Sales tax will raise $800 million

INDIANAPOLIS -- As Christmas shoppers cash in on bargains, the state will be cashing in -- a penny at a time -- on every dollar spent in stores beginning Dec. 1.\nIn less than a week, Indiana's sales tax will increase to 6 percent from 5 percent -- a tax hike expected to raise more than $800 million a year.\n"It is the single biggest bang for the buck. It raises a lot of money quickly," said Richard Feinberg, director of Purdue University's Center for Customer-Driven Quality.\nBut "consumers will hardly notice" the increase, he insisted, "and their shopping habits won't be affected at all."\nThe higher sales tax was one of four general tax increases approved in June by the Indiana General Assembly, which grappled with a $1 billion deficit, a stagnant economy and a court-ordered reassessment that threatened to send some property tax bills through the roof.\nLawmakers hiked cigarette and gambling taxes to help plug the growing budget hole. They raised the gas tax to help pay for road construction.\nAnd they approved a sales tax increase, the first since 1980, to pay for tax credits to lower property tax bills of homeowners.\nThat means a $20 shirt will cost an extra 20 cents. A $500 television will cost an extra $5.\n"It's pretty much an invisible tax. People pay it out in little bits and pieces over the course of shopping for an entire year," Grant Monahan, president of the Indiana Retail Council, said Sunday.\nBut over a year, an extra penny here and there adds up.\nA household with a $25,000 income can expect to pay up to $150 more per year because of the higher sales tax. A household earning $75,000 will pay $230 more, said Purdue University economics Professor Lawrence DeBoer.\nIt can add up even faster on big-ticket purchases, such as cars.\nDon Sisk Pontiac-Buick-GMC in Indianapolis is trying to attract customers to its dealership by offering a "tax match" deal -- buy a car by Nov. 30 and save an extra 1 percent.\nGeneral Manager Jim Poindexter said the December sales tax hike isn't causing a surge of November car sales. But the sales tax increase could be enough to make the sale for those ready to buy.\nThe extra sales tax money -- from cars or any other products -- will go toward property tax relief. But money also is needed to plug what's now an estimated $760 million budget deficit.\nIn the fiscal year that ended June 30, Indiana reeled in nearly $3.76 billion in sales tax revenue. By the same time next year, state officials expect sales tax collections to climb to $4.15 billion.\nBob Lain, revenue chief for the State Budget Agency, said officials will have a better estimate on revenue when a new fiscal forecast is released next month.\nSales tax collections will only go up, insisted Purdue's Feinberg, because sales tax revenue is a fairly reliable, stable source of income for the state -- and a 1 percentage point increase won't make people stop shopping.\nSharon Martin of Evansville is among those who has no plans to curtail her holiday spending because of the new, higher tax.\n"Of course, I don't like to pay more taxes," said Martin, who was taking a break from some gift-buying last week at Circle Centre Mall in Indianapolis. "I'm still going to buy everything on my Christmas list"