Jury is out' on evolving business equipment tax debate

Lawmakers from the Indiana House and Senate could meet this week to decide what legislation, if any, will be sent to Gov. Mike Pence.

However, for Greg Wathen, who heads the Economic Development Coalition of Southwest Indiana, the “jury is out” on the potential impacts of reducing the tax.

Wathen said a more comprehensive strategy is needed to remove hurdles businesses face in coming to Indiana. Local governments can currently exempt businesses from paying taxes on new equipment and machinery for up to 10 years, but not a lot of companies ask about the option, Wathen said.

Wathen said more often than the business personal property tax, the coalition hears of businesses concerned about energy costs and available workforce.

“That’s part of the problem you’re having,” Wathen said. “You’re just dealing with the symptoms rather than looking at the whole patient.”

Separate plans to reduce the business personal property tax were changed last week as House and Senate committees advanced proposals sent over from the other chamber. Many of the differences between the two proposals were kept alive, along with the new idea of a “super abatement” that was inserted into both plans.

That tool would extend the ability of local governments to exempt the tax for either 20 years under the House’s plan or 25 years under the Senate’s plan, if certain conditions are met.

Usually abatements are designed to offer a full exemption to help ease tax burdens in the early stages of a project, but then the percentage slowly decreases to send revenue back to the tax base to help pay for infrastructure and public services required by the business.

While a long-term abatement is another tool for local governments, it will rarely be used, said Matt Greller, Indiana Association of Cities and Towns executive director and CEO.

“It would be used relatively infrequently,” Greller said. “You know there’s not a lot of equipment out there that lasts 25 years to be honest. Most manufacturing is replaced before 25 years is up. In those certain situations where it would be useful I think it’s a nice addition to have. It is certainly more sensitive than a blanket exemption for everything in the county.”

An independent report by the Indiana Fiscal Policy Institute also noted the 10-year abatement likely will be used sparingly in the next few years but that “competition among counties and pressure from applicants may well courage a wider use.” About 10 percent of the tax has already been abated by local governments across the state, according to the report.

Along with the “super abatement,” lawmakers will face decisions on whether about 50 percent of businesses, or those acquiring less than $20,000 in equipment in a year, should be exempt from the tax or to give counties a choice on exempting the tax from new investments.

The Senate committee also placed in an option to the House bill for counties to eliminate the 30 percent floor. The floor, contained in current Indiana law, means the taxes businesses pay on their machinery and equipment can never fall below 30 percent of their cost and most often impacts large machinery with longer-term life spans.

Republican House Speaker Brian Bosma said he’s confident lawmakers will find an appropriate spot for the reduction in the tax and called the proposed “super abatement” an expansion of a good tool that will likely land in the final legislation.

“This is all about job creation and economic development,” Bosma said, “and as we discussed different options between the House and Senate proposals, several of us had the concept that this might be an additional tool in the tool belt of local economic development officials.”