Why Indiana Needs a Common Sense Small Biz Exemption on the Business Personal Property Tax
The business personal property tax is a widely debated issue across the country, as small businesses feel pinched from being taxed on equipment, in addition to income. According to a report by the Indiana Fiscal Policy Institute, 290,000 businesses paid the tax in 2013, resulting in more than $1 billion in yearly revenue. Eight states have already eliminated it, and NFIB says a current proposal would eliminate the tax for half of small businesses statewide.
Here’s why:
Filing Fees Can Equal Tax Payments
As it stands now, business personal property tax is imposed on companies with equipment that is used in the production of income, excluding land and buildings but including manufacturing tools. The complex tax code and expensive filing fees often overburden small businesses with modest amounts of capital.
“I’ve seen people be charged more than what the taxes are,” says John Friend, CPA and owner of John Friend and Company. “It’s great for accountants—but it doesn’t make a lot of sense when the cost of preparing the paperwork is more expensive than the tax the paperwork produces.”
According to Friend, a business with $25,000 of taxable capital would pay 3 percent, or $750 in taxes, while a CPA might charge $250 in filing fees. If a company had only $5,000 in capital, they would pay $150 in taxes, in addition to the $250 tax preparation fee.
Halts Regional Competitiveness
Since Indiana’s neighboring states either have repealed or reduced the parameters of the tax, business owners can simply choose to set up shop across state lines to avoid paying extra fees.
A Possible Solution
NFIB supports the de minimis provision in SB 436 (Hershman) which exempts companies with less than $20,000 in capital from paying the tax. Indiana State Rep. Terri Austin also supports the provision and offers an additional solution to ensure local units of government stay funded.
“I’m not opposed to eliminating the business personal property tax as long as we can find a fair and equitable replacement revenue that doesn’t end up creating another burden down the road,” says Austin. “What many advocates, including myself, will be pushing for is a pilot—a payment in lieu of taxes.”
The plan eliminates the need for small businesses to itemize each piece of capital and puts forth a flat payment according to business level.
How would eliminating this tax affect your small business? Tell us in the comments section below.
