A few years ago, my city council considered a personal property tax abatement for a specific business. There was a lengthy discussion of the particulars of that request — quite lengthy.
After the other council members had spoken, I raised my hand. I noted we had used up a lot of time talking about a specific business personal property tax abatement of a single business.
I said that the view from 18,000 feet might be instructive. Rather than discuss the minutia of a particular abatement on an investment in productive equipment, Indiana would do better to eliminate the business personal property tax altogether.
It is a tax on productivity. It is a tax on growth. It is a remaining disincentive to Indiana’s attractiveness as a place to locate new manufacturing industry or invest in new information technology. It has outlived its history.
And it is a relic among almost all other states.
If it were not, the council would not be debating the offering of business personal property abatement. If it were not, there would not be a carve-out in enterprise zones.
After my remarks, an economic-development director in another part of the state took issue with my argument. I met him for lunch; he is someone I respect. But here is what he told me: If you take away the imposition of the tax it is one less economic-development tool to offer.
That is, you have to have certain taxes to be able to take them off the table. I asked him whether that made any sense when other states didn’t have the tax in the first place. He conceded my point.
The merits of taxes are, in part, measured in terms of “frictional costs.” That is, how much are the compliance and preparation costs relative to the tax collected. The business personal property tax, with its continued record keeping, preparation and filing, is a tax with a high frictional cost. That is particularly true for firms with mobile assets. It is even more true for those who have applied for abatement and need to file compliance documents.
I quipped in an editorial interview eight years ago that tax abatement is “God’s way of telling you taxes are too high” — too high for certain activity or it wouldn’t be offered. Business personal property taxation discourages jobs. It discourages investment in new equipment. It taxes capital equipment that adds value to manufactured goods. We want value-added jobs, manufacturing jobs, those that help the Hoosier State compete with neighboring states and the rest of the world.
There has been much talk of “lost revenue.” But this is not on existing revenue. And much of the talk — most of the talk — has come from people who have been interested in maximizing revenue from taxes. The money is not lost. It is just that it remains in the hands of businesses and people who will decide for themselves how to spend it, or save it or invest it. Decisions that result in spending creating greater economic activity.
The tax has been on a historical path to elimination for over 65 years now — actually, longer than that. Change in personal property taxation was desired for decades before public officials, finally, enacted each step that shrank the reach of taxation of personal property.
At one time, it applied to personal property — a homeowner’s furniture, appliances, even bicycles. The assessor could come onto your property and inside your home to count the Frigidaire, the Roper or even the Schwinn.
But the Legislature eliminated that. Then the Legislature converted the personal property tax on automobiles (an extension of taxing buggies the century before) and substituted the auto excise tax.
It took several decades for the next steps to be enacted. It was one that resulted in the elimination of the business inventory tax, a tax which had hindered this state, “the Crossroads of America,” as a shipping and distribution hub and had negated the geographic advantages of being within a day’s drive of half the U.S. population.
So, Indiana’s history on this general issue is this: 1) personal property taxation of individuals ended; 2) personal property taxation of automobiles ended; and 3) business personal property taxation on inventory ended.
The trend is as clear as it is welcome, and the Indiana Legislature now has taken an interim step to exempt business personal property, by allowing a geographic area to give itself a competitive advantage for business investment in growth — real growth — by phasing out the tax.
Those communities in Indiana that take advantage of the option to phase out the business personal property tax will be assisting in productivity growth for workers. That is, it will help in creating a more attractive place for the higher paying jobs in value added manufacturing and processing.
