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Local Tax Increases
Informed Watchdogs must vigorously oppose efforts by local governments for more flexibility to levy income, sales, and other taxes under the guise of property tax relief.
2007 House Bill 1478
The two new local option income tax increases are Taxpayer UNfriendly because they provide temporary and incomplete homeowner property tax reduction in return for permanent tax increases on Hoosier working families. Watchdogs must advise their elected county public servants to NOT impose the two new local option income taxes.
On May 11, 2007, Governor Mitch Daniels signed House Bill 1478 into law. HB 1478 authorizes counties to adopt two new local option income taxes. These two new taxes would supposedly provide property tax relief and replace property tax increases.
Local Option Income Tax (LOIT) for Property Tax Relief: HB 1478 authorizes a county to adopt an additional County Adjusted Gross Income Tax (CAGIT) or an additional County Option Income Tax (COIT) of not more than 1% to provide any combination of (1) property tax replacement credits for all property, (2) an increase in the homestead credit percentage, and (3) property tax replacement credits for qualified residential property. The LOIT rate must be imposed in increments of 0.05%. The annual increase in the maximum permissible property tax levy for civil taxing unit operating funds in Lake County will be reduced to zero if the county does not implement the LOIT for property tax relief at a rate of 1%. Any LOIT authorization that provides property tax replacement credits for ALL property would result in property tax relief for businesses and utilities paid for by Hoosier working families. Unless the LOIT to replace property tax increases (see below) is implemented, there is nothing to keep future property tax increases from offsetting the LOIT property tax relief.
Local Option Income Tax (LOIT) to replace Property Tax Increases: HB 1478 authorizes a county to adopt an additional County Adjusted Gross Income Tax (CAGIT) or an additional County Option Income Tax (COIT) at a rate not to exceed 1% sufficient to raise tax revenue to replace the allowable increase in the following year of property tax levies for all civil units in the county. The initial election to fund operating growth from LOIT is a two-year election. The LOIT rate is doubled (or increased by 50% in Marion County) in the initial adoption year, with the excess tax proceeds deposited in a county stabilization fund. Money in the stabilization fund could be distributed to the county taxing units when a year’s certified LOIT distributions are less than the calculated levy growth amount. After the first two years, the county may increase the LOIT rate annually. The LOIT tax rate for levy replacement may not be reduced or rescinded, but may be increased each year (up to the 1% maximum). Using LOIT to replace property tax increases means that income tax increases on Hoosier working families would lower the proportionate tax burden of businesses and utilities. The portion of property tax increases that would have been paid by businesses and utilities would instead be paid by income taxes on Hoosier working families.
The two new local option income tax increases represent same old failed way of dealing with property taxes as the 20% statewide sales tax increase imposed by the General Assembly effective December 1, 2002. Many General Assembly members mislead Hoosiers into believing the sales tax increase would be used to lower homeowner property taxes. But, the real truth is that General Assemblies and Governors, through their betrayal and incompetence, have turned a promised 16.3% homeowner property tax reduction into a decrease of just 2.4% in only four years. Full details of the sales tax fiasco can be found on the Watchdog Indiana web page at http://www.finplaneducation.net/betrayal_incompetence.htm.
The problem that needs to be solved in the upcoming General Assembly session is temporary and incomplete homeowner property tax relief in return for permanent increases in other taxes. The solution involves the ELIMINATION of budget items supported by homeowner property taxes; these budget items must be paid for by a tax source based on the ability to pay.
The two new local option income tax increases are part of the problem and NOT part of the solution.
2006 House Bill 1001
Please let your Indiana State Senator know that you oppose the local income tax increases included in the version of 2006 House Bill 1001 passed by the Senate Committee on Tax and Fiscal Policy on February 23.
You can go to Who's Your Legislator? to find your Indiana State Senate district number. You can then go to the Watchdog Indiana Taxpayer Friendly Scorecard to find the E-mail address (and phone numbers) for your State Senator.
