Indiana’s legislature adjourned Friday after approving a budget that now goes to Gov. Mitch Daniels (R). The $28 billion two-year budget includes a $1 billion surplus. Included in the budget and in other bills enacted this session are several 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. provisions:
- Automatic Taxpayer Refund. When the state’s rainy day reserves exceed 10% of budgeted spending (about $1.4 billion), the money will be split 50-50 between the teachers’ pension stabilization fund and refunds to taxpayers via an income 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. . (The threshold is unlikely to be reached during the next budget biennium.)
- Corporate Income Tax Reduction. From the current 8.5% rate, the rate will drop in steps to 6.5%, by ending a tax credit for the purchase of out-of-state municipal bonds. Indiana was the only state to offer the credit to all state bonds, not just its own. The rate reduction schedule:
- July 1, 2012: 8.0%
- July 1, 2013: 7.5%
- July 1, 2014: 7.0%
- July 1, 2015: 6.5%
- Ends net operating loss carrybackA Net Operating Loss (NOL) Carryback allows businesses suffering losses in one year to deduct them from previous years’ profits. Businesses thus are taxed on their average profitability, making the tax code more neutral. In the U.S., a Net Operating Loss cannot be carried back (only carried forward). s after 2011.
- Modifies the tax on smokeless tobacco to be at a lower rate than the tax on cigarettes, better reflecting the risk associated with the product relative to cigarettes.
- Reduces unemployment insurance benefits by 25 percent to forestall a tax increase and begin repaying $2 billion in loans from the federal government.
- Establishes a commission to study the effectiveness of economic development tax credits and programs.
A Democratic proposal to suspend the state’s gasoline tax and sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. on gasoline during the summer months was not included.Share