Now that the legislative session has concluded, learn the final status of key bills monitored and advocated for/opposed by the Indiana Chamber in 2017 (links are PDFs):
The revenue projections for the next two fiscal years were updated on Wednesday, giving the General Assembly revised numbers to use in finalizing a state budget before the session wraps up next week. The update also readjusted the current Fiscal Year 2017 numbers; the FY17 numbers that were reduced by nearly $300 million dollars in December were now adjusted back upward by $124 million (so FY17 won’t turn out as bad as previously thought).
That FY17 readjustment serves as a foundation for the forecasters’ confidence that the slow but steady economic growth will continue at a moderate pace over the coming biennium. The pleasant result: a modestly higher revenue forecast for FY2018 and FY2019. The forecast increase resulted from projected growth in sales tax collections (2.7% in FY18 and 3.4% in FY19), sales tax being the source that Indiana is most dependent on, and the larger percentage increase but smaller cumulative dollar increase anticipated in income tax collections (3.4% in FY18 and 5.9% in FY19) – the source that represents the next largest contributor to the state coffers.
The bottom line is that the forecast adds $200 million, only about six-tenths of one percent of the roughly $32 billion that the lawmakers now can expect to see collected in tax revenue over the next two years. While it is a small addition, it is still $200 million that they hadn’t planned on when they put together the budget numbers in HB 1001.
Understandably, the fiscal leaders caution against any major changes to what they have formulated to this point, but as the budget negotiations continue into the last days, they are certain to hear this additional money referenced as justification for some new or additional funding requests. Read the details from the forecasters’ presentation.
For unknown reasons, the House Ways and Means Committee – after taking testimony – elected not to take a vote on SB 545 last week prior to the deadline for committee passage.
The bill represented a well thought out and sound approach for collecting Indiana sales tax on online transactions. While the bill died in committee, there remains the possibility that its provisions could find their way into another bill before the session ends. The Chamber will continue to advocate for this bill to be incorporated into another piece of legislation.
The Chamber was pleased to see the Senate pass a long-term road funding bill (34-13). During the floor vote, the Chamber lobbying team worked to get additional votes for what might have been a much closer margin. Five Republican senators voted against the Chamber on HB 1002: John Crane (Avon), Mike Delph (Carmel), Aaron Freeman (Indianapolis), Jean Leising (Oldenburg) and Andy Zay (Huntington). One Democrat, David Niezgodski (South Bend), voted with the Chamber.
There are differences between the House and Senate proposals, however:
The “swim lanes” of the bill are now clearly defined. Work will continue during the next two weeks by the Chamber and our coalition partners to reconcile the differences between the two versions. We believe Indiana will finally end up with a long-term sustainable transportation infrastructure funding bill, one of our Indiana Vision 2025 goals.
Call to Action: Please contact your legislators to encourage them to support HB 1002. Let them know today that long-term funding is important to you and your company!
The Chamber again testified in support of SB 545 last week. We are pleased it is receiving broad, bipartisan support. As we have noted previously, this bill represents an important step toward the Legislature requiring online retailers who have no physical presence in Indiana to collect Indiana sales tax from their Indiana customers when they make online purchases.
Senate Bill 545 is a well thought out and sound approach. Senator Kenley is to be commended for his pursuit of this legislation that will serve the dual purposes of leveling the playing field between in-state brick and mortar retailers and their online competitors, while also boosting Indiana’s sales tax base. The bill will further a key objective in the Chamber’s Indiana Vision 2025 plan.
We are pleased that several of our top priorities are alive and in good shape at the midpoint – including long-term transportation funding, pre-K expansion and anti-smoking legislation. All of these tie directly to the Indiana Vision 2025 economic development plan.
Long-term transportation funding – tolling around the corner?
This is the Chamber’s top priority in 2017. House Bill 1002 is the proposal to take care of the state’s transportation needs; the 20-year infrastructure plan addresses the erosion in funding that has taken place and the lost purchasing power from the enhancements in automotive technology and fuel efficiency.
We believe that the bill’s proposed gas tax increase is pretty solid. Senator Luke Kenley (R-Noblesville), who appears to be taking the lead on this bill in the Senate, may change things like dedicating all of the sales tax on gasoline to transportation needs and put a heavier emphasis on tolling, which would enable the state to undertake major projects like adding additional lane miles to Interstate 70 and Interstate 65 throughout Indiana. Overall, we are very encouraged by the commitment we have seen to date from the House, Senate and Governor. We also realize this will be a little tougher sell in the Senate and are prepared for a strong advocacy effort.
Tax threats avoided; overall outlook good
Everyone should be thrilled that two detrimental proposals – on mandatory combined reporting and sales tax on services – didn’t really get out of the gate. And that’s thanks to the good work of the Chamber’s Bill Waltz over the course of the summer. That means there are no big, threatening tax bills looming for us to worry about.
