of Indiana Counties and the Indy Chamber, were less supportive of both bills because of the impact it would have on local governments and the tax burden shift to other taxpayers.
SB 150 overall would have $17 million impact on local communities, if the exemption is increased. SB 378 would have a local impact of more than $140 million, according to a fiscal analysis. The tax burden would be shifted to other property taxpayers, including homeowners.
Adam Burtner, director of government affairs at the Indy Chamber, said the chamber was supportive of lowering the business personal property tax burden, but not at the expense of local governments without a revenue replacement plan.
“Our top priority remains supporting local government’s ability to provide basic services and flexibility in the best transformational projects. So, finding that revenue replacement … is essential for us,” Burtner said.
The Indy Chamber does support the House Republican tax-cut plan contained in House Bill 1002, the House tax cuts plan, when it passed out of the House Ways and Means Committee on Wednesday.
Some senators in both parties on the Senate tax committee also seemed to be skeptical of both bills’ local impact.
Sen. Greg Walker, R-Columbus, brought up a concern that different counties could be affected in different ways by the shift or loss in tax revenue.
“I may have conditions in one county that make the bill attractive from the standpoint of future economic opportunities and growth. But in another county I represent, may make a very difficult transition to the point where ultimately there is a net benefit, but there may be some difficult short term pain to get there,” Walker said.