Lake County will start collecting local income tax this fall

2013-05-10T16:00:00Z 2013-05-10T20:45:07Z Lake County will start collecting local income tax this fallBill Dolan bill.dolan@nwi.com, (219) 662-5328 nwitimes.com

The Lake County Council passed a 1.5 percent income tax Monday night, and county commissioners declined to veto it Friday morning, setting in motion the new tax's gears.

Lake County Council President Ted Bilski, D-Hobart, said county officials, like himself, who supported the tax have had to battle misinformation as much as personal vilification.

"I think there were so many untruths spoken and misleading advice about money from south county heading north that is absolutely the opposite. Small businesses and unincorporated areas fare the best," Bilski said.

"The false impression that Social Security benefits were going to be taxed is untrue. I told folks not to take my word on it. Call the Department of Revenue and ask them."

County officials and the Indiana Department of Revenue have provided this information.

What kinds of taxes were enacted?

These three: A 1 percent County Adjusted Gross Income Tax; a 0.25 percent Public Safety Income Tax; and a 0.25 percent County Economic Development Income Tax.

The 1 percent part of the tax is earmarked by state law to provide property tax relief to all classes of taxpayers — including homeowners, landlords, farmers, businesses and industries.

The 0.25 percent public safety tax is restricted to salary and benefits for police, firefighters, emergency medical services, operating the county jail including medical care for inmates and the juvenile detention center, and an E-911 communications system.

The 0.25 percent economic development tax can be spent "for any lawful purpose" under state law. County officials have said they intend to earmark that money for improvements in roads, bridges and drainage waterways.

How much money would an income tax generate?

An estimated $135 million annually, to be distributed to the more than 70 county, township, municipal and school districts based on their share of the county's overall property tax levy.

Who pays?

All county residents and out-of-state residents working in Lake County. Lake County residents who have earnings from outside the state must pay the tax regardless of the source of those earnings.

Are there any exemptions from the county tax, especially for the retired on fixed incomes?

Businesses income, Social Security benefits and some pension benefits are exempt from the county tax. All incomes taxed by state also will be taxed by the county.

Who collects the tax?

The Indiana Department of Revenue collects the tax from an individual's adjusted gross income as calculated on the IT-40 state individual tax form. The county tax is entered on Line 9 of that form.

Where will the taxes go?

An individual's taxes would be distributed to the county in which they reside, even though they may work in another county. Out-of-state residents working in Lake County would pay a reduced nonresident rate, yet to be determined.

Who receives property tax relief?

Theoretically, all homeowners, landlords, farmers and businesses, small and large, will get back a fraction of the income taxes they pay in the form of property tax relief. But the relief will be unequal.

It will be distributed as a reduction of the county government tax rate. The rate reduction will be the same for everyone.

However, the county government tax rate is only one of dozens county property owners pay and only a small slice of the total in urban areas, where residents also pay municipal, school and special taxing unit rates. Added together, they represent the lion's share of the average tax bill. These residents will see the least amount of property tax-relief dollars.

In contrast, the county government rate is the largest part of the total taxes imposed in rural, unincorporated areas where property owners don't support large municipal tax burdens. They will see the most tax-relief dollars.

Many will not see any reduction in property taxes.

Tens of thousands of homeowners and businesses already receive all the property tax relief allowed under state law through the so-called circuit breaker, which caps the taxes imposed on any single parcel per year. They include many of the residents of East Chicago, Gary, Hammond and Lake Station. Their income taxes/property tax-relief dollars will bypass them and go directly into local government coffers.

Will some receive property tax relief even if they didn't pay any county income taxes?

Yes. County officials say businesses and people whose only income is from Social Security are among these beneficiaries.

When will income taxes first be collected?

County officials said they will begin in the last quarter of this year.

Will the tax be collected retroactive to Jan. 1?

County officials said no. Instead, this year's tax will be prorated so residents only will pay a quarter of a full year's obligation.

Can the county raise the income tax rate above 1.5 percent?

Yes. County officials say the statutory maximum is 3.75 percent. Currently, the highest rate among the other 91 counties is 3.13 percent.

Will the county's new tax amount to double taxation for those working in Lake County, but already living in Porter or other counties that already have income taxes?

No, they will only pay their home county income tax rate.

Why now?

Past resistance by local elected officials to an income tax has been eroded by state laws that have reduced revenues from property and inventory taxes on businesses that local government used to thrive on. The county was forced to borrow $15 million this year and is reluctant to borrow again.

The General Assembly pushed Lake  County in that direction in 2007 by freezing the growth index that normally allowed increases in the county's total property tax levy. Legislators lifted that freeze in the recently concluded session, and Gov. Mike Pence approved it. With the freeze thawed, local government expects to collect about $3.5 million more in property taxes in 2014 than this year.

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