Instead, this session has brought some positive activity that will improve things procedurally within the Department of Revenue. Additionally, while not involving the Legislature, the Chamber has provided substantial input to the Department of Local Government Finance on a rule with respect to the so-called big box commercial/industrial property assessments. (That input was made possible thanks to a subgroup of the Chamber’s Tax Committee that analyzed the big box assessment issue; we are always grateful to our members for lending their expertise!)
On track: expansion of the state’s pre-K pilot for children from low-income families
Obviously, the expansion – to $16 million total in the Senate (including funds for a new online pre-K pilot); at $20 million in the House proposal – is not as significant as we would like, but we recognize this is still a very young program and are encouraged that what’s being debated is the level of increased funds, not the merit. We also appreciate all of the programmatic language that allows for potential expansion into all 92 counties (SB 276) and increases the income thresholds for eligible families (HB 1004). That said, we are going to continue to work to get as many dollars as possible directed to this. It’s vital for children to have that strong early education as a foundation.
Making the superintendent of public instruction an appointed position still can happen
We remain optimistic this longstanding Chamber goal will be realized this session. Yes, House Bill 1005 will have to be amended because it’s too similar to the one the Senate voted down last week. What happened there was, by all accounts, a blunder created by a perfect storm of factors – including little caucus discussion before the vote. But the good news is that the House bill is alive AND Senate leader David Long (R-Fort Wayne) has assigned it to the Senate Rules Committee that he chairs, so he’s going to go to work on it and will ultimately determine how much of it needs to be changed. We speculate that requiring Indiana residency – which is not currently in HB 1005 – could be one modification. It definitely will have to be different than the failed bill to pass the Senate Rules Committee.
Comprehensive smoking reform, now in HB 1001 and HB 1578, would send big message
We are hopeful that the increased tax on cigarettes ($1 per pack) and funding for a more robust smoking cessation program will stay in the budget bill (HB 1001). Likewise, that the repeal of the special civil rights privileges for smokers will survive on its own in HB 1578; this marks the first time that policy has been passed by either house, so we are making progress. Seeing these three elements cross the finish line would be a clear indication that the state is taking seriously the ever-increasing costs to employers of Hoosiers smoking – more than $6 billion annually in health care costs and lost productivity on the job.
The provision raising the cigarette buying age from 18 to 21 is most likely not happening this session after its removal in the House Ways and Means Committee. That group felt there wasn’t enough definitive information or testimony.
ISTEP, energy and technology updates
The Chamber is supporting legislation that will replace ISTEP with a shorter, more focused assessment. You can put all the debates and disagreements aside because this has to happen this session.
We are encouraged by the Senate’s passing of SB 309, an energy bill, which, among other things, addresses net metering for those investing in wind and solar energy; we believe the bill is consumer-friendly. Moreover, utilities have offered up some ideas and concessions that we think will help control electricity prices. The water infrastructure proposal (SB 416), while not funded, sets up the appropriate framework and keeps that needed policy moving along.
The budget bill (HB 1001) contains some pro-technology priorities, including the transferability and expansion of the venture capital tax credit. This would incentivize additional out-of-state investors without state tax liability to invest in promising early stage Indiana companies. Additionally, the open data measure (HB 1470) would allow public access, in an appropriate way, to the tremendous amount of data the state has collected. This is one of a couple of new initiatives coming from our Indiana Technology & Innovation Council policy committee. To see these efforts making progress right away, in their first session, is very encouraging.
A disappointment for the Indiana Chamber
There were several bills centered on litigation that couldn’t get out of committee. That’s because there are too many attorneys on both civil justice committees who are standing with trial lawyers, which essentially is blocking any sort of tort reform.
Indiana ranks seventh in the Small Business & Entrepreneurship Council’s 2017 Small Business Policy Index (up from 10th in last year’s ranking).
This is the SBE Council’s 21st annual look at how public policies in the 50 states affect entrepreneurship, small businesses and the economy. The report ranks the 50 states according to 55 different policy measures, including a tax, regulatory and government spending measurements.
According to the report, the most entrepreneur-friendly states under the “Small Business Policy Index 2017” are Nevada, Texas, South Dakota, Wyoming, Florida, Washington, Indiana, Arizona, Alabama, and Ohio. In contrast, the policy environments that rank at the bottom include Rhode Island, Oregon, Iowa, Connecticut, Maine, Hawaii, Vermont, Minnesota, New York, New Jersey, and California.
The Indiana Chamber supports SB 545 (Sales Tax Collection by Remote Sellers).
This bill takes an important step toward the Legislature requiring online retailers who have no physical presence in Indiana to collect Indiana sales tax from their Indiana customers when they make online purchases. Ultimately, one of two things must happen for the requirement to go into full effect. Either the U.S. Supreme Court has to determine that states are allowed to impose this requirement based on their economic activity in the state (and the nominal burden associated with it), or Congress must pass legislation to authorize states to require the online sellers to collect a state’s sales tax.