HB 1001 would require annual increases in local revenues formerly funded by property taxes to be funded through increases in local income taxes. The bill authorizes an additional tax rate of 1% that may be used to reduce controlled property taxes in the county. It also authorizes a county income tax rate of up to 0.25% that may be used to fund additional homestead credits in the county. The bill repeals the County Adjusted Gross Income Tax, County Option Income Tax, County Economic Development Income Tax, Employment Tax, and Municipal Option Income Tax and permits a county to impose an additional optional county income tax rate to replace the revenue lost from the repealed taxes. It requires the additional optional county income tax rate to be distributed and used in the same manner in which any County Adjusted Gross Income Tax, County Option Income Tax, or County Economic Development Income Tax that was imposed in the county before 2007 was distributed and used.
The February 26 Fiscal Impact Statement for HB 1001 from the nonpartisan Legislative Services Agency states that "Overall, since the state's property tax replacement credits and homestead payments would be essentially capped, net tax amounts, whether from property or income tax, would be higher than under current law. Local taxpayers would pay the full amount of local tax increases rather than receiving a credit from the state for part of the increase."
Removing the local income tax increases from HB 1001 would make the bill Taxpayer Friendly because of the good provisions listed next.
Standard Homestead Deduction: The bill increases the $35,000 standard deduction from the assessed value of homesteads by an amount based on the statewide average percentage increase in the assessed value of homesteads. Under this proposal, the $35,000 standard deduction is expected to increase to about $44,800 for taxes payable in 2007 and $46,350 for taxes payable in 2008. The deduction would continue to rise each year by the change in average homestead assessed value. The statewide total standard deduction for taxes paid in 2005 was $49.7 billion assessed value. Under this proposal, the total standard deduction could rise to $64 billion for taxes payable in 2007 and $66 billion for taxes payable in 2008. The additional standard deduction amount will cause a shift in part of the property tax burden from homesteads to all property. The net shift is estimated at about $134 million in calendar year 2007.
Property Tax Installment Payments: This bill allows a county council to petition the Department of Local Government Finance to establish an installment plan for property tax payments (without requiring the petition to be approved by the county treasurer and county auditor).
Credit for Excessive Residential Property Tax: The bill provides that for property taxes payable in 2006 and 2007, the county fiscal body may decide whether to authorize the credit for residential property taxes in excess of 2% of the gross assessed value of the property. For property taxes payable in 2008 and 2009, the bill provides a credit for residential property taxes in excess of 2% of the gross assessed value of the property (without any action by the county fiscal body). For property taxes payable in 2010 and after, the bill provides a credit for taxes in excess of 2% of the gross assessed value of all real and personal property (without any action by the county fiscal body).
2006 House Bill 1400
Let your State Representative and State Senator know that you oppose local tax increases fraudulently presented as property tax relief. You can go to Who's Your Legislator? at http://www.in.gov/apps/sos/legislator/search/ to find your Indiana State Representative and Indiana Senate district numbers. You can then go to the Watchdog Indiana Taxpayer Friendly Scorecard to find the E-mail address and phone numbers for your State Representative and State Senator.
The Governor, the Indiana Association of Cities and Towns, and various special interest cronies in the General Assembly support a local tax sales tax, a local food and beverage tax, a local innkeeper's tax, and a local supplemental local income tax under the guise of "fiscal flexibility for local governments as a long-term solution to property tax relief." Local tax increases such as these are included in the Indiana 2006 House Bill 1400.
Introduced by Republican Representative Matthew Whetstone, HB 1400 eliminates more than a hundred county level positions, including township assessors, small claims judges and small claims constables. It additionally allows for the consolidation of adjacent counties, townships, municipalities and school districts. Most alarming, however, are the new taxes that are buried in the legislation's fine print. If the bill passes, Hoosiers already drowning in taxes will have been thrown an anchor by Governor Daniels and his lapdog General Assembly.
The bill allows counties to implement several additional taxes, called "Supplemental Local Taxes," including a local sales tax, a local food and beverage tax, and a local innkeeper's tax. If adopted, the law would also permit the introduction of a supplemental local income tax. Of course, these taxes would be in addition to, and not in replace of, any taxes Hoosiers are currently paying.
