The Indiana House voted yesterday 93-0 to pass H.B. 1020, which would require Indiana’s standing bicameral Commission on State TaxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. and Financing Policy to review all state and local tax incentives over a five-year period. I testified before the commission last December as they examined some of the credits in their corporate code. This bill expands the scope of the commission to review not just credits, but all types of incentives.
These sorts of review programs from states help legislators to better understand the trade-offs associated with building tax privileges into the code—privileges that are not subject to scrutiny as often as you might think. From State Tax Notes:
Josh Goodman, senior researcher with the Pew Charitable Trusts' state Economic Development Tax Incentives Project, told Tax Analysts that his group knows of 13 states with plans for specific, multiyear reviews of tax incentives. Some of those plans are codified into law while others are not, he said.
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The review [set forth by H.B. 1020] would cover exemptions, deductions, credits, preferential tax rates, and any other benefit that would result in a tax reduction or refund in excess of tax otherwise due. It also would apply to areas to which localities dedicate revenue to provide improvements or retire bonds to pay for improvements.
The bill also would specifically require a review of property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. abatements. It would direct the state's Department of Local Government Finance to conduct an annual auditA tax audit is when the Internal Revenue Service (IRS) conducts a formal investigation of financial information to verify an individual or corporation has accurately reported and paid their taxes. Selection can be at random, or due to unusual deductions or income reported on a tax return. of 1 percent of the statements of benefits submitted by taxpayers that receive a property tax abatement.
The findings from the most recent tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. review of the Commission on State Tax and Financing Policy in part spurred Sen. Hershman to file S.B. 1, which includes a corporate tax reduction that is partially offset by a reduction in the generosity of the state’s research and development credit. This move would continue Indiana’s march upward in our State Business Tax Climate Index from 10th to 8th.
I’ll be curious to see what kind of base-broadening and rate-lowering might come out of this even more thorough review of tax incentives. In the meantime, big kudos for a bipartisan piece of legislation.
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