More Communities Turning to Local Income Tax
May 2, 2018
Indiana communities increasingly turn to Local Income Tax (LIT) as a resource to help deal with property tax caps. LIT rates are relatively new and replace previous categories like the County Adjusted Gross Income Tax (“CAGIT”), the County Option Income Tax (“COIT”) and the County Economic Development Income Tax (“EDIT” or “CEDIT”).
Several components make up the LIT rate, including a property tax relief rate (up to 1.25%) and an expenditure rate (up to 2.5% for most counties). The expenditure rate is further divided into portions for certified shares, public safety, and economic development.
The expenditure rate component may be used for school corporations and civil taxing units, certified shares, public safety, and economic development, and the rate is set at a maximum 2.5% of adjusted gross income (except for Marion County, the rate for which is 2.75%).
The LIT has proven to be popular among local governments. Many elected officials view it as a more fair tax because it applies to all income-earning residents and not merely property owners. In 2017, 22 of Indiana’s 92 counties adjusted their LIT rate. Only one county reduced its total rate through the expiration of a special purpose component. Three counties maintained the same total rate, while reallocating amongst the various components. The remaining eighteen counties increased their total rate, with increases ranging from 0.10% to 1.30%. For fiscal year 2018, Indiana counties maintain rates ranging from 0.35% to 3.38%, with a state-wide average of 1.67% and mean of 1.73% for the 92 counties.
If your community struggles with its revenue streams or feels pressure from property tax caps, keep the local income tax in mind as a resource to keep providing essential services. Jackson Kelly attorneys can help you navigate the legal and procedural hurdles to implementing an appropriate LIT for your community.
Joshua A. Claybourn is counsel in the Public Finance and Utilities industry groups focusing primarily on municipal finance, utility regulation, and commercial transactions. He practices out of the firm’s office in Evansville, Indiana.