Business tax cut could hurt schools, services

The Indiana State House and Senate passed separate bills Jan. 30 that would reform the business personal property tax. Supporters argue reform will help develop small businesses, but fears about lost revenue have sparked congressional debates.

The business personal property tax requires that businesses pay a tax on any equipment used to produce income or hold investment. The tax produces about $1 billion in revenue a year. Without the tax, local governments will have to deal with lost income.

Local governments would lose about $700 million, $150 million of which would come from school districts and about $24 million of which would come from libraries.

The Senate’s bill, known as SB 1, would exempt small businesses with less than $25,000 of personal property from paying the tax. The House bill, HB 1001, would give counties the option to exempt new equipment from the tax while still taxing any old equipment in use.

The key difference between the two bills is that SB 1 is a mandate whereas HB 1001 is a county-by-county option.

After passing, the Senate bill was referred to the House for review, and the House bill was referred to the Senate. HB 1001 had its first reading in the Senate on Tuesday and was referred to the Tax and Fiscal Policy committee.

Rep. Eric Turner, R-Cicero, who authored HB 1001, said he believes the House’s approach will do more good than harm despite lost revenue.

“Well, you could argue you can’t take something away that you never had,” he said. “Let’s say a county elects to do this and it brings in new investment to that county. If you assume that that new investment would not have come otherwise, then the county would not be losing anything.”

But school and local government officials have expressed concern about the potential losses in funding.

Turner argues the cut could lead to a decrease in unemployment rates as businesses expand. He said this could produce new real estate and get more children into schools, which would eventually generate more revenue from the state.

Troy Phelps, business adviser at Bloomington’s Small Business Development Center, shares a similar point of view.

“Well, obviously any kind of tax cut that will help small businesses is a really good thing if you keep in mind that small businesses really are what drive the economy any time the economy tanks, so to speak,” he said. “Helping small businesses to survive is a good investment of taxpayer money. But, of course, I work for small businesses all day.”

Turner said he believes giving counties the option of whether or not to cut the tax is necessary to prevent financial damage. If the county does not think the potential economic growth will outweigh the revenue losses, he said, it can continue to tax businesses’ equipment through the personal property tax.

However, neither Turner nor Phelps thinks the counties will decide the latter.

“I guess what I’m trying to say is that I’m not convinced that just because we have a tax cut for small businesses that it has to be made up dollar-for-dollar on the other side of the fence,” Phelps said. “I think the overall impact will make up for it.”

Follow reporter Kate Starr on Twitter @kastarr7.