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Mayors: End of business equipment tax means lost revenue

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The county, cities and towns could lose 5 percent or more of their annual tax income if the state decides to get rid of a tax that businesses pay on equipment.

Gov. Mike Pence wants Indiana to eliminate its personal property tax, which is charged on any equipment used by a business to generate a profit, such as manufacturing machinery, combines and tractors used by farmers, or vehicles and equipment used by small businesses.

The governor said eliminating the tax would make Indiana more attractive to new businesses and allow existing companies to grow, creating new jobs.

The idea would create a tax savings for companies; but mayors Mark Myers and Joe McGuinness doubt it would spur new business growth, and it would cost Greenwood and Franklin millions in taxes each year.

The governor and state legislators have discussed creating a different tax to replace the money lost. Legislators who represent Johnson County worry how much money local governments would lose and how a replacement tax would work, especially if it shifts the costs to homeowners or workers.

One local manufacturer said the yearly savings might not necessarily be reinvested in their Franklin plant, but another said the change could sway decisions about where to bring new production lines.

Top 5 payers

Here are the top five personal property taxpayers in the county in 2013:

1. Amcor Rigid Plastics, Franklin

Manufactures plastic packaging

Employees: 170 as of March 2013

2013 taxes: $600,149

2. NSK Corp., Franklin

Manufactures ball bearings for automakers

Employees: 412 as of June 2013

2013 taxes: $596,877

3. KYB Americas Corp., Franklin

Manufacturers shock absorbers for automakers

Employees: 715 as of October 2013

2013 taxes: $531,867

4. Indiana-American Water Co. Inc., Greenwood

Water utility providing service in northern Johnson County

2013 taxes: $428,792

5. Rexam Consumer Plastics Inc., Franklin

Manufactures plastic items for uses in health care

Employees: 188 as of February 2013

2013 taxes: $402,080

The personal property tax generated about $9.85 million last year in the county and more than

$9 million each of the past five years, according to county records. Businesses and farmers pay the tax based on their local tax rate, up to a cap of 3 percent of their total value.

Personal property taxes are billed separately from real estate property taxes, and some of the county’s largest manufacturers and utilities pay more than $300,000 each year.

Statewide, eliminating the personal property tax would cut about $1 billion in tax revenue, which goes to counties, cities, towns, schools, libraries and fire districts.

Locally, Franklin could lose more in taxes than Greenwood, since the city is home to several large manufacturers.

Four of the top five companies that pay the largest amount of personal property tax are located in Franklin, with the annual amount paid by those four companies totaling about $2.1 million. Those businesses — Amcor Rigid Plastics, KYB Americas Corp., NSK Corp. and Rexam Consumer Plastics — all have millions of dollars in machinery.

Local governments have cut spending multiple times in the past 10 years in the wake of declining tax revenue, including when the state inventory tax was eliminated and when property tax caps began. Those changes forced cities and towns to be more efficient, McGuinness said, but he’s not sure Franklin could reduce spending more without having to cut staff or services.

“We’re OK with where we’re at. But tightening our belts, we’re probably already close to the last notch,” McGuinness said.

Greenwood would lose at least $1 million if the personal property tax were eliminated, Myers said. The city’s $24.5 million budget this year has about $300,000 built in for savings, but losing $1 million or more likely would force the city to lay off workers, he said.

“I don’t see anywhere we could cut more without it being a manpower issue. Greenwood is very thin when it comes to manpower,” Myers said.

The cost would likely outweigh the possible benefit of creating new jobs because competition among cities and towns is so high, McGuinness said. Indiana has to compete with other states for new jobs, but Franklin has to compete with hundreds of other cities and towns in Indiana, he said. Eliminating the personal property tax could bring more companies to Indiana but wouldn’t help Franklin compete with other locations, such as Greenwood, Indianapolis, Carmel, Evansville or South Bend.

Impact varies

The tax cut would be an immediate savings to businesses, but determining whether that savings could be invested in expansions or new jobs would need to be studied, said Chris Swartwout, vice president of human resources at NSK Americas. NSK Corp. pays about $600,000 each year, and NSK Precision America pays about $250,000 annually. But NSK is a global company, so while a tax cut benefits the company as a whole, it doesn’t necessarily mean the Franklin plant would expand or add new jobs, he said.

“It’s got to be studied, and there’s a lot more to our financial decisions beyond just the local site in Franklin,” Swartwout said.

Lower taxes would give Indiana a higher chance to be picked for expansions, KYB vice president of operations Sal Milioto said. For example, if KYB wants to buy new equipment to add a new type of production line, the company could consider expanding its location in Franklin if taxes are considerably lower than in other states, Milioto said.

Local residents could save on utilities, since local providers, such as Duke Energy and Indiana American Water Co., are also among the county’s top payers.

For Indiana American Water Co., the company’s annual tax bill is built into the rates customers pay, spokesman Joe Loughmiller said. The company pays about $430,000 each year in taxes for its water lines and equipment at treatment plants. If that cost were refunded, each Johnson County water customer would save about $16 per year.

But for small businesses, the savings would be much less. For example, Office Pride commercial cleaning owned by former Franklin Mayor Fred Paris has about $30,000 of personal property. Without the tax, he might save $1,000 per year, which could buy some equipment but isn’t enough to hire a new worker, Paris said.

Legislators’ questions

Local lawmakers are optimistic the plan could help bring new jobs to Indiana, but they also have questions about the impact on local governments.

If the state chose to cut $1 billion in tax collections, legislators would want a replacement for some or all of that money. But no details have been discussed about what kind of replacement tax might be best and how it would be charged, State Rep. Woody Burton, R-Whiteland, said.

State Sen. Brent Waltz,

R-Greenwood, is concerned about who would end up paying the new tax. Waltz wouldn’t support the proposal if the state wanted to replace it with an income tax or some other type of tax that is paid by the people.

“Until we know how that money would be replaced and whether the burden would remain with businesses or shift to citizens, that would probably be a great concern for me,” Waltz said.

Myers also has questions about what type of tax would be used, since local officials are hesitant to pass new taxes. Johnson County doesn’t have taxes that other counties have, such as economic development income taxes, public safety income taxes or an innkeeper’s tax.

Since large companies already can have their taxes reduced through tax abatements, State Sen. Greg Walker, R-Columbus, wants to discuss other options. For example, the state could eliminate personal property taxes for equipment that has depreciated, which could benefit small businesses and allow them to keep a vehicle or piece of machinery for longer without having to pay taxes, he said.

“It’s going to benefit the tool and die shop that works for a KYB that is going to have the older equipment that they only fire up on occasion,” Walker said.

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