Kosciusko County Council discussed income taxes with National Association of Counties board member and Montgomery County Auditor Jeff Dossett Thursday.
Indiana Association of Counties Director David Bottorff had planned to attend Thursday's meeting, but was unable to attend.
After a sharp increase in property tax levels for homeowners around the state, Gov. Mitch Daniels and the Indiana legislature proposed counties adopt new optional income taxes to replace property taxes.
Dossett explained the three types of local income tax options available to counties.
The first type, called Operating Local Option Income Tax, was created to offset the growth in the operating levies of all tax units in a county except schools. Dossett told the council, if the county adopts Operating LOIT, they must adopt the rates certified by the Department of Local Government Finance, which includes a double rate for the first year of the tax. Also, Dossett said, if the county adopts the Operating LOIT, they cannot go back to a property tax system, even if the income tax does not meet the county's needs.
The second type, Property Tax Relief LOIT, is meant to provide relief for taxpayers in the form of a credit on their property tax bill. The county may provide the relief in one of three ways:
n Provide local property tax replacement credits to all property.
n Increase the homestead credit percentage uniformly.
n Provide local property tax replacement credits to qualified residential property.
The county may raise this form of property tax in increments of .05 percent up to 1 percent.
Dossett said Montgomery County adopted the Property Tax Relief LOIT and applied it only to homestead properties. He said most homestead property owners in Montgomery County would benefit more from the income tax than by staying with property tax. Dossett specified that property owners who do not reside in the county, such as owners of lakehouses, would not benefit from the Property Tax Relief LOIT.
The third option, the Public Safety LOIT, was designed to provide additional funding for public safety agencies. Dossett said only counties who have adopted both the Operating and Property Tax Relief LOITs are qualified to adopt the Public Safety LOIT. The Public Safety LOIT can be raised in increments of .05 percent up to the lesser of Property Tax Relief LOIT, or .25 percent.
Large businesses headquartered outside the county, Dossett said, would not pay income taxes adopted by the county.
Council President Harold Jones asked Dossett about plans to provide a back-up for the income taxes if income in the county dropped significantly.
"We have a pretty good employee base in the county," Jones said. "Is there a way to recoup if an employer leaves or lays a large number of people off or lowers salaries?"
Dossett said the county would have to raise the Operating LOIT to make up the difference.
Dossett told the council he expects they will need time to research each income tax and how it would affect Kosciusko County.
"I don't think it's going to be an easy decision for you to make," he said. "I know you'll really have to study this."
Dossett also said the optional income taxes may not be a cure-all for the state's tax problems.
"It's not a fix for the property tax system," he said. "If you're going to get rid of property taxes, you've got to make up that revenue somewhere. If it was easy, it would have been done by now."
Jones said local governments are in a difficult position with state pressure to solve the property tax problem. "There's no question they are kind of dumping it all on our laps with restrictions," Jones said.