The issue is pending before both bodies and several states are passing legislation to put pressure on one of the two entities to act and resolve the issue. Senate Bill 545 is modeled after a South Dakota law that is under review by the high court. It is designed to put Indiana in the position of making the requirement effective as soon as an Indiana court declares the collection valid under federal law. So this remains legally complicated, but SB 545 is a thoughtful and sound approach.
Senator Luke Kenley has pursued this issue diligently for many years – doing everything possible to address the problem of the sales and use tax on these transactions going uncollected. He is to be commended for his pursuit in the past and for formulating this legislation. In-state brick and mortar retailers are put in an unfair position when their online competitors are not required to collect and remit Indiana’s sales tax (as they are), effectively giving the “remote sellers” a 7% price advantage. Additionally, Indiana’s sales tax base is diminished each year as the online sales market continues to grow at rapid rates. What’s more, this is not a new tax since purchasers are already legally obligated to report their online purchases and pay the “use” tax when they file their income tax returns. But the reality is very few people comply with this law.
The Chamber supported the bill in committee this week and, in fact, has been working along with Sen. Kenley for years to achieve, by some means, state authorization for collecting these unpaid taxes. The objective is set forth in our Indiana Vision 2025 economic plan and we just might, after years of complications, be getting closer to obtaining this goal.
We have yet to see the complete list of bills that have been introduced, and no bills having primarily to do with tax have yet been heard in committee. But of those that are available for viewing and assigned to committee, quite a few are worthy of note. They may or may not ultimately get a hearing, so it cannot be said that they are moving. Nevertheless, these bills are ones to keep an eye on.
Two measures will undoubtedly move through to the end of session – albeit with the expected/unexpected twists and turns. House Bill 1001 on the budget currently contains the Holcomb administration’s spending proposals – that is until the Ways and Means Committee has its way with it. Accompanying it will be HB 1002, the measure for long-term transportation funding (see Mark Lawrance’s infrastructure story).
There are the usual sales tax exemption and sales tax holiday bills, which historically have not been favored by the budget makers: HB 1063, HB 1111 and SB 53. There are many dealing with property tax assessment and property tax appeals, which could get some attention: HB 1046, HB 1056, HB 1105, HB 1198, HB 1229, HB 1299, SB 292, SB 331, SB 350 and SB 415. Meanwhile, SB 449 addresses how personal property tax audits can be funded; SB 308 would take heavy equipment that is rented off the property tax rolls and puts an excise tax on the rentals; HB 1247 creates a minimum property tax fee; and SB 342 revisits tax increment financing.
On the local tax front, HB 1129 keeps up the ongoing work on local option income (LOIT) taxes while HB 1096 grants broad authority to locals to adopt food and beverage taxes.
Interestingly, and unnecessarily, HB 1160 seeks a further study of the Tax Court (on top of the review conducted by the Supreme Court just last year.) Tax attorneys will be interested in SB 440 as it gets into some procedural issues.
This is just a small sampling of what has been filed. Once bills involving tax matters begin to make their way through the committees, we will report on those that are of consequence to the business community.
Each December the state budget makers receive a revenue forecast prepared by group of very knowledgeable and conscientious fiscal analysts, economists and academics. The group considers economic predictions, uses elaborate models and applies involved equations to generate what has proven to be remarkably accurate predictions of how much the state will collect in taxes over the next two years. Every other year, including this year, their numbers serve as the basis for building the state’s biennium budget. While lawmakers will debate how the projected revenues should be spent, Indiana is fortunate that lawmakers accept the consensus of these experts and do not debate how much money there is to spend – as is the case in many other states.
Forecasters project that Indiana will take in $31.5 billion in FY2018 and FY2019. This is around a billion dollars more than what was projected for the last biennium. However, as good as the predictions have been historically, FY2017 estimates turned out to be off the mark by $378 million. Low gas prices were a major contributor to the inaccuracy. Unexpectedly cheap gas meant less sales tax on those less expensive fill-ups.
When coupled with generally weaker sales tax collections, the FY2017 (ending in July) collections are now expected to be about 2.5% less than earlier projections. That money will have to be made up in the first year of the biennium, from the projected 2.9% year-over-year (FY2018 over FY2017) growth. Fortunately, the forecasters see a little better growth, 3.9%, in the second year of the biennium (FY2019). The bottom line is that the money available to cover growing expenses and new funding desires will be very modest, somewhere around $1 billion – that’s only about 3% more money for the entire two-year period. And essentially it all comes in the second year, so look for budget makers in the 2017 legislative session to be very frugal in FY2018 and then build in some increases in FY2019.
Economic uncertainty, sluggish sales tax collections, further diminishing gaming revenues and other factors will all put additional pressure on the budget process. As these things play out, the forecasters could shift their numbers a little more before they update their two-year projections in mid-April, just a couple of weeks before the budget has to be passed by the General Assembly.