By Bill Waltz, vice president of taxation and public finance
Non-budget year sessions by design do not produce a lot of major tax and fiscal changes that are adopted. Nevertheless, this short session provided plenty of significant events to note – despite receiving little public debate or broad attention – with some of it happening in very swift fashion.
Cash funding projects, RV sales tax exemption and more
NOTE: Due to the COVID-19 crisis, the Governor has elected not to exercise the following measure given the potential need for emergency revenues.
Most exemplary of this was the extremely rapid passage of HB 1007. It was the very first bill heard and passed out of the House Ways and Means Committee, on only the second day of session, and followed quite atypical protocol.
House Bill 1007 altered last year’s budget, spending $291 million to cash fund six higher education capital projects (one for each of six state institutions). These projects were already approved for bonding in last year’s budget, but at the behest of the Governor and his fiscal management team – and with the strong approval of House and Senate leadership – the bill utilized surplus funds resulting from better than expected revenues to pay for the construction projects upfront and with cash.
This measure saved the state over $130 million in interest and freed up money for future budgets. It was passed by the full House in the first week of session and never slowed down. The bill was through the Senate and signed by the Governor before the end of January – just 14 session days after lawmakers convened.
Meanwhile, another bill was quickly, and all too quietly, gaining support in the Senate and catching a lot of businesspeople by surprise. Senate Bill 320 was introduced in reaction to the misappropriation of funds by, and resulting bankruptcy of, a large payroll company in northern Indiana. The objective of the bill was to prevent such events in the future by prohibiting all payroll companies from remitting Indiana withholding taxes on behalf of any businesses. While well intended, this remedy represented a serious disruption to the comprehensive services provided by payroll companies and widely relied on by many companies.
Consequently, the bill was not welcomed by the business community. Still, it was viewed by the Senate as a good bill, one needed to correct a wrong, and passed 48-1. Thus, it was not a simple task to convince the proponents that it presented issues that need to be worked out with the input of all affected parties. After constant messaging, our voice was ultimately heard; the House didn’t move the bill and the matters it contained will be vetted this summer.
Another threat to the business community was SB 399, aimed at big box property tax assessment. In 2019, a similar bill passed the Senate overwhelmingly, making it very probable that the troubling bill would again have to be dealt with. Fortunately, the Senate Tax and Fiscal Committee ended up with 21 bills on its agenda for its last meeting to move Senate bills and ran out of time to take on the controversial issue again. While a welcome respite, it will no doubt return.
In the “passed” column was legislation that at least temporarily resolves an issue that has been kicked around for many years. The Chamber has long advocated for legislation to remove disincentives that hamper the retail sale of recreational vehicles to out-of-state residents. House Bill 1059 does just that for the sales tax collection issue by requiring non-resident purchasers to pay only the sales tax their home state charges, regardless of whether the state has a reciprocal agreement with Indiana. This step should prove beneficial to Indiana dealers and indirectly to Indiana manufacturers.
Trio of mega bills end on good note
Avid session followers would have noticed a contrast in activity between the Senate and House relative to tax legislation in 2020. The House Ways and Means Committee passed 10 House bills during the first half of the session; the Senate Tax and Policy Committee passed 25. Once these numerous Senate bills and select House bills crossed over to the other chamber the stage was set for the second half. And by the end of that period, not untypically, just three mega tax bills made up the foundation of pending tax matters. A great number of provisions were compiled into HB 1065, HB 1113 and SB 408.
When it began, HB 1065 was a local tax bill intended to restructure the way local income taxes are collected and distributed. The Chamber opposed it in its introduced form because it contained provisions that would have cost the business community $186 million. We were assured the negative portions would be amended out before it was passed by the Ways and Means Committee.
The bill continued to substantively evolve from there and ended up becoming the medium for all tax things that needed a home, including a couple controversial issues that the Chamber was involved with. But the final version did also contain several significant economic development measures, as well as important provisions clarifying taxpayer rights in the personal property tax arena.
House Bill 1113 was the Department of Local Government Finance’s (DLGF) measure – always lengthy and always a magnet for local tax and fiscal issues. This year it took on several provisions that were not viewed as favorable to taxpayers. The Chamber engaged to seek modifications and succeeded; bad segments were deleted from the end product and some desired tweaks were included.
Meanwhile, SB 408 was the Department of Revenue’s (DOR) legislation, which often includes changes that impact taxpayers in some manner or another. This means the Chamber is always involved with the DOR bill. Our participation this year began well before the session began. Prior to introduction, the Chamber sought inclusion of some model language dealing with federal partnership audits. But after initiating some in-depth discussions with stakeholders, it was agreed some of the model provisions might be a little premature and they were pared back.
It was also agreed that they will be taken up next year. But there were other provisions in the bill that practitioners felt needed work, and these issues called for our continued participation as the bill proceeded. Ultimately, this bill, like the DLGF one (HB 1113) and the third mega bill (HB 1065), was amended to the point that all the concerning provisions were either removed or appropriately modified.
Promising outlook for priority issue in 2021
One positive effort that fell short was to again expand the personal property tax exemption for small businesses that have only a minimal amount of business equipment and machinery, aka the de minimus exemption. Senate Bill 385 attempted to amend the calculation of the exemption so that it would take into account that equipment depreciates in value after it is purchased. The current law applies the exemption based solely on the acquisition cost, so even if its depreciated value is well under the $40,000 threshold, if it was purchased for more than $40,000, even years ago, the taxpayer still has to pay the tax.
The bill passed the Senate but was not heard in the House. The bill changed “acquisition cost” to “assessed value” (which accounts for depreciation), but it would have required a calculation of the assessed value under the assessment rules, a step that defeats the purpose of making the exemption easily determinable. This complication coupled with the fact that the exemption threshold was just doubled last year led to the downfall of the proposal. But there is good news: A lot of positive attention was brought to the need to recognize depreciation in calculating the exemption. We intend to use the interim period to work out an improved method for applying the exemption and believe the prospects are good for making this change next year.
To sum it up, this was largely a defensive year in the world of tax and fiscal policy. Most of the provisions that we worked on received little attention by anyone other than those directly affected (and in some cases gained little awareness among those who would have been directly affected, i.e. the payroll company bill). But we did gain ground and enjoyed small victories and key defensive wins. These all are important in maintaining a good tax environment, and we will persist in this pursuit.
Resource: Bill Waltz at (317) 264-6887 or email: [email protected]