News From Terre Haute, Indiana

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December 21, 2013

Paying a heavy load

Millions collected from biz property tax in Vigo County

TERRE HAUTE — Last year, Bemis Inc. added a high-speed printing press to its one-million square foot manufacturing plant in Terre Haute, one of many machines used in its polyethylene packaging production.

It’s on such machinery that the company pays the fourth-highest business personal property tax in Vigo County. For the past month, Indiana Gov. Mike Pence has voiced his desire to phase out that tax when the Indiana General Assembly convenes in January.

Leaders in the Indiana House and Senate, where Republicans hold a super majority in each chamber, say reducing or eliminating the tax will help attract new business investment in the state.

The self-assessed tax for Bemis this year amounts to more than $1.47 million.

“We would have to gauge and evaluate the total change [in the tax structure], including if they decide that they will replace the tax with something else,” said Melanie MIller, vice president and treasurer of Bemis Inc., when asked about potential positives if the tax is eliminated. Bemis operates 80 plants in 12 countries, netting $5.1 billion in sales last year.

“But certainly, to the extent that they make any decisions that result in a lower tax expense, is an opportunity for us to put that money to work expanding and growing our business,” Miller said, “which creates more jobs in the community and hopefully a stronger company for Bemis.

“We applaud that approach but will withhold our detailed comments until we hear the total package,” Miller said.

She did say that taxes play a part in how companies such as Bemis determine expansions.

“A business-friendly tax structure gets a lot of attention as we look to expand our operations, because we have operations in many, many states around the United States and countries around the world,” Miller said. “That is part of the decision-making process when we’re consolidating operations and looking to install and expand facilities. That is a big part of it.”

The business personal property tax isn’t just on big companies, as it reaches down to farmers like Mars Harlan, whose tax this year on his combine, tractors and other farm equipment is $10,269.

“Any time the state reduces your taxes, I would think anyone would think that is a good idea,” said the 58-year-old farmer of about 2,000 acres in Prairieton, Linton and Prairie Creek townships.

“I would like to see the tax eliminated. They are going to replace it with something else. If they use income tax, everyone pays income tax, unlike the business personal property tax that pinpoints a small group versus an income or sales tax where everyone chips in and pays,” Harlan said.

“Like any tax you don’t have to pay, you would use [that money] for something else,” he added.

Sony DADC tops the list of Vigo County business taxpayers at more than $3.08 million. Lisa Gephardt, speaking on behalf of SONY USA, said the company had no comment on the tax issue. Joining Bemis as top-payers of the tax in Vigo County are: Novelis at $827,880; Taghleef Industries at $511,420; and Companhia Siderurgica Nacional (CSN, a cold-rolled steel mill) at $447,667.

Utilities, heavy laden with machinery and equipment, account for half of the 10-highest payers of the business personal property tax in the county.

Wabash Valley Power Association, a power generation and transmission cooperative based in Indianapolis, and Duke Energy are the top two utilities, with WVPA paying more than $1.9 million and Duke Energy more than $1.71 million this year. Angeline Protogere, communications manager for Duke Energy, said the company, like Bemis, “has not yet thoroughly evaluated the impact, and so we don’t have a position yet on it.”

Other utilities include NIPSCO (Northern Indiana Public Service Co.) at more than $1.32 million; Frontier Communications at more than $915,000; and Indiana American Water Co. at more than $647,300.

While eliminating taxes sounds good, Rick Jenkins, owner of Richard Jenkins Construction, is undecided on his support of the measure until he knows the full impact to his company. He wants to learn how legislators plan to replace the revenue, especially for schools.

“The big problem that I see with eliminating this is what are they [Indiana General Assembly] going to replace it with,” Jenkins said. “If they replace it with sales tax, it will be detrimental to us in our industry.”

Jenkins Construction, developer of Idle Creek, Richland Manor and Dutch Acres subdivisions, uses bulldozers and backhoes along with other equipment to install drainage pipes during home construction and the building of subdivisions. The company this year has a personal property tax of $23,305 on that equipment.

Increasing sales tax would mean higher costs for construction and higher costs to homebuyers, which in turn could reduce the number of buyers interested in upscale housing, Jenkins said.

“A house has about 50-percent labor cost and 50-percent material costs in it,” he said. “If we build a house and have $100,000 worth of materials in the house, then for every 1 percent of sales tax increase, that will add about $1,000 to the cost of the house,” he said. “So, the cost of building a brand new home would go up.”

Jenkins believes the state must find replacement revenue for the funding now generated by the business tax.

“They can’t take that away from the local school corporation without replacing it. The easiest thing to replace it with is some type of sales tax or a transfer tax against real estate,” Jenkins said.

The developer cited Florida as a state that has a transfer tax

“When you buy a home in Florida, they charge a transfer tax. If you have a $100,000 home and sell it, the new buyer will have to pay more than $100,000 for the home, or the homeowner would have to pay an additional cost for the transfer,” Jenkins explained.

Some trade organizations and legislators, he said, are considering yet another revenue option: sales tax on services.

“If you hire someone to do some work for you, you will pay sales tax on their labor,” Jenkins said of the service tax. That option, though, would negatively impact the housing industry, he noted.

“Which means in my case, if 50 percent of the home is in labor, and you have a $200,000 house and therefore $100,000 in labor, and they put a sales tax on that, that is $7,000 more in costs. It would hurt the housing industry or a company building a building,” he explained.

Those pitfalls, Jenkins said, could focus attention back on raising income taxes to raise revenue, something he believes might be more equitable.

Reporter Howard Greninger can be reached at 812-231-4204 or howard.gre ninger@tribstar.com.

 

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