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Lawmakers override Pence’s veto

Move revives long-expired taxes in 2 counties

– The Indiana House voted 68-23 and the Senate followed with a tally of 34-12 to override a veto Wednesday by Gov. Mike Pence of a retroactive tax bill.

Only seven Republicans voted with the governor, including Sen. Jim Banks, R-Columbia City. He also opposed the original bill.

The measure in question was House Bill 1546, and its provisions regarding special local income taxes in Jackson and Pulaski counties that had expired in 2011 and 2006, respectively.

But taxpayers kept paying and government kept collecting to the tune of $6 million.

The bill retroactively reinstated those taxes, allowing local government to keep the funds collected against the law. Pence objected to the public policy.

But a number of Republicans in support of the veto said the alternative solution – refunding the money, reinstating the tax and short-term borrowing for those counties in the meantime – would ultimately cost the taxpayers more.

“Sometimes you have to make judgment calls,” said Sen. Brandt Hershman, R-Buck Creek. “This was the most efficient, least costly solution.”

He and others also pointed to a number of other positive provisions in the bill that would be lost, including tax breaks for surviving spouses of veterans.

Christy Denault, communications director for Pence, said the governor stands by his veto and regrets the override.

“While this bill contained some positive provisions, the governor believes that when Hoosiers pay taxes that are not owed, they should be offered relief. Hoosiers can be assured that Governor Pence and his administration will continue to put taxpayers first.”

The subplot of the veto override Wednesday might have been the realization that the Indiana Department of Revenue continues to experience problems.

In December 2011, the Revenue Department discovered it had lost track of $320 million in corporate tax collections. Four months later, the agency also found it had not paid $206 million in local income taxes owed to counties. Those errors led then-Gov. Mitch Daniels to force out three top officials in the department. Republicans also then acquiesced to Democrats, who had sought an independent audit.

The state paid almost $1 million to financial firm Deloitte to conduct that audit but the latest errors of collecting and distributing unauthorized tax dollars weren’t found.

It was a Jackson County official that stumbled upon the news and approached his local legislator. And when the Department of Revenue saw the bill during session they did a quick study of all local income taxes and discovered the Pulaski situation.

“We do need an answer here as to why this happened,” said Senate President Pro Tem David Long, R-Fort Wayne. He said there ought to be a check in state and local government to ensure it doesn’t happen again.

Bob Dittmer, spokesman for the Department of Revenue, said counties are required by law to reflect any changes to the county tax rates in documents filed with the department each fall. Jackson and Pulaski failed to do that, and the department “did not sufficiently check to ensure rates were accurate.”

He said in the future the department will systematically document all the local option income tax provisions in an interdisciplinary manner, which will result in a tax rate and distribution matrix. This tax rate and distribution matrix will be provided to all counties, the State Budget Agency, the Office of Management and Budget and also will be published on the DOR website so anyone can review the data.

“We do have new procedures in place which, combined with changes the General Assembly made to the process during this past session, should preclude this from occurring in the future,” Dittmer said.

The department is also preparing a local option income tax handbook to be published in the next few months to assist local officials in understanding the complex process.

Pence vetoed several other bills, but leaders said those will be handled when lawmakers return for the 2014 session in January.

nkelly@jg.net

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