Push to end Indiana's business tax not over for legislators

But the contentious issue is far from over.

On Monday, a “blue ribbon” commission on state tax policy heard that Indiana’s business tax climate is better than most states, but also that the competition is catching up.

Republican state Sen. Luke Kenley, a commission member and powerful chairman of the Senate Appropriations Committee, said there was no “crisis” to warrant the sweeping elimination of a tax that businesses pay on equipment – a proposal supported by Gov. Mike Pence.

“With our good business tax climate right now, I don’t see a sense of urgency in enacting something on a rush basis,” said Noblesville's Kenley.

His remarks came after the commission heard from the nonpartisan Council on State Taxation, which found that Indiana’s tax burden on businesses is the lowest of any of its neighboring states, and among the 10 lowest in the country.

Kenley instead wants to see how a more modest measure passed by the Legislature earlier this year works. That measure, which kicks in July 2015, gives local communities the option of doing away with the business personal property tax on small businesses and new purchases.

To date, no local governments have expressed interest in rolling back the tax, which generates about $1 billion a year for local government, helping pay for police, teachers, libraries and more.

Still, Kenley warned the tax may eventually disappear.

He noted that neighboring states are doing away with it to lure new investment from manufacturers. The business personal property tax, calculated on the value of a wide range of equipment, hits manufacturers particularly hard.

“In the long run, we will have to face this issue somehow, because we’re a heavy manufacturing state and the type of equipment they put in is very expensive,” Kenley said.

Both the Indiana Chamber of Commerce and the Indiana Manufacturers Association support eliminating the tax.

They point to data that shows how Indiana’s economy has become increasingly dependent on manufacturing: It’s the largest employment sector in the state, providing almost 500,000 jobs.

The biggest sticking point remains replacement revenue.

Following months of debate on the issue, neither Pence nor legislative leaders have put forth a proposal on how Hoosier communities could make up the dollars lost if the tax were to be repealed.

Ohio and Michigan both have recently repealed their business personal property tax, but those states found guaranteed replacement revenues.

The issue is critical for local communities: About 48 percent of local government revenues come from taxes that businesses pay – a higher percentage than in neighboring states of Ohio, Michigan, Kentucky and Illinois.

Terre Haute Mayor Duke Bennett, who represents the Indiana Association of Cities and Towns on the tax policy commission, said local governments are still grappling with the property tax reforms of 2008.

Those reforms capped the property taxes that could be levied on homes, farms and businesses, resulting in the reduction of local tax revenue by about $600 million a year.

Bennett said local officials understand that tax breaks for business may boost economic development, but they fear losing a big piece of revenue stream that pays for basic services.