By Annie Goeller, Daily Journal of Johnson County staff writer
A state lobbying organization is pushing lawmakers to consider an option that could raise income taxes for residents of cities and towns.
And some officials said the tax increase may be something they would consider to help boost falling tax revenue.
The Indiana Association of Cities and Towns wants state lawmakers to approve legislation that would give municipalities, not just counties, the authority to adopt a local income tax.
Currently, all Johnson County residents pay a 1 percent local income tax, on top of state and federal income taxes. For that amount to increase, the county council would need to approve a tax hike.
Council members so far have been unwilling to approve an increase but have discussed the possibility as an option to pay for more staff and higher utility bills at an expanded jail.
Some local leaders said they aren't sure they would be willing to approve a tax hike, either, but many said they believe cities and towns should have the option if they need to.
And that need might grow as governments lose money in property taxes when bills are limited to 1, 2 and 3 percent of market values starting next year, officials said.
The association, which represents 470 cities and towns, also wants to give all cities and towns the ability to levy a food and beverage tax or an innkeepers tax of up to 1 percent. The initiatives would give cities and towns new income options to offset revenue losses from new statewide caps on property tax bills.
Some local officials said they would be more willing to consider those options than an increased income tax.
Residents would have more choice in whether they'd pay higher taxes if they were charged on restaurant meals and hotel stays. With an income tax, people don't have a choice on how much they pay, Greenwood City Council member Brent Corey said.
But even though he opposes an income tax hike, he believes cities and towns should have the option, he said.
Other local officials agreed, saying that communities are in charge of managing their services and tax collections and leaders know their financial situation and should be able to approve a tax hike if it is needed.
"I'm not in favor of raising any taxes right now, but I'd like to have that opportunity because cities should be able to run themselves," Franklin City Council member Joe Abban said.
Most members of both city councils said they would not be in favor of raising any tax now but that at some point communities may need to use that option.
"We would need to see if the tax caps were hitting us too hard," Greenwood City Council member Bruce Armstrong said.
The property tax caps, which go into full effect next year, were a major factor officials said they would need to consider with an income tax increase. Those caps will limit property tax bills based on market value, with homeowners paying no more than 1 percent of their home's value, rental property and farmland owners at 2 percent and businesses at 3 percent.
State estimates have shown local governments will lose millions in tax revenue to the caps next year and that the amount could increase in future years.
Franklin City Council member William "Ted" Murphy said he might support a local income tax increase if it were needed to make up for the money lost to the caps.
"If we needed to use it because we can't pay for expenses, but not for luxury," Murphy said.
An increased income tax could be an alternative to raising property taxes, such as by borrowing money, as towns look for ways to replace lost property tax revenue, Whiteland Town Manager Dennis Capozzi said.
He didn't know if the town council would be in favor of a tax hike but said officials have been discussing options to help bring in more money as the caps go into effect.
Other officials said they would not be in favor of an income tax hike but would rather make cuts.
New Whiteland Town Council President John Perrin said the town has trimmed 10 percent off its 2010 budget and that likely will mean some services could be slightly scaled back.
But town officials believe now is not the time to raise taxes, he said.
"Honestly, I think we're hitting people hard enough with property taxes and such. I don't know that adding another tax onto people is the way to get things done," he said.
The Associated Press contributed to this report.