Indiana state legislative session resource center

Below is a summary of the new municipal local income tax provisions from Senate Bill 1.

Municipal local income tax summary
SB1 (in current form) provides authority for an eligible municipality to impose a local income tax. An eligible municipality is defined as a city or town with a population of at least 3,500.

View the list of eligible municipalities.

Local income tax (LIT) implementation
Starting after December 31, 2027, eligible municipalities can impose a local income tax rate on adjusted gross income, not to exceed 1.2%. This tax applies only to taxpayers residing within the municipality and is complementary to any local income tax imposed by the county.

Tax revenue management
Revenue generated from the local income tax must be classified as general-purpose revenue and may be used for any purpose of the municipality. Furthermore, tax rates must be re-enacted annually post-2030 to remain effective.

If passed this would be a significant change to the local income tax process and put more control in the local municipalities’ hands. To discuss the options your community has and the potential revenue generation/taxpayer impacts this could have, reach out to our team.

Notable bills from the 2025 legislative session focus on property tax, tax increment financing and road funding.

• Depreciable Personal Property (SB 443): The current bill proposes increasing the exemption acquisition cost threshold from $80,000 to $100,000. Per 2008 legislation passed in Indiana, this change could affect local taxing units by altering the property tax base and potentially increasing tax rates for non-personal property taxpayers.
• Residential Tax Increment Financing (SB 104): This bill requires at least 5% of tax increment revenues from new Residential Tax Increment Financing allocation areas to go towards police and fire services, reducing the amount available for incentives.
• Property Tax Relief (SB 1): Proposes adjustments to property tax, assessed values, levies, deductions, and credits, aiming to reduce net property tax bills and local government revenues. Provides tax relief for agricultural land, first-time homebuyers, seniors and veterans and introduces an option for property tax deferral.
• Targeted Property Tax Relief (SB 1): Provides tax relief for agricultural land, first-time homebuyers, seniors, and veterans, and introduces an option for property tax deferral.
• General Obligation Bonds (SB 1): Requires a two-year waiting period before issuing new bonds if a General Obligation Bond with a term of five years or less was issued after December 31, 2024 and before May 1, 2025, unless there's an emergency.
• Road Funding (HB 1461): This bill allows counties to pledge property tax for transportation-related purposes and requires a local ordinance for wheel tax/surtax to qualify for a Community Crossings grant starting in 2028.
• State Budget (HB 1001): Focuses on the K-12 funding formula, including a $160M addition for curricular materials and a slight increase in basic tuition per pupil.
• School Property Taxes (SB 518): Proposes sharing of controlled project and school safety referendum levy approved after May 10, 2025 with certain charter schools. It also covers sharing operating referendum revenue for referendums after May 10, 2025, and sharing operations fund levy starting in 2028. Virtual charters are excluded from this tax revenue sharing.

Legislative deadlines to be aware of: IGA | Deadlines

Proposed House Bill 1461 introduces a significant change in how counties and municipalities can qualify for the community crossings matching grant program. The bill requires that counties and municipalities must adopt a wheel tax to be eligible to receive funds from this program beginning January 1, 2028, which is designed to support local road and bridge projects across the state.

House Bill 1461 was introduced with the objective of ensuring that counties and municipalities have a sustainable source of local funding for their infrastructure projects. By requiring the adoption of a wheel tax, the bill aims to create a consistent revenue stream that can be used to match state funds provided through the community crossings program.

The wheel tax is a local tax imposed on vehicles registered within a county or municipality. It is typically levied based on the type and weight of the vehicle, and the revenue generated is earmarked for transportation-related expenses, including road maintenance and improvement. The adoption of a wheel tax provides local government with a reliable source of funding that can be used to finance their share of project costs under the community crossings program.

The potential of HB 1461 has several implications for counties and municipalities across Indiana:

• Eligibility for funding: Counties and municipalities with a population of at least 5,000 that do not adopt a wheel tax will be ineligible to receive community crossings funds beginning January 1, 2028, potentially missing out on crucial financial support for their infrastructure projects.
• Local funding source: The adoption of a wheel tax will generate local revenue that can be used to match state funds, enabling local government to undertake more substantial and impactful projects. Planning and implementation: Counties and municipalities will need to develop and implement a wheel tax, which involves determining tax rates and ensuring compliance with state regulations.
• Intergovernmental relationships: HB 1461 changes the county wheel tax distribution formula to exclude municipalities that enact municipal wheel taxes after June 30, 2025. Additionally, vehicles registered in a municipality that adopted a municipal wheel tax after this date will be exempt from the county wheel tax. This could potentially impact the dynamic between counties and municipalities.