Indiana business personal property tax laws: the discussed changes and potential impacts

As you may have heard, changes to the way business personal property is taxed in the state of Indiana are being discussed. Of course, there can be a big difference between knowing about the potential changes and understanding the impacts of those changes.

It can be a complex topic, but there are some key points that can help you better understand the implications of the potential changes.

Setting the scene

According to the 2021 abstracts for Indiana counties, approximately 14.9% of Indiana’s total property tax base comes from business personal property assessed value.

While there is a discussion of legislative changes that would see that number reduced significantly (or even eliminated entirely), the result would be that doing so, holding other factors constant, would place an upward pressure on property tax rates, which would impact non-business personal property taxpayers and potentially increase local government units’ revenue losses due to the Circuit Breaker Tax Credit.

The impact on local governments can vary depending on each taxing units’ mix of real and personal property in its property tax base, as well as the current property tax rates in each taxing district, among other factors.

Generally speaking, property taxes in Indiana are used to fund operational expenses and capital projects needs at all levels of local government. Many taxing units utilize debt that is paid from property tax levies to fund significant capital projects.

A reduction in the assessed value that comprises the property tax base of a taxing unit would require a higher property tax rate to generate the same amount of property tax levy. Reductions in property tax liability for personal property taxpayers that would result from a reduction or elimination of business personal property assessed value would be offset by increases in property tax liabilities for other property taxpayers. Such increases could cause these taxpayers to exceed their Circuit Breaker tax cap amounts, with increases above those cap amounts resulting in increased revenue losses to local government taxing units.

The local government and public school impacts

If property taxes increase above a non-business personal property taxpayer’s Circuit Breaker tax cap amount, the end result is an increase in Circuit Breaker losses for the local taxing units. Increases in Circuit Breaker losses can impact local taxing unit’s ability to fund operating and capital costs on an ongoing basis.