Property & Business Tax Solutions

Property & Business Tax Solutions

Watchdog Indiana Home Page Tax And Budget Plans 2001-03

Taxpayer Friendly Improvements to the version of House Bill 1001 (SS) amended by the Indiana Senate Finance Committee on June 13, 2002:

Taxpayer Friendly Improvements To Senate Finance Committee Version Of HB 1001 (SS)
General Fund And Property Tax Replacement Fund Changes
(compiled June 15, 2002)
(amounts expressed in millions of dollars)

Description Of Revenue Increases From Individuals	FY 2003	FY 2004	FY 2005
Sales & Use Tax Rate Increase (from 5% to 6%) effective 01/01/03	222.7	548.4	562.6
Eliminate Existing Prop. Tax Replacement Credit (all prop.) eff. 01/01/03	224.6	455.4	467.7
School Transportation Fund PTRC Savings (see Note 3)	0.1	0.2	0.4
Shelter Allowance Elim./Homeowner Prop. Tax Deduct. Incr. to $30,000	0.0	0.0	0.0
Individuals Revenue Increase Subtotal	447.4	1,004.0	1,030.7
Cigarette Tax Incr. (from $0.155 to $0.55 per pack) effective 07/01/02	269.2	294.7	296.2
Gambling Winnings Withholding (see Notes 13-14) effective 07/01/02	16.1	17.2	17.2
Lottery Taxation (for winnings that exceed $1,200) effective 07/01/02	4.2	4.5	4.5
Total Revenue Increase From Individuals	736.9	1,320.4	1,348.6
Description Of Tax Benefits For Individuals
Shelter Allowance Elim./Homeowner Prop. Tax Deduct. Incr. to $30,000	0.0	0.0	0.0
School General Fund PTRF Credit Incr.(from 20% to 75%) eff. 01/01/03	(289.1)	(586.0)	(601.9)
New 20% Property Tax Replacement Credit (Notes 1-2) eff. 01/01/03	(133.1)	(276.6)	(290.9)
Homestead Credit Maintenance (at 10%) effective 01/01/04	33.8	(14.0)	(98.3)
Renters Deduction Increase (from $2,000 to $2,500) effective 01/01/04		(12.5)	(12.7)
Earned Income Tax Credit Increase (to 4% of federal credit) eff. 01/01/03	(2.9)	(7.1)	(7.9)
Total Tax Benefit For Individuals	(391.3)	(896.2)	(1,011.7)
Total Net Revenue Increase From Individuals	345.6	424.2	336.9

Description Of Revenue Increases From Business	FY 2003	FY 2004	FY 2005
Eliminate Existing Prop. Tax Replacement Credit (all prop.) eff. 01/01/03	250.3	507.3	521.0
Sales & Use Tax Rate Increase (from 5% to 6%) effective 01/01/03	104.8	258.0	264.8
$37,500 Assessed Value PPTRC Elimination (see Note 8) eff. 01/01/04		96.0	97.9
Utilities Income Taxation Changes (see Notes 5-7) effective 01/01/03	36.2	74.4	76.7
SNIT Elimination / Corp. AGI Incr. (from 7.747% to 8.5%) eff. 01/01/03	28.6	58.9	60.7
School Transportation Fund PTRC Savings (see Note 3)	0.1	0.3	0.5
Business Revenue Increase Subtotal	420.0	994.9	1,021.6
Riverboat Wagering Tax Increase (from 20% to 22.5%) eff. 07/01/02	46.3	47.9	49.6
Riverboat Admissions Tax Increase (from $3 to $4) effective 07/01/02	41.7	42.5	43.4
Total Revenue Increase From Business	508.0	1,085.3	1,114.6
Description Of Tax Benefits For Business
Business Personal Property IN Rule Elimination (see Note 12)	0.0	0.0	0.0
Inventory Assessed Value 100% Deduction (see Notes 15-16)	0.0	0.0	0.0
School General Fund PTRF Credit Incr.(from 20% to 75%) eff. 01/01/03	(322.2)	(653.0)	(670.6)
Inventory Tax Credit (100% refundable income tax credit) eff. 01/01/03	(223.3)	(412.2)	(386.0)
New 20% Property Tax Replacement Credit (Notes 1-2) eff. 01/01/03	(101.2)	(210.4)	(221.3)
Corporate Gross Income Tax Elimination effective 12/31/02	(81.7)	(168.2)	(173.2)
Research Expense Credit (see Note 4) effective 01/01/03	(23.0)	(47.9)	(24.8)
Venture Capital Investment Tax Credit (see Note 17) effective 01/01/04		(5.0)	(10.0)
Earned Income Tax Credit Increase (to 4% of federal credit) eff. 01/01/03	(0.5)	(1.3)	(1.4)
Total Tax Benefit For Business	(751.9)	(1,498.0)	(1,487.3)
Total Net Revenue Decrease From Business	(243.9)	(412.7)	(372.7)

