Tuesday, August 23, 2005

Indiana's Tax Structure

I am going to study Indiana's tax code in more detail in the next few weeks. As many of you know, my wife is a local CPA. She is going to help me.

We need to simplify Indiana's tax code. There are four things I think we should try to accomplish by changing the Indiana tax code.

1. We need to simplify property taxes and we need to lower them. I currently think property taxes should be capped at 1% of assessed value for residential property. I think all exemptions should be removed. They just confuse the issue. I am not sure what to do with Commercial and Farm property yet.

2. We need to completely eliminate personal property taxes. Personal property taxes are taxes that business owners pay on property they use for their business. For example, lets say you are a Realtor. You buy a desk for your business. You of course pay sales tax when you buy it. You pay tax on your business income each year. And then you pay personal property taxes for each item you purchase for the first several years you own it. This is absurd.

Another problem with personal property taxes is the fact that business owners have to fill out a FOUR page form each year. This is excessive paperwork. Large businesses can always file for tax abatements so they get out of paying some of this tax...

3. We need to seriously look at the tax abatement system in this State, it is completely unfair to small businesses. Large businesses can often qualify for tax abatements. They fill out the needed form and submit it to local authorities. The local authorities almost always vote to approve the tax abatement.

Currently, businesses can file for both personal property tax abatements and property tax abatements. I have talked to local officials, if you are not applying for abatements on property worth at least $125,000 you are wasting money. There are filing fees and you will need to dedicate a lot of time or hire a CPA or lawyer to assist you. In other words, this abatement will NOT help most small businesses.

Another problem with tax abatements is that they RAISE other people's taxes. When local authorities allow one business to pay less taxes they have to raise everyone else's taxes to compensate for this!

4. We need to change the states tax structure so that local governments directly get more of the money. Currently the State pays a subsidy to each locality to "subsidize" our property taxes. This is absurd. We would be better of if each locality collected more of its own taxes and completely removed the State from the process.

I have to do a lot of reseach to come up with a simple tax structure that is revenue neutral. I want a simple system. This would allow is to downsize local and State government if we choose taxes that are simple to interpret and collect.


Anonymous said...

But changing the tax system could cut out all that extra money that disapears. Those in Gov't will miss their free embessalment money.

You might not want to believe in this, but it is there in all forms of Gov't.


Anonymous said...

Hey Mike! Great article! I just wanted to point out that the realtor in your example will pay personal property tax on that desk as long as they own that desk in their business. The minimum assessed value goes to 10% for assests greater than 10 years old, or a minimum of 30% of overall assets - so if they own that desk for 50 years, they will pay tax on that desk for 50 years! How ridiculous is that!

Mike Kole said...


There is a lot of shell game action, with taxes collected at the local level sent to the state and redistributed back from the state to the counties and municipalities. It's nonsense, and has become a real bone of contention in the Indy donut counties, where most of these counties and their cities and towns contend that the state has withheld money due.

Interestingly, these are all GOP-dominated counties, and despite the presense of a Republican governor, the situations have not been resolved as the local entities had hoped.

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