The local sales tax would be applied to all transactions within a county that are already subject to sales tax, which would include all retail transactions other than for food. The local food and beverage tax would apply to all eating and drinking establishments within the county, and the local innkeeper's tax would be levied on hotel guests. The supplemental local income tax would be calculated on each county taxpayer's adjusted gross income. Each of these taxes would be imposed by the county's fiscal body at an initial rate of 0.1% apiece, with room for increases.
While the bill legislates how the Supplemental Local Taxes can be used, there's a catch. The county will be required to form two funds, a property tax replacement account fund and a miscellaneous revenue shares account fund. Eighty percent of the revenue from the combined taxes will be placed in the property tax replacement account, and twenty percent will go into the miscellaneous revenue shares fund. The money that is deposited into the property tax replacement account will be credited proportionally to the county's property tax payers as credits to their property taxes due. This so-called relief for property owners is a hollow provision. The distribution from the property tax replacement account is made only if the county does not have any bonds, leases, obligations, or other evidences of indebtedness. Only after the county's obligations are paid will monies from the property tax replacement account be credited to the county's property taxpayers.
In addition, the HB 1400 would allow all funds allocated to cities and towns from the motor vehicle highway account to be used for land acquisition, and, in fact, requires it. This opens the door even wider for more eminent domain abuses. With more money with which they can use to buy land, municipalities will be even more inclined to grab land owned by hard-working Hoosier families.
The local tax increases favored by Indiana's special interest spending lobbyists have absolutely nothing to do with property tax relief. Proof of this is provided by the sad history of the latest statewide sales tax increase and the nature of property taxes.
Everyone has felt the impact of the statewide sales tax increase from 5% to 6% imposed by Indiana's General Assembly effective December 1, 2002. This 20% increase in the sales tax was supposed to provide a Pay 2003 property tax reduction of 16.3% to the average Hoosier homeowner. However, subsequent General Assembly actions will turn this 16.3% homeowner property tax reduction into a 34.3% Pay 2007 property tax INCREASE. Details of this property tax betrayal can be found online at http://finplaneducation.net/betrayal_incompetence.htm
We now have increased property taxes to go along with a statewide sales tax increase. Because of the way property taxes operate, exactly the same thing will occur if we allow local tax increases under the pretense of property tax relief.
Boone County homeowners have property tax rates charged for the following: State Forestry, State Fair, County General, Family & Children, Child Psych Res Treat, Welfare HCI, Medical Asst Wards, Co Childs/Spec Health, Board of Health, County Park, 4-H Maintenance, Reassessment, Cumulative Bridge, Hospital Cum Bldg, County Cum. Cap. Development, Mental Health, Township Tax, Township Poor, Firefighting, Township Debt Service Fund, Township Cumulative Fire, Fire Equipment Building De, Township Park & Recreation, School General, School Debt Service Fund, School Capital Projects, School Transportation, Pre-School Spec. Educ., Bus Replacement, School Ret/Sev Bond Debt, Library, Library Lease Rental, Cap. Projects-Leb. Lib, Corporation, M V H Fund, Corporation Cumulative Fire, Corporation Park & Recreation, Corporation Lease Rental, Sanitation Fund (Lebanon), Corporation Cum. Cap. Development, Fire Equipment Debt, Fire Pension Fund, Storm Water Mgmt., Fire Building Debt, Debt Service 0180, Debt Pymt 0181, Bond #2 0182.
The only way to achieve true property tax relief is to eliminate some of the things paid for by property taxes. HB 1400 not only does NOT eliminate some of the 47 things paid for by Boone County property tax payers, but imposes an additional county family and children property tax levy, a child psychiatry property tax levy, and a county probation services fund levy.
Informed Watchdogs must vigorously oppose Indiana House Bill 1400 and local tax increases fraudulently proposed as property tax relief.
This page was last updated on 03/19/10.