TERRE HAUTE — All agree the money has to come from somewhere, but if some state lawmakers are successful, property taxes on homes could yield way to sales taxes on services.
That’s one scenario Indiana state senators are considering under Senate Joint Resolution 8, a plan submitted to the Senate Rules and Legislative Procedure Committee this week.
The proposal seeks to eliminate property taxes on residential homes and substitute it with the taxation of business services not currently taxed, explained Sen. John Waterman, R-Shelburn.
“There are about eight different scenarios on that,” he said, explaining that the specific rate of sales and service taxes would hinge on how much property one would be able to exclude.
Waterman co-authored the bill along with Sens. Brent Waltz (R-Greenwood) and Mike Young (R-Indianapolis).
Under the scenario Waterman described as being strongest, homeowners would pay no property taxes on their home plus up to one acre.
In return, what Waterman described as a “three-page list of services” including barbers, mechanics and attorneys, would begin paying sales tax.
Waterman said in all scenarios that medical bills would be excluded from the service tax.
The proposal is very similar to a failed one Waterman supported last year, but this year’s real estate woes have made it much more passable, he said, noting “last year it fell on deaf ears.”
“The biggest crisis we’re dealing with is the homeowners,” he said, stating that Indiana ranks among the highest of states with regard to foreclosures.
“Sheriff’s sales are going through the roof,” he said.
And while the state still needs the $2.95 billion generated annually by residential property taxes, Waterman said it makes more sense to shift that to services in light of the economy.
“We are a service country now,” he said.
“Back when this state was founded in 1816, when the property was taxed, 90 percent of the population were farmers,” he said, reasoning that farms are businesses and so at that point it made more sense to tax them as such because the home and farm were one income-producing unit.
But today, with such a small percentage of homeowners living on farms or working from their house, taxing their property is part of what Waterman called an “outdated system.”
Of the constituents he’s spoken to, Waterman said more than 99 percent agree with the plan once it’s explained to them.
Some businesses dislike the idea of adding sales tax onto their services, but Waterman said Indiana’s business taxes overall are very competitive with its neighboring states.
Under the current design, the plan would not eliminate property taxes on income-producing properties such as rentals, he said, only owner-occupied.
Sen. David Long (R-Fort Wayne), chairman of the committee, said its members asked for additional time to study and discuss the resolution and amendment.
“The proposed amendment to SJR 8 is interesting and intriguing for several reasons,” Long said. “First, it honestly addresses the true cost of the repeal of homestead taxes. This differs from other repeal proposals which have never addressed the true cost of replacing property tax revenue. It also deals with the fundamental driving force behind the state’s property tax revolt, which is homeowner’s taxes.”
Long said he expects the committee to reconvene in the coming days, but wants to “make certain the plan is workable and acceptable before asking colleagues to vote on the proposal.”
SJR 8 is being offered as an amendment to the Indiana Constitution, requiring passage by two separately elected sessions of the Indiana General Assembly and approval by voters.
Waterman serves Senate District 39, which includes Clay, Greene, Knox, Daviess, Owen, Sullivan and Vigo counties.
Brian Boyce can be reached at (812) 231-4253 or at brian.boyce@tribstar.com.
Local & Bistate
Proposal would eliminate Indiana property taxes
Valley senator co-authors bill that would add sales tax to services
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