Description Of Fund Transfers	FY 2003	FY 2004	FY 2005
21st Century Research & Technology Fund Transfer	(25.0)
Total Net Fund Transfers	(25.0)	0.0	0.0

Grand Total Net Revenue Increase	76.7	11.5	(35.8)

Revenue Available For FY 2002-03 Budget Shortfall	52.4

Sources:
A. June 13, 2002, HB 1001 (SS) Fiscal Impact Statement from the Legislative Services Agency.
B. Individuals vs. Business tax split % from 04/25/02 Senate tax restructuring compromise handout.

Notes:
1. New PTRC is for real prop., mobile homes, and non-bus. pers. prop. with bus. pers. prop. excluded.
2. New PTRC Individuals vs. Business tax split estimate is 56.8% Individuals and 43.2% Business.
3. School Transportation Fund PTRC Savings split estimate is 47.3% Individuals and 52.7% Business.
4. Research Expense Credit increased from 5% to 10%, apportionment eliminated, extended 2 years.
5. Utilities Receipts Tax created at a rate of 1.5% on gross receipts of retail activity.
6. Utilities pay Corp. Adjusted Gross Income Tax, but no longer pay Supplemental Net Income Tax.
7. Utilities subject to the new Business Supplemental Tax.
8. Existing $37,500 AV credit against state tax liability for personal property (PPTRC) is repealed.
9. Bus. Supplemental Tax imposed on IN adjusted gross income of entities (except sole proprietors).
10. BST tax rate is 0.5% for taxpayers subject to Corp. Adjusted Gross Income Tax ($100 minimum).
11. BST tax rate is 1% for taxpayers subject to Individual Adjusted Gross Income Tax ($100 min.).
12. Business Personal Prop. assessment rules changed back to old rules in place before 03/01/02.
13. Individual Adjusted Gross Income Tax on winnings of $1,200 or more from a slot machine play.
14. Individual Adjusted Gross Income Tax on net keno game winnings less wager of $1,500 or more.
15. Establishes a 100% deduction for inventory assessed value effective 01/01/06.
16. Counties can levy extra Economic Dev. Income Tax for 100% inventory AV deduction eff. 01/01/03.
17. Venture Capital Investment Tax Credit lesser of 20% debt/equity capital or $500,000.

Taxpayer Friendly Improvements to the version of House Bill 1001 (SS) passed by the Indiana House of Representatives on June 6, 2002:

House Bill 1001 (SS) Taxpayer Friendly Improvements
General, Property Tax Replacement, Transportation/Highway Funds Changes
(compiled June 11, 2002)
(amounts expressed in millions of dollars)

Description Of Revenue Increases From Individuals	FY 2003	FY 2004	FY 2005
Sales & Use Tax Rate Increase (from 5% to 6%, Note 12) eff. 07/01/03		548.4	562.6
Eliminate Existing Prop. Tax Replacement Credit (all prop.) eff. 01/01/04	(2.1)	228.6	467.7
Shelter Allowance Elim./Homeowner Prop. Tax Deduct. Incr. to $30,000	0.0	0.0	0.0
Individuals Revenue Increase Subtotal	(2.1)	777.0	1,030.3
Cigarette Tax Incr. (from $0.155 to $0.55 per pack) effective 07/01/02	269.2	294.7	296.2
Riverboat Gambling Withholding (for winnings that exceed $600)	15.0	15.0	15.0
Lottery Taxation (for winnings that exceed $1,200)	4.1	4.1	4.1
Total Revenue Increase From Individuals	286.2	1,090.8	1,345.6
Description Of Tax Benefits For Individuals (see Note 3)
Shelter Allowance Elim./Homeowner Prop. Tax Deduct. Incr. to $30,000	0.0	0.0	0.0
School General Fund PTRF Credit Incr. (from 20% to 32%) eff. 01/01/04	10.4	(127.8)	(280.2)
School Transport. Fund PTRF Credit Incr. (20% to 40%) eff. 01/01/04		(33.4)	(68.9)
New 20% Property Tax Replacement Credit (Notes 1-2) eff. 01/01/04		(228.4)	(466.7)
Homestead Credit Increase (see Note 8) effective 01/01/04	15.6	(302.7)	(660.4)
Renters Deduction Increase (from $2,000 to $4,000) effective 01/01/05			(44.4)
Earned Income Tax Credit Increase (to 8% of federal credit) eff. 01/01/03	(11.9)	(29.2)	(30.8)
Total Tax Benefit For Individuals	14.1	(721.5)	(1,551.4)
Total Net Revenue Increase (Decrease) From Individuals	300.3	369.3	(205.8)

