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General Assembly

Lawmakers bridge divide on corporate tax rate cut

– House and Senate Republicans came to agreement Tuesday on a package of business tax cuts.

Final edits were being made to the proposal, which is likely to be passed without Democratic support by the House and Senate today or Thursday – the day lawmakers are ending the 2014 session.

The program – a mix of a state corporate tax cuts and optional local changes to the business personal property tax – is contained in Senate Bill 1.

Rep. Eric Turner, R-Cicero, said corporate revenue continues to rise at the same time the state is reducing the rate so that leaves the business personal property tax that is preventing more business development.

“We appreciate the blended bill,” he said of the compromise between House and Senate versions.

Senate President Pro Tem David Long, R-Fort Wayne, said in the big picture reducing the corporate tax further is the most important component of the package.

“Cutting our corporate tax rate to the second lowest in the country will pay dividends for us,” he said.

Lawmakers previously passed legislation lowering it from 8.5 percent 6.5 percent by fiscal year 2016. The corporate tax rate is at 7.5 percent, and under the agreement it would further drop to 4.9 percent by fiscal year 2022.

The larger sticking point was how to attack the business personal property tax.

Gov. Mike Pence started the discussion by pushing for an elimination or phase-out of the tax paid on equipment and machinery. It brings in about $1 billion in revenue annually to Indiana schools, cities, towns and other local units.

But legislative Republicans have been working around the margins on the issue, citing the fiscal hit local units could take.

The final compromise centers on making changes to the tax optional for each county.

For instance, counties could give a “super abatement” to specific companies on equipment for up to 20 years. Right now the limit is 10 years.

Or local units could eliminate the tax on certain small tax filers. Even if every county opted in, the tax would be reduced by only about $13 million statewide.

The biggest option, though, would be to allow counties to exempt all new equipment from the tax. While there would be no immediate fiscal effect, over time the tax would disappear as equipment is replaced.

Local officials have warned that this approach will lead to competition among counties that isn’t healthy for the state overall.

But Long said he doesn’t fear competition.

“When you look at the super abatement, everybody’s in the game,” he said, saying that allows larger counties to compete with any smaller counties that might eliminate the tax in the future. “If Allen (County) has super abatements and Whitley (County) eliminates the tax – both sides project-by-project still have the same argument.”

Sen. Karen Tallian, D-Portage, said she can’t justify another corporate tax cut when state tax revenue is millions of dollars behind projections.

“This should not be the first priority of where we are spending our money,” she said. “And it is spending when we don’t take in revenue.”