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February 26, 2013

State revenue department moves to improve local tax distributions

INDIANAPOLIS — The Indiana Department of Revenue has requested nearly $10 million in additional funding to hire more staff and upgrade its technology to do a better job of tracking and distributing the more than $1.5 billion in income tax revenues owed to local governments each year.

The request, included in the House’s two-year budget plan, comes in response to past revelations that the department lost track of $526 million in corporate and income tax revenues, including $206 million owed to cities and counties.

But some legislators and local government officials fear the department’s proposed fixes may not go far enough. They’re pushing for additional remedies to make sure the dollars owed to local governments get there in a full and timely manner.  

Among the changes they’re advocating: A faster turnaround of the local option income tax revenues collected by the state, and a tracking system that relies more on employers that withhold income tax dollars from paychecks and less on the workers who may fail to report them.

“We want to make sure every dollar collected by the state goes back to local government where it’s owed,” said Goshen Mayor Allan Kauffman, a member of a task force created last year by the State Budget Agency to look at how the state collects and distributes local tax revenues. 

Ninety-one of Indiana’s 92 counties have adopted at least one of the local option income tax rates, known as the LOITs, that were first approved by the state in 1974. Local communities have become increasingly dependent on the revenues, especially since property taxes were capped in 2008. 

State Sen. Brandt Hershman, the Republican chairman of the Senate Tax and Fiscal Policy Committee, has authored a bill that came out of the work of the task force. It would require the state to provide more information about how it determines the LOIT dollars sent back to local governments, and it creates a mechanism for the state to release those LOIT dollars more quickly.  

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