Description Of Revenue Increases From Business	FY 2003	FY 2004	FY 2005
Eliminate Existing Prop. Tax Replacement Credit (all prop.) eff. 01/01/04	(2.3)	254.7	521.0
Sales & Use Tax Rate Increase (from 5% to 6%, Note 12) eff. 07/01/03		258.0	264.8
SNIT Elimination / Corp. AGI Incr. (from 7.747% to 8.5%) eff. 01/01/03	28.6	58.9	60.7
Personal Property Tax Credit Change (see Note 9) effective 01/01/05		(27.5)	34.0
Business Revenue Increase Subtotal	26.3	544.1	880.5
Flexible Boarding/Graduated Wager Tax/Admission Tax Elim./BIF Cap	349.9	365.2	381.1
Total Revenue Increase From Business	376.2	909.3	1,261.6
Description Of Tax Benefits For Business (see Notes 3 and 10)
Business Personal Property IN Rule Elimination (see Note 11)	0.0	0.0	0.0
School General Fund PTRF Credit Incr. (from 20% to 32%) eff. 01/01/04	11.6	(142.4)	(312.1)
School Transport. Fund PTRF Credit Incr. (20% to 40%) eff. 01/01/04		(37.2)	(76.7)
New 20% Property Tax Replacement Credit (Notes 1-2) eff. 01/01/04		(117.2)	(239.4)
Inventory Tax Credit (100% refundable income tax credit) eff. 01/01/03	(223.3)	(412.2)	(386.0)
Corporate Gross Income Tax Elimintion (except utilities) eff. 01/01/03	(81.7)	(168.2)	(173.2)
Investment Tax Credit For New Personal Prop. (see Note 5) eff. 01/01/03	(41.5)	(76.6)	(73.2)
R&D Tax Credit Increase (5% to 10%, apportionment elim.) eff. 01/01/03	(23.0)	(47.9)	(51.5)
Earned Income Tax Credit Increase (to 8% of federal credit) eff. 01/01/03	(2.1)	(5.1)	(5.4)
Total Tax Benefit For Business	(360.0)	(1,006.8)	(1,317.5)
Total Net Revenue Increase (Decrease) From Business	16.2	(97.5)	(55.9)

Description Of Spending Decreases	FY 2003	FY 2004	FY 2005
Higher Education Operating Expenses Reduction	29.0
Medicaid Spending Cuts (see Notes 6 and 7)	10.1	13.5	13.5
Total Spending Decrease	39.1	13.5	13.5
Description Of Spending Increases
State Employee 2% Pay Raise (total increase in all affected funds)	(26.0)	(26.0)	(26.0)
Total Spending Increase	(26.0)	(26.0)	(26.0)
Total Net Spending Decrease (Increase)	13.1	(12.5)	(12.5)

Grand Total Net Revenue Increase (Decrease)	329.6	259.3	(274.2)

Revenue Available For FY 2002-03 Budget Shortfall	314.7

Sources:
A. June 6, 2002, HB 1001 (SS) Fiscal Impact Statement from the Legislative Services Agency.
B. June 3, 2002, HB 1001 (SS) Fiscal Impact Statement from the Legislative Services Agency.
C. Individuals vs. Business tax split % from 04/25/02 Senate tax restructuring compromise handout.

