If a commuter tax bill makes its way through the Statehouse for the governor’s signature, Jackson County could receive more than $252,000.
But 64 counties around the state wouldn’t be so lucky. Estimates show tax losses ranging from $35,000 to $35 million.
At this time, income tax taken out of your paycheck goes to the county where you live, not where you work.
But House Bill 1135, authored by state Rep. Cherrish Pryor, D-Indianapolis, could change the law to send some income tax to the county where you work and reduce the amount kept in the county where you live. Commuters would have to pay a new tax in the county where they work, equal to half of whatever that county’s income tax rate is.
Also, workers would be able to claim a credit for the amount they paid to their work county for the taxes they would normally pay in their home county. They would pay the same amount of income tax even if the system changes.
But that could mean workers would pay both counties upfront and later get a refund from their home county, although it’s not clear at this time. Pryor said she wasn’t sure how workers would pay paycheck to paycheck, and the Indiana Department of Revenue would work out the exact method of how taxes are collected if the law is approved.
The estimates show Jackson County receiving $252,137. That’s based on a model developed using tax year 2012 individual income tax returns, U.S. Census data and local option income tax rates effective Jan. 1 of this year that were certified as of Nov. 7, 2014.
Brian Thompson, vice president of the Jackson County Council, said it’s always good when the county receives money.
If the bill goes through, the money the county receives would go into the general fund budget and be used for county services, including the courthouse, jail and ambulance.
After reading through the bill, Thompson said he sees it as no income tax increase for individuals, and he also sees it as a potential property tax relief.
“If that would replace some property tax, which it could, that would be a benefit I see overall to taxpayers because it’s not an increase in anybody’s personal taxes,” he said.
Thompson said with taxes, it’s important to make all of them as fair as possible.
If this bill passes, he said he worries most about counties surrounding big cities losing money.
That would be the case for counties surrounding Marion County. The estimates show potential tax losses of more than $12 million for Johnson and Hendricks counties and $35 million for Hamilton County, while Marion County would gain nearly $84 million.
If a person lives in Johnson County and works in Indianapolis, the local income tax coming out of his or her paycheck could end up paying for services in Marion County. That person’s hometown might have to consider reducing staff and services.
The sudden loss in income taxes would severely cut funding to counties, cities, towns, libraries, fire districts and schools.
“Those guys are going to be sweating bullets,” Thompson said. “They are going to have to do some hard thinking and hard work.”
Indianapolis and the Indy Chamber of Commerce have been pushing for the change in how income taxes are collected to help pay for police, firefighters, ambulances and roads in the capital city.
City officials have argued the large number of commuters requires the city to spend more for roads and emergency responders and that workers coming in from the suburbs aren’t paying for those services.
That’s why Pryor, a former Indianapolis City-County Council member, decided to author the proposal.
“It’s important that the people in Marion County are adequately taken care of,” he said. “And we have a lot of people that draw on our services. It’s important for everybody to pay.”
The mayors of Greenwood and Franklin, state representatives and other suburban legislators are lining up to put a stop to the bill.
Sen. Brent Waltz, R-Greenwood, said the commuter tax would cause money to flow into large cities while deeply slashing the income of suburban counties and jeopardizing their ability to provide services to their residents. The proposal doesn’t have any way for suburban communities to make up the millions in lost revenue, he added.
“I can’t imagine the commuters use $84 million worth of police and fire protection in accidents or being victims of crime per year,” Waltz said. “If commuters are causing such great harm financially, then why does Marion County keep offering tax breaks to these companies attracting suburban workers, and those tax breaks total tens or hundreds of millions per year in lost taxes?”
The proposal has been sent to the House Ways and Means Committee, the first stop for any new tax ideas at the Statehouse.
Pryor wasn’t sure whether her proposal would get a hearing in committee, where members would consider the proposal and then vote on whether it would be brought before the entire House of Representatives for approval. Pryor said she hopes the committee at least will have an initial discussion on the topic.
“It’s a first step,” she said. “I’m open to suggestions for ways to make the deal better. There is a need, and it’s an issue the General Assembly does really need to take a look at.”
The (Johnson County) Daily Journal, a sister paper to The Tribune, contributed to this report.
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County;Estimated net impact