It's Complicated

Posted By: Abdul · 2/6/2014 7:11:00 AM

A new study looking at the elimination of Indiana’s business personal property tax (BPPT) reveals that it is a lot more complicated than it looks.

Indiana lawmakers are moving forward with two different plans to eliminate the tax, while being mindful of the impact on local governments.  The House plan would let counties opt out of the tax, the Senate plan would only eliminate the tax for businesses with less than $25,000 in inventory.

The Indiana Fiscal Policy Institute released its report   “The Personal Property Tax in Indiana: Its Reduction or Elimination is no Simple Task.”

The report takes a comprehensive look at the issue, including new information about the effect of the property tax caps enacted in 2008. The analysis finds that distortions still moving through the property tax system created by the caps makes eliminating the personal property tax a very complex issue, while the governor and legislators seek to ensure the state maintains its competitive tax climate for business. According to the report, the caps protected by the state’s constitution limit legislators’ ability to rebalance the property tax burden among homeowners and business interests.

Some of the other findings include…

  •  The potential revenue loss to local governments is direct, but the bigger issues include losses due to more homeowners reaching property tax caps and the challenge for local government to replace revenue lost in tax increment financing districts and enterprise zones.
  • Studies have shown taxes on business personal property have a small effect on business relocation from outside a state, but depending on the structure if enacted could have a larger effect on relocation decisions from county to county within the state.
  • A small minority of Indiana businesses pay the vast majority of business personal property tax.
  • Local governments already have abated 10 percent of business personal property taxes statewide.

Since 1966, the Indiana General Assembly has been working to eliminate personal property taxes after passing a constitutional amendment that allowed lawmakers to separate taxation on real and personal property.

A copy of the report can be found here.