Notes:
1. New PTRC is for real prop., mobile homes, and non-bus. pers. prop. with bus. pers. prop. excluded.
2. New PTRC Individuals vs. Business tax split estimated to be 66.1% Individuals and 33.9% Bus.
3. Due date for changes in real property valuation delayed by 1 year until 03/01/03 payable CY 2004.
4. Utilities Gross Income Tax rate increased from 1.2% to 1.6%, Gross Income Tax credit eliminated.
5. Investment Tax Credit For New Personal Property is 30% first year and 20% second year.
6. OMPP is authorized to require a Medicaid recipient to select only one pharmacy.
8. Homestead Credit Increase to 30% beginning CY 2004 limited to first $1 million of a home's AV.
9. Personal Property Tax Credit on first $37,500 assessed value of inventory only.
10. Rental prop. eligible for prop. tax deduction of $5,000 for each multi-family dwelling complex unit.
11. Business Personal Prop. assessment rules changed back to old rules in place before 03/01/02.
12. Sales & Use Tax Rate Increase totals include a 7-cent Gas Tax incr.; sales tax on gas eliminated.

Taxpayer Friendly Property Tax Relief and Business Tax Restructuring Solution:

The property tax relief and business tax restructuring benefits of the Watchdog Indiana Taxpayer Friendly Solution (TFS) are listed next.

1. There is no income tax rate increase.

2. There is no sales tax rate increase.

3. Overall residential property taxes will go down 0.5% after reassessment (instead of going up 32.7%).

4. The homeowner property tax deduction will increase from $6,000 to $60,000 (the deducted amount will be the smaller of 50% of assessed value or $60,000).

5. The homestead credit will be maintained at 10%.

6. The renters deduction is increased from $2,000 to $4,000.

7. There are no new business taxes.

8. A 25% inventory tax credit is established.

9. The corporate gross income tax is eliminated.

10. The business personal property assessment rules are changed from market value back to the old rules in place prior to March 1, 2002.

11. The supplemental net income tax is eliminated.

12. The research and development tax credit is maintained at 5% with no apportionment.

13. Overall business property taxes will go down 19.9% after reassessment.

14. Overall utility property taxes will go down 34.17% after reassessment.

15. The Build Indiana Fund is eliminated with the money previously earmarked for local projects now in the General Fund for property tax relief and business tax restructuring.

Through June 30, 2004, the TFS is revenue neutral with the benefits paid for by the revenue increases listed next.

A. The cigarette tax is increased from 15.5 cents to 55 cents a pack.

B. Riverboat admissions and wagering taxes are increased in conjunction with the allowance of dockside gambling.

C. The shelter allowance is eliminated.

D. The corporate adjusted gross income tax is increased from 7.747% to 8.5%.

E. The existing $37,500 assessed value credit against the state tax liability for personal property (PPTRC) is repealed.

Listed below is a spreadsheet presentation of the TFS for property tax relief and business tax restructuring. Excluding the cigarette and gaming tax increases, the total tax benefit through June 30, 2004, for individuals is $650 million and the total tax benefit for business (not including the business and utility property tax savings from reassessment) is $458 million.

Property Tax Relief & Business Tax Restructuring Solution
Changes To State General Fund And Property Tax Replacement Fund
(compiled May 29, 2002)
(amounts expressed in millions of dollars)
Description Of Revenue Increases From Individuals	FY 2003	FY 2004	FY 2005
Shelter Allowance Elimination (see Notes 1 and 2) eff. 01/01/03	100	204	213
Individuals Revenue Increase Subtotal	100	204	213
Cigarette Tax Incr. (from $0.155 to $0.55 a pack, 3% OTP) eff. 07/01/02	266	291	292
Total Revenue Increase From Individuals	366	495	505
Description Of Tax Benefits For Individuals
Homeowner Prop. Tax Deduction Incr. (see Notes 2-4) effective 01/01/03	(284)	(580)	(605)
Homestead Credit Maintenance (at 10%, see Note 5) effective 01/01/04	0	(52)	(107)
Renters Deduction Increase (from $2,000 to $4,000) effective 01/01/04	0	(38)	(38)
Total Tax Benefit For Individuals	(284)	(670)	(750)
Total Net Revenue Increase (Decrease) From Individuals	82	(175)	(245)

Description Of Revenue Increases From Business	FY 2003	FY 2004	FY 2005
SNIT Elimination / Corp. AGI Incr. (from 7.747% to 8.5%) eff. 01/01/03	38	80	84
$37,500 Assessed Value PPTRC Elimination (see Note 12) eff. 01/01/04	0	96	98
Business Revenue Increase Subtotal	38	176	182
Gaming Taxes Increase (admissions, wagering/dockside) eff. 07/01/02	247	268	289
Total Revenue Increase From Business	285	444	471
Description Of Tax Benefits For Business (see Notes 13 and 14)
Business Personal Prop. IN Rule Change (see Notes 7-8) eff. 01/01/03	(70)	(143)	(150)
Inventory Tax Credit (25%, see Note 9) effective 01/01/03	(56)	(103)	(97)
Corporate Gross Income Tax Elimination (except utilities) eff. 01/01/03	(88)	(183)	(191)
R&D Tax Credit Maintenance (at 5%, no apportionment) eff. 01/01/03	(12)	(26)	(26)
Total Tax Benefit For Business	(226)	(455)	(463)
Total Net Revenue Increase From Business	59	(11)	8

