State lawmakers want to raise revenue by taxing more services
By Tim Evans, Indy Star
Indiana could eliminate property taxes for homeowners and cut the state sales tax rate by applying the sales tax to more services, two state senators told a legislative commission Wednesday.
The plan laid out by Sens. Michael Young, R-Indianapolis, and Brent Waltz, R-Greenwood, was among about a half-dozen proposals presented to the Commission on State Tax and Financing Policy and was the only suggestion that seemed to resonate with the panel.
Waltz said the plan, a refined version of a proposal the senators offered during the 2008 legislative session, was based on sales tax data that lawmakers didn't have earlier in the year, when he and Young offered several options for replacing homestead property taxes.
State Rep. Peggy Welch, D-Bloomington, who chairs the summer study commission, said she does not expect the panel to recommend any legislative action on tax reform next year.
"We are more of a receptacle for information, a place that brings it all together," she said.
Even Waltz said he is not ready to advocate for any particular plan for replacing property taxes. He said his role in bringing the sales tax plan before the commission was to show there are feasible funding alternatives and to encourage discussion about the options available to lawmakers.
Young said he plans to introduce a bill in the 2009 session that would eliminate property taxes on owner-occupied homes by expanding the sales tax, but he will leave it up to lawmakers to decide what services should be taxed.
The revised plan would replace the $2.2 billion generated each year by taxes assessed on owner-occupied homes by expanding the sales tax base, Young said. He said some services, such as medical and legal bills, along with unprepared foods, likely would remain exempt from the sales tax. But dozens of other services would be taxed. Services taxed now include cable and satellite television services, utilities and some phone services.
With the broader tax base, Young said, the state could reduce the sales tax rate from 7 percent to 5.5 percent. Lawmakers raised the sales tax from 6 percent to 7 percent this year as part of the property tax relief package approved by the General Assembly.
State Rep. Bill Crawford, D-Indianapolis, who chairs the House Ways and Means Committee, called the plan a "concept worthy of further deliberation."
State Sen. Luke Kenley, R-Noblesville, who was a driving force behind legislation enacted this year that cut residential property taxes, said he supported expanding the sales tax to cover many new services.
But, Kenley said, he did not pursue that option this year because expanding the sales tax would be "a hard sell" and he didn't want to derail immediate tax relief.
Eight states tax fewer than the 23 categories of services out of 160 that are subject to the Indiana sales tax, Young said, and businesses would likely see some savings with the overall sales tax rate falling.
"It may not have the devastating effect some people predict," Young explained.
From the Indy Star
Thursday, September 11, 2008