A tax on business equipment that makes up about 8 percent of the money needed to pay for government workers, new equipment and utilities is staying for now.
The state will allow counties, cities and towns to eliminate the tax businesses pay on equipment or give longer tax breaks to companies; but local officials don’t intend to use either method often, if at all.
Gov. Mike Pence asked state lawmakers to eliminate the business personal property tax, which is paid on equipment such as machinery. Getting rid of the tax would have cost the state and local governments about $1 billion each year, so lawmakers scaled back the idea to allow counties, cities and towns to make the decision on whether to slash it.
The proposal approved by lawmakers gives local governments two additional options. Counties, cities and towns can eliminate the personal property tax countywide or can offer tax breaks of up to 20 years on what businesses pay for equipment, instead of the current limit of 10 years.
Any company with less than $20,000 of property no longer would have to pay the equipment tax starting in 2017, shifting about half of that cost to other taxpayers. Corporations and financial institutions also will benefit from the state cutting the corporate income tax from 6.5 percent to 4.9 percent by 2022, which will cost Indiana approximately $18 million per year and could affect funding for schools or roads because the state will collect less taxes overall.
For now, local officials aren’t interested in eliminating the tax on equipment or offering longer incentives because they don’t want to lose taxes they need to pay employees and bills. Businesses in the county pay about $10 million in equipment taxes, so eliminating the tax would immediately take that money away from schools, libraries and fire districts, and the state didn’t include any method to replace those taxes with funds from a different source.
The longer tax breaks for companies are a possibility but would have to be for a large project, mayors said. City officials would want the investment to be several million dollars and have some sort of guarantee that the company is going to be in business for decades, Greenwood Mayor Mark Myers said. That company also would have to be promising to create many new jobs and pay high wages, he said.
The changes could make attracting new businesses to Johnson County even more difficult because other counties might have no business equipment tax or a different city might be willing to give a 20-year tax break.
Franklin Mayor Joe McGuinness said, “If a company is looking at Franklin and South Bend, I know they’re probably going to offer a 10-year abatement, and so are we. When you broaden that to 20 years, now we’re back to wondering.”
Myers is concerned that Indianapolis could begin offering those longer tax breaks because the city gets more revenue and could more easily absorb the taxes lost each year due to the abatement.
“They can go on the other side of the street,” Myers said. “We’re competing with Indianapolis, and they have deeper pockets and can go further out. And it almost gives them an unfair advantage.”
Greenwood and Franklin could begin offering the longer tax breaks to companies when they purchase new equipment, but neither plans to regularly offer anything longer than the 10 years currently allowed. Franklin often doesn’t even grant 10-year tax breaks for equipment because machinery has a shorter lifespan than a new building, McGuinness said.
“That equipment can be moved out tomorrow or obsolete and phased out in one year. The building, that’s going to be there a much longer time,” McGuinness said.
Johnson County also isn’t likely to eliminate the equipment tax altogether right now, which also could make competing with other communities more difficult, officials said.
For example, Hamilton County gets only 4.5 percent of its overall tax revenue from equipment, compared with nearly 8 percent for Johnson County, so officials there might be more likely to consider eliminating the tax. If Hamilton County did cut the tax, it could promote lower taxes to new companies looking to locate in central Indiana.
Johnson County Council member Jim Eckart said the council would need to study eliminating the tax before making any decision. But his initial reaction was that governments wouldn’t be able to afford losing such a large amount.
“It seems unlikely that the county, and all affected municipalities, could absorb a $10 million loss of revenue without impacting the services that are provided,” he said.