Editorial: Property tax legislation is good idea that needs more time, study

We’re intrigued by Rep. Peggy Mayfield’s bill that aims to reduce the number of smaller businesses that pay the personal property tax—legislation that IBJ reporter Peter Blanchard details in a story on this week’s cover.

We see plenty of positives in the idea, most notably that it will reduce work both for thousands of Indiana businesses and for county officials who process property tax payments. That seems at least as important as the actual savings businesses could realize.

But we have a few concerns as well and think the proposal needs a thorough vetting before passage—or might even need to be part of a larger study of business taxes that the Indiana Senate Republicans are proposing.

Companies pay the personal property tax on equipment—things like printers, grinders, compressors, desks, computers, etc.—that they own. Already, companies that paid $80,000 or less in total for that equipment are exempted from the tax. Additionally, the total value of the property is depreciated based on age (down to no less than 30% of the original value) before the tax rate is applied.

Mayfield’s proposal would expand the exemption so companies that paid $250,000 or less in total for their personal property wouldn’t be subject to the tax. That is likely to eliminate the tax for tens of thousands of companies in Indiana (the fiscal impact statement for her bill is not yet available). That would be good news for those companies both financially and simply in eliminating what’s essentially a regulatory hurdle.

In addition, the change would mean county assessors across the state would have thousands fewer property tax filings to process. That can also be a good thing.

But here are the caveats. Personal property tax revenue flows to local governments, libraries and schools. Reducing the total amount that companies pay will have two primary impacts, neither of which we think is desirable.

First, some of the tax burden will shift to other taxpayers, including homeowners, farmers and businesses that pay so-called “real” property taxes, which are taxes on real estate. Local governments are allowed to collect a set amount of property taxes—called a levy—so reducing what’s paid in one area can increase what’s paid in another.

But second, the change could also reduce the amount of tax revenue collected by local governments, libraries and schools. That’s because the bills paid by individual taxpayers—those homeowners, farmers and businesses—are capped at 1%, 2% and 3% of assessed value, respectively.

The machinations are complicated. But in short, reducing the amount of personal property tax collected will shift some tax burden to other payers. Then, when those payers hit their property tax caps, the amount collected by local governments goes down. Both impacts are problematic and worthy of exploration before moving forward with Mayfield’s bill.

One catch is that a big increase in assessments across the state—thanks to higher property prices over the past few years—means bills could be up regardless of other changes. That’s why a delay might be in order. Letting the impacts of higher home and property prices settle before considering other changes is probably the smart thing to do.•

__________

To comment, write to ibjedit@ibj.com.