CROWN POINT | Lake County residents and workers will find their wallets 1.5 percent lighter this month as the personal income tax passed earlier this year by the county council takes effect. Robert E. Dittmer, director of public relations for the Indiana Department of Revenue, confirmed Monday its collection begins this month.
Lake is last of the state's 92 counties to impose the local income tax, which has been on the state's books since 1973 as an option to wean local government away from depending on unpopular property taxes.
Council members argued for years it was unfair because business income isn't taxed, although businesses will reap millions of dollars in property tax relief.
However, state-mandated property tax reductions and a six-year freeze in the state's growth index that normally allowed increases in the county's total property tax levy, drained more than $120 million from local government coffers and forced county officials last May to resort to the previously untapped local income-tax revenues.
Town, city, township and county officials already have drawn up their 2014 budgets, including some employee raises, anticipating an initial windfall of more than $45 million from the new 1.5 percent county income tax.
The full effect of the income tax will be felt in 2015 when the first full year of income tax collections is completed.
The council passed three forms of local income tax: 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 some $90 million of property tax reductions, beginning in 2015, that in theory benefit all property owners, but in fact will reach few in East Chicago, Gary, Hammond and Lake Station who will pay income tax.
Property owners in those four cities already receive the maximum relief allowed from the circuit-breaker system that caps the most property taxes exacted from any single real estate parcel. Their income/property tax-relief dollars will bypass them and go directly into local government coffers.
Other county property owners will receive varying property tax reductions depending on the percentage of their property tax devoted to county government operations.
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.
State officials said the new tax applies to all county residents. It also applies to out-of-state residents who work in Lake County. Only Social Security benefits and some pension benefits are exempt from 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.
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 smaller nonresident rate.