Indiana Senate committee strips all tax cuts from House proposal

Republicans in the Indiana Senate gutted House Republicans’ plan for $1 billion in tax cuts within minutes of the bill’s first hearing in the Tax and Fiscal Policy Committee on Tuesday.

Committee Chairman Sen. Travis Holdman, R-Markle, authored the amendment to remove all the tax-cuts language from House Bill 1002, leaving only one section that would streamline the automatic taxpayer refund that will be issued to Hoosiers in May.

Since the start of session, Senate GOP leaders have expressed hesitancy about cutting taxes out of concerns over the possible impact on local revenues and a desire to see how the state fares when paying off debts following an influx of federal pandemic relief dollars.

“I think if we really want to be fiscally responsible, we really want to focus on paying down our debts first. Giving money away is great, but I think that’s first,” the bill’s Senate sponsor, Sen. Ryan Mishler, R-Bremen, said Tuesday.

Removing the language solidifies the Senate’s opposition to cutting taxes this session. Holdman told the Indianapolis Business Journal that was generally the plan all along for when the bill made it to the Senate.

HB 1002, as it came out of the House, would have cut four taxes: individual income, business personal property, sales and the utility receipts taxes.

It would have reduced the individual income tax rate from 3.23% to 3% by 2026. And it would have eliminated the minimum property tax that businesses pay on new equipment purchased after Jan. 1, 2022. That tax is referred to as the 30% depreciation floor.

The business personal property tax component would have shifted the tax burden onto other property taxpayers, leaving an impact on local revenues. That was a primary concern for Holdman and Senate leaders when considering tax cuts.

In addition, the bill would have let businesses apply for a state income tax credit equal to the amount of taxes they paid on existing business personal property where the 30% floor still applies, starting in 2025.

The remaining language would make the bill mirror Senate Bill 1, which makes changes to the automatic taxpayer refund process that was triggered by the unexpected state surplus in fiscal year 2021. The bill would allow taxpayers who pay income taxes but do not earn enough money to file a return to be eligible for the $125 credit.

Also added in HB 1002 was language found in Senate Bill 390 that sets an expiration on local food and beverage taxes in the next 20 years and sets up a process to renew and create new ones.

Language was also added to attempt to stop the Hoosier Lottery from expanding without authorization from the General Assembly. Fort Wayne’s The Journal Gazette reported last week that the Hoosier Lottery is planning an expansion into online gambling, and legislative approval, as of now, is not needed.

Bill author Rep. Tim Brown, R-Crawfordsville, told IBJ the amendment stripping the bill came from internal discussion within Senate leadership, and he had little input.

He said if the bill makes it out of the Senate in its current state, he will dissent, sending it to conference committee in the final weeks of session. There, the House and Senate will have to negotiate on how to move forward with a final bill.

Brown hopes to find a compromise there, he said.

“It is the citizens’ money. I mean, we are collecting more of the citizens’ money than we ever thought we would. And so how do we get that back to the citizens?” Brown said.

Holdman also said he thinks the two chambers can come to a compromise. He held a vote on the bill in committee until next week.

“We can get there. We’re not done talking,” Holdman said.

Removing the 30% floor on the business personal property tax was also a top priority on Republican Gov. Eric Holcomb’s 2022 agenda. Justin McAdam, deputy director of the Indiana Office of Management and Budget, testified before the Senate committee on behalf of the governor’s office, and he promoted bringing back the 30% floor provision.

McAdam said the cut was a component of economic development needed for Indiana to remain competitive in attracting equipment-intensive companies in the manufacturing sector.

“We rank very well in our overall tax structure, right? But when it comes to capital-intensive industries, capital-intensive businesses, this particular feature of our tax system pinches them particularly,” he said.

The Indiana Manufacturers Association and the Indiana Chamber of Commerce also testified in favor of the removal of the 30% floor on new equipment.