As part of my ongoing efforts to improve the stability of our state's tax structure, I will introduce a proposal to replace the property tax with a 7% sales tax on services. This proposal is aimed at addressing the growing concerns surrounding property tax burdens while providing a more flexible source of revenue for our schools, local governments and public services.
I provided an analysis of the fiscal impact of eliminating Indiana's property tax system and replacing it with a sales tax on services beginning in 2027. The fiscal impact shows several key changes that are designed to ensure the transition would be fair. An important change involves the inclusion of charter schools and Indiana Choice scholarships. This will guarantee all educational institutes, regardless of their structure, will receive the necessary funding to support student learning.
It is important to note that many of the school corporations projected to experience a decline in revenue under the current fiscal analysis already have local referendums in place. While these schools would see a decrease in funding, I do have a plan to replace the lost referendum dollars, though this plan is not calculated in the current fiscal analysis. The replacement plan involves a flat fee, calculated on the last year of property taxes, which would establish the annual fee for the remaining duration of the referendum. An updated fiscal analysis will be provided when the bill is filed.
Another important change is the addition of money to pay off Tax Increment Financing debt. TIFs are used to fund local development projects, and the change would make sure the new revenue won’t hurt existing agreements or prevent future growth. It would also protect local investments and support public infrastructure.
Additionally, this proposal introduces a more detailed way of distributing funds for civil units and would separate fire protection from the provider unit’s budget. Fire protection is a crucial resource for our local communities, and this change would make sure fire services receive the funding they need, without being impacted by changes in other revenue sources. The updated formula for how counties and municipalities receive funding would be 75% based on population and 25% based on road miles. This ensures that both urban and rural areas get the right amount of support, depending on their specific needs and infrastructure.
While this shift from property tax to sales tax on services is a bold move, it is necessary to update our tax system to better reflect our changing economy. A sales tax on services would bring in revenue from a wider range of sources and provide more stability, especially since property values can change. By taxing services rather than property, we can better address the growing part of the economy that is focused on services.
This proposal is still a working draft and the purpose of releasing this fiscal note is to get feedback from others. I encourage continued discussions with local governments, school officials and the public to ensure we build a fair tax system. I believe this plan would benefit our state for years to come. Click here to view the fiscal analysis report.
For questions or more information on this proposal or analysis of the fiscal impact, feel free to contact my office at in.gov/h33 or 317-232-9751.
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State Rep. J.D. Prescott (R-Union City) represents House District 33,
which includes all of Blackford and Randolph counties,
and portions of Delaware, Henry and Jay counties.
Click here to download a high-resolution photo.
