INDIANAPOLIS | One year after claiming the lion's share of the largest tax cut in state history, Hoosier businesses likely will win another reduction in their taxes this year, courtesy of the Republican-controlled General Assembly and Republican Gov. Mike Pence.
The only question lawmakers seem to be considering now is how big the new business tax cut should be.
Pence got the ball rolling in December when he urged the Legislature to eliminate the business personal property tax. He claims the tax on business and manufacturing equipment discourages companies from moving to Indiana and prevents Hoosier businesses from expanding.
The governor's tax cut comes with the biggest price tag — $1.07 billion, all of which currently funds schools and local governments. The state receives no money from the business personal property tax.
Pence believes it's possible to phase out the tax without unduly harming schools and local governments but will not say how he wants it done.
He has repeatedly deferred to the Legislature to come up with a plan, though Pence might finally take a firm stance Tuesday during his annual State of the State address.
House Republicans last week, with a wink and nod toward the governor, added eliminating the business personal property tax to their legislative agenda, which includes no other tax cuts.
However, the House GOP proposal limits the tax break to new equipment and only in counties that choose to eliminate the personal property tax. Existing businesses could not move to another county chasing the tax break.
House Speaker Brian Bosma, R-Indianapolis, said the proposal encourages counties with little business or industrial development to eliminate the tax and try to grow those sectors. Counties dependent on personal property tax revenue could leave the tax in place, he said.
House Democratic Leader Scott Pelath, D-Michigan City, commended Bosma for not embracing Pence's proposal, which likely would have shifted taxes now paid by businesses onto property owners and wage-earners.
The business personal property tax brings in $74.2 million a year for Lake County schools and local governments, $14 million in Porter County and $7.2 million in LaPorte County, according to the nonpartisan Legislative Services Agency.
Meanwhile, Senate Republicans are focused on cutting the corporate income tax rate by 1 percent this year to 6.5 percent, and ultimately to 4.9 percent by 2019. That would reduce state revenue by $132 million.
Their plan also exempts businesses from the personal property tax if a company has less than $25,000 of taxable personal property.
While 71 percent of businesses no longer would have to pay the business personal property tax, schools and local governments statewide only would lose about $30 million in revenue.
State Sen. Brandt Hershman, R-Buck Creek, the sponsor of the Senate tax plan, said the business tax cuts will create jobs and improve Indiana's business tax climate rating.
"Our corporate income tax is currently only 24th best in the nation," Hershman said. "The changes in Senate Bill 1 would give Indiana the second-lowest corporate income tax rate in the nation" among states that impose corporate income taxes.
Lawmakers in both the Senate and House are expected to continue modifying and refining their business tax cut plans before reaching a final compromise sometime during the nine weeks remaining in the 2014 legislative session.
As for Hoosier workers, the 0.1 percent reduction in the personal income tax rate, approved alongside more than $1 billion in business tax cuts last year, is set to take effect Jan. 1, 2015.
That means a person earning $40,000 a year will see his or her state income tax drop $40 next year.