With Indiana state tax revenues soaring, a prominent Republican lawmaker is considering possible significant state sales tax changes and lower property taxes for some businesses.
House Ways and Means Committee chair Tim Brown has yet to give details of what he might propose for the new legislative session starting in January, but such changes raise concerns about the possibility an economic downturn and the impact on the funding of local governments and schools. districts.
Topics in Brown’s sights include the extension of Indiana’s 7% sales tax which covers purchases of goods ranging from clothing to cars, so that it is also charged for expenses on services, which could be anything from haircuts to hospital stays. Brown said his goal would be to reduce the sales tax rate if it were applied to a wider range of expenses.
Brown points to an increasing trend in spending on services, which, according to federal reports, now account for nearly 70% of consumer spending.
“Our sales tax base changes a lot, so I’m interested in looking at sales tax and sales tax affects everyone,” Brown said. “No matter how much money you make, you pay sales tax.”
A dozen states have extended their sales taxes to many services, but such measures have been the subject of debate over which is appropriate to tax, said Larry DeBoer, a Purdue University economist, who studied Indiana’s tax policy for over 30 years.
It would be difficult to collect a large amount of service taxation without it covering areas such as housing costs, including rent payments, and medical and legal costs. These areas account for more than half of service spending, according to federal reports.
“When you start looking at the individual things that you need to tax, you are going to run up against very powerful interest groups and very powerful ethical arguments,” DeBoer said.
Any tax debate in the legislature would come when the state is bursting with money.
The state government saw its overall tax revenue increase by 14% in the last fiscal year, as revenue rebounded stronger than expected from the pandemic COVID-19 recession, bringing its cash reserves to $ 3.9 billion. dollars as of June 30. Tax revenue continued to grow, with the state raising about $ 560 million, or 10%, more than expected in the four-month period through October.
Brown also has an eye on property taxes levied on commercial equipment. The legislature has exempted thousands of small businesses from the equipment tax in recent years, but it still accounts for about 17% of all property taxes that go primarily to city and county governments and school districts.
Although Indiana has reduced its corporate tax rate from 8.5% to 4.9% over the past decade, Brown said the equipment tax is a “burden” on businesses that many other states do not.
Republican Senator Ryan Mishler, chairman of the Senate Appropriations Committee, has expressed skepticism about the need to cut business taxes further, as the main concerns he hears from business leaders are about education and availability. workers.
Mishler said the state must remain prepared for any economic problem.
“With the national trends of increasing fuel prices, the shortage of supply, the increasing prices, I think we are in a downturn in the economy,” Mishler said during a recent program of the ‘Indiana Fiscal Policy Institute.
Local government leaders are worried about a possible loss of tax revenue if major changes are made to the equipment tax. Reductions in this tax could mean higher property taxes for homeowners, unless lawmakers find another source of revenue for local governments and schools.
Changes to state-set minimum depreciation levels for the equipment tax could make a big difference to factories being considered for upgrades, said Andrew Berger, senior vice president of the Indiana Manufacturers Association.
Eliminating this minimum level could mean around $ 300 million a year in reduced corporate tax bills, according to a report prepared for the 2021 legislative session. This represents about a fifth of the $ 1.4 billion raised by the equipment tax.
Republican Gov. Eric Holcomb has not weighed in on whether he will support tax changes, with his office saying he is waiting for the state’s tax revenue forecast to be updated for December.
Democrats suggest growth in state revenues should go towards measures such as increasing the decade-old $ 3,000 annual limit on tenant tax deductions, larger tax breaks for tenants. student loan interest; and the authorization of tax deductions for child care and childcare expenses.
“Previous policies have given generous tax breaks to the rich and big business,” said Democratic Representative Greg Porter of Indianapolis. “The new policies should be more favorable to the working families who are the backbone of the state’s economy.”