Republicans’ $1B tax-cut package heads to full Indiana House

Republicans on the Indiana House Ways and Means Committee passed their $1 billion tax-cut proposal Wednesday night on a 15-7 party-line vote, sending it to the full House for consideration.

House Bill 1002 is a priority of House Republicans and authored by Ways and Means Chair Rep. Tim Brown, R-Crawfordsville. It would cut four separate taxes—individual income, business personal property, sales  and the utility receipts tax—all of which would mostly benefit businesses.

Much of the public testimony on the tax proposal came from business leaders in support of the bill.

HB 1002 would exempt the minimum tax on business personal property after Jan. 1 for new equipment purchased by businesses, also known as the 30% depreciation floor. The law now requires businesses to pay a tax on at least 30% of the purchase price of machinery and equipment every year, even if the equipment is several years old and no longer worth 30% of its original cost.

In addition to that, the bill would also let businesses apply for a state income tax credit for taxes paid on existing business personal property where the 30% floor is still applied starting in 2025. The cost to the state for that would be $347 million in 2025 and $392 million in 2026.

Regarding the sales tax, the tax proposal would remove the double direct test applied in production sales tax exemptions, which could save businesses to between $86 million and $249 million a year.

Andrew Berger, senior vice president of the Indiana Manufacturers Association, said the equipment-intensive manufacturing industry would reap the benefits of all these tax cuts, and manufacturers would be encouraged to make more investments in new equipment and technology.

He said while Indiana already has a good property tax climate, the more capital-intensive a business is, the worse it gets in terms of paying high taxes.

“For my members to grow, they’re going to have to make major investments in technology and equipment. And this bill is targeted at that problem,” Berger said.

The Indiana Chamber of Commerce, the Indy Chamber, the Indiana Energy Association and the Indian Farm Bureau all also spoke generally in favor of the proposal.

Removing the 30% floor on the tax on new equipment is at the top of Gov. Eric Holcomb’s agenda. Justin McAdam, deputy director of the Indiana Office of Management and Budget, testified on behalf of the governor’s office just in favor of that portion of the bill.

Holcomb has indicated he is hesitant toward the other proposals in HB 1002, including reducing the individual income tax rate from 3.23% to 3% by 2026.

McAdam would not comment on the governor’s views on the other aspects of the bill when he was asked by Democrat lawmakers on the committee, saying Holcomb is just focused on getting the 30% floor removed on a new equipment to help the state remain competitive for potential new business investments.

“Fundamentally the business personal property, the 30% floor, is not a tax proposal, it’s an economic development proposal, which really is about preparing Indiana to be prepared to launch itself into the new economy,” McAdam said.

Local governments are opposed to the business personal property tax cuts because some communities’ rely on the tax revenue. Removing the 30% just on new equipment is projected to impact local governments by $10 million by 2024, $34 million by 2025 and up to nearly $103 million by 2037, according to the fiscal report on the bill.

There is no revenue replacement plan outlined in the property tax proposal, and the tax burden would be shifted onto other taxpayers who pay property taxes, including homeowners, farmers and renters.

Jenna Knepper, with the local-government advocate group Accelerating Indiana Municipalities, said revenue replacement is a necessity.

“There are communities, some particularly small towns where manufacturing makes up a large portion of their overall tax base. So, any reduction in business personal property tax can significantly impact their budgets,” Knepper said.

Democrats on the Ways and Means Committee said they voted against the bill because it shifts the tax burden to individuals and doesn’t provide replacement revenue for local governments.

Democrats also attempted to add several amendments to the bill, and all failed. Some of the amendments lowered the state sales tax rate from 7% to 6.5%, increased the maximum renter’s deduction, and created a sales tax exemption for essential health products, such as diapers and feminine hygiene products.

HB 1002 now heads to the floor of the Republican-dominated House, where it is expected to pass. It faces an uncertain future in the Senate, where fellow Republicans have expressed reluctance toward tax cuts.