Inventory Tax Eliminated

Five to one, the Kosciusko County Council voted Thursday to eliminate the county's inventory tax.

Tom Anglin, the only councilman to vote against repealing the tax, said he did so because "the state put it on, let them take it off."

Councilman John Kinsey was absent from the meeting. Voting to repeal the tax were council president Harold Jones, Larry Teghtmeyer, Charlene Knispel, Maurice Beer and Brad Tandy.

Randy Rampola, with Baker & Daniels, told the council at the beginning of the meeting the assessment of inventory will continue but deduction for inventory come tax time would be 100 percent.

Statewide, the inventory tax is scheduled to be eliminated anyway by 2006 pay 2007. The ordinance the council approved eliminates the tax for the 2004 pay 2005 year.

Technically, Rampola said, the county income tax council has to approve elimination of the tax, but the county council has the majority of the council's votes - approximately 66 percent.

To help ease the burden of the tax shift to property owners that will be created with the elimination of the inventory tax, the county council could approve an increase in the Economic Development Income Tax. However, Rampola said that can't happen until after the first of 2004, and the council has until March 31 to do so. If the council doesn't approve an increase in EDIT by March 31, the council has to wait another year before it can raise the EDIT rate again.

State Sen. Tom Weatherwax, author of the legislation that allows counties to eliminate the inventory tax, said the tax "is a very serious detriment to economic development."

By 2007, the tax will be totally eliminated, though the state still has to change its constitution, he said, and that change will be on the election ballot next year.

The Senate Bill gives the county the tools to prevent the tax burden from being shifted to homeowners, he said. However, the council could decide not to replace the inventory tax with an increase in EDIT, but he did not recommend that, as property owners would see an increase in their taxes.

Already, approximately 24 of the 92 Indiana counties have eliminated the inventory tax.

To further explain the EDIT homestead replacement, Weatherwax read a memo that said, "The 100 percent inventory deduction reduces assessed value. The property tax levy, however, does not change. Tax rates would be increased to generate the same tax levy on the lower AV base. In addition, (the senate bill) increases the tax rate caps for school and local units' capital projects and cumulative funds to account for the lower AV. The higher tax rates for all funds produce the shift from inventory to all other property types with no loss of local revenue.

"The optional EDIT-funded homestead credit would eliminate the shift from inventory to owner-occupied homes. This is a dollar-for-dollar replacement, meaning that for every dollar that a homeowner does not have to pay, local units will receive a dollar from the EDIT revenue. This money should be distributed to local units at the same time as property tax payments, property tax replacement credit and state homestead credit. (Indiana codes) require that the money is to be distributed so that no local unit or school will suffer a loss because of the additional homestead credit."

County auditor Sue Ann Mitchell said as she understood it, the increased rate the county is able to put on EDIT only will be able to mitigate the tax burden for property owners who receive the homestead credit. Weatherwax said the state approved increasing renters' deductions from $500 to $2,000 to help them.

Mitchell said that when the state eliminated the intrastate inventory tax, that dropped Kosciusko County's tax revenue by $3.5 million. The elimination of the inventory tax will drop the county's revenue again significantly if the county doesn't raise EDIT to compensate.

Weatherwax said he felt very good about using EDIT to replace the inventory tax because it's the best use of an economic development tax. In his Senate district, which includes part of Kosciusko County, there already have been success stories because of counties that have eliminated the inventory tax. Kosciusko County doesn't want to be an "island," he said, but will if they don't approve eliminating the tax because surrounding counties are eliminating it.

"This will speak volumes for Kosciusko County because not everything made (here) goes out of Kosciusko County," Weatherwax said.

Rick Kerlin, Silver Lake, said he encouraged the county to repeal the tax.

"This tax very unfairly puts the burden on businesses in Kosciusko County," he said. If the county doesn't eliminate it, more people will continue to go out of the county to do business.

He asked everyone in the room in favor of repealing the tax to stand up and all of the approximately two to three dozen people in the crowd did so.

When asked by a man in the crowd, Mitchell said the inventory tax in 2003 generated approximately $3.3 million in taxes.

Jones told the crowd eliminating the inventory tax is only a tax shift. Someone in the county - whether property owners or employees - will pay the tax dollars.

Don Zolman, local farmer and agriculture business owner, said the inventory tax is unfair to local agriculture business. It forces farmers to make bad decisions on marketing.

"The agriculture community is already paying their share in property taxes," he said. "Some would say more than their fair share."

He said paying the tax dollars out of EDIT would be fairer because everyone pays.

"I'd appreciate seeing this change made," Zolman said.

Tandy made the motion to eliminate the tax and Knispel seconded the motion.