Build Indiana Fund Elimination (see Notes 10 and 11) effective 07/01/03	0	45	45

Grand Total Net Revenue Increase (Decrease)	141	(141)	(192)
Sources:
A. May 22, 2002, House Republicans compromise plan handout.
B. April 25, 2002, Senate Republicans tax restructuring compromise handout.
C. March 13, 2002, handout from the Indiana House Ways & Means Committee office.
D. February 27, 2002, HB 1004 Fiscal Impact Statement (Pages 4, 5, 6, and 18).
E. October 18, 2001, 21st Century Tax Plan.
Notes:
1. Shelter Allowance of $200 million for 2003 calendar year from 04/07/02 Indianapolis Star article.
2. Shelter Alowance and Homeowner Prop. Tax Deduction annual increases estimated to be 4.3%.
3. Homeowner Property Tax Deduction will increase from $6,000 to $60,000.
4. $10.526M 2003 prop. tax relief estimated from each $1K of H/O Prop. Tax Ded. from $6K to $60K.
5. Homestead Credit percentage scheduled to change to 4 percent effective 01/01/04.
7. Bus. Pers. Prop. assessment rules changed from market value back to old rules before 03/01/02.
8. Business Personal Property assessed value annual increases estimated to be 4.6%.
9. Inventory Tax estimated using information from the 05/22/02 House Republicans plan.
10. Lottery and Gaming Surplus Account is moved from the Build Indiana Fund to the General Fund.
11. Elimination of the funding of local projects will provide $45 million a year for tax restructuring.
12. Existing $37,500 AV credit against state tax liability for personal property (PPTRC) is repealed.
13. Overall business property taxes will go down 19.9% after reassessment.
14. Overall utility property taxes will go down 34.1% after reassessment.

Some persons favor a sales tax rate increase to provide additional tax benefits, particularly property tax relief. The problem with this approach is that the sales tax (and, for that matter, the income tax) never decrease, while property tax relief has a way of decreasing over time. A case in point is the Property Tax Replacement Credit (PTRC). The PTRC was established at 20% in 1973 after the sales tax rate was increased from 2% to 4%. Then property taxes collected for debt service on bonds issued after 1984 were made ineligible for PTRC payments. This means that PTRC rates are now less than 20% in almost every taxing district. For example, the PTRC rate in Lebanon has dropped to 11.4229%.

The TFS increases the standard homeowner property tax deduction from $6,000 to $60,000. This will help countless Hoosiers avoid the painful decision to give up their home simply because they can�t pay their property tax bill. They will have the cash flow needed to purchase necessary medicines, nutritious foods, and other daily living necessities. There will be other financial and emotional benefits such as lower Medicaid cost from health care in the home and the feeling of self-worth that comes from home ownership.

The School General Fund property tax component is not reduced or eliminated by the TFS. Businesses and utilities will receive enough property tax relief through market value reassessment without the additional relief that would come from lowering the School component. Homeowners will benefit in more ways from the standard deduction increase to $60,000 than from lowering the School component. Also, it would not be wise to move additional School funding from local control to the state.

Eliminating the Build Indiana Fund will properly return all requests for taxpayer funding of local projects back to local elected officials. The reputation of General Assembly members will be helped by removing the appearance of using taxpayer funds for the inappropriate delivery of pork barrel projects to help win reelection.

Finally, a tax increase is not needed to balance the state�s budget this biennium. Furthermore, the additional fund transfers and spending cuts that have been identified to finish balancing the budget (1) do not have to include the $289 million monthly school corporations payment Governor O�Bannon is authorized to delay until the 2005 fiscal year and (2) can include only $158.1 million of the intended $250 million in Medicaid spending cuts. Budget balancing details can be found on the Watchdog Indiana web page http://www.finplaneducation.net/budget_shortfall_solution.htm

Watchdog Indiana Home Page Tax And Budget Plans 2001-03

This page was last updated on 03/19/10.