Sunday, February 16, 2014

Pence Misrepresents Business Tax Burden In Pushing Elimination Of Business Personal Property Tax

Surely Gov. Mike Pence wouldn't mislead the public about the taxation burden faced by Indiana businesses in pushing the elimination of the business personal property tax, a move that would save businesses about $1 billion a year currently relied upon by local governments statewide as a source of revenue, would he? That's what the Northwest Indiana Times' Dan Carden concludes that Pence is doing in comparing the state's business tax burden to surrounding states.
"This is just a bad tax in a state where you make things," Pence said. "Illinois doesn't have one, Michigan just voted to phase theirs out ... I think it will make Indiana more prosperous, more competitive."
Repeatedly left unsaid -- and perhaps unknown to Pence -- is that while Illinois is one of seven states without a business personal property tax, Illinois companies annually pay a 2.5 percent income tax surcharge known as the "business personal property replacement tax."
The 1970 Illinois Constitution required the General Assembly eliminate the business personal property tax by 1979 and authorized a replacement tax to ensure schools and local governments continued to receive the same amount of money they did when the personal property tax was in effect.
As a result, while Illinois' corporate income tax rate is 7 percent -- the same as Indiana's, though Indiana's is set to drop to 6.5 percent next year -- Illinois businesses actually pay a corporate income tax of 9.5 percent with the business personal property replacement tax included.
Similarly, when Pence speaks about Michigan being on track to eliminate its business personal property tax, he omits that starting in 2016 Michigan local governments can charge an "essential services assessment" on business real estate, to make up 100 percent of the revenue lost due to the personal property tax cut.
Pence also is fond of talking about how Ohio eliminated its business personal property tax in 2010. He never mentions, however, Ohio replaced it with a gross receipts tax, charging a 0.26 percent fee on all taxable business revenue over $1 million for the privilege of doing business in the state.
After all the pushback from local government leaders, Pence has softened his position and said he would go along with a partial replacement of revenues lost from the elimination of the tax. If you think governments are going to do with less under any circumstances, think again. They always find a way of finding other taxpayers to pay when one group of taxpayers are given a break.


LamLawIndy said...

Better question, Gary: why do local govt leaders seem to always whine when property (real or personal) taxes are eliminated, capped or lowered? Why not cut budgets like families do? Misrepresentation or not, after all the gnashing of teeth after the property tax amendment, I just have stopped listening to those in local govt who always seem to want more revenue.

Anonymous said...

LamLawIndy...That is a good question. Here is another, how can a mayor or council member object to elimination of this tax when they do the exact same thing with a business personal property tax abatement, and to a slightly lesser degree, TIF?

What's good for the goose...etc

Gary R. Welsh said...

I don't disagree with the concerns raised over tax abatements. I believe it's what has made out tax system unconstitutional. It used to be a given that the government couldn't arbitrarily pick and choose who gets taxes, but that's precisely what tax laws allowing the awarding of economic development incentives have allowed to occur. The courts don't seem to give a damn about unequal tax treatment anymore.