— Legislation proposed by Senate Republican leadership to bolster the state’s business tax climate and respond to one of Gov. Mike Pence’s legislative priorities passed out of committee Tuesday.

Central to the Senate’s plan is a further reduction in the state’s corporate income tax, along with eliminating the tax small businesses pay on their machinery and equipment.

The proposal passed the Senate Tax and Fiscal Policy Committee, 7-2, with the bill’s sponsor, state Sen. Brandt Hershman, R-Buck Creek, saying there’s time for additional discussion as the legislation moves forward in the process.

“I view this as an overall policy statement that the Senate can be very proud of,” said Hershman, who also chairs the committee where the bill was heard.

Hershman laid out his case for the Senate proposal by telling committee members the type of tax discussed doesn’t ultimately matter because business owners place more emphasis on the total cost of operating in the state.

Hershman said further reducing the state’s corporate income tax rate is an “evolutionary” step that impacts state revenues instead of local government finances.

“We cannot stand still and be static in our view,” Hershman said. “We have to do what’s necessary to ensure Indiana remains a destination of choice for job growth.”

While the plan stops short of a full phase out of the business personal property tax, which Pence named as a top economic development goal for the 2014 session, the governor supports the Senate’s plan, said Chris Atkins, director of the Indiana Office of Management and Budget.

In contrast, the House’s fiscal committee is currently debating a separate proposal that would give counties the option to exempt the business personal property tax from new investments. Evansville Mayor Lloyd Winnecke joined a coalition of mayors to testify against the House’s plan last week, arguing community investment, and not just the tax base, plays a role in attracting businesses to the state..

A full phase out of the business personal property tax would result in a $1 billion revenue hit for local governments and schools. The Senate’s plan would reduce the tax by $25 million by only exempting businesses with less than $25,000 of personal property, according to the nonpartisan Legislative Services Agency.

As for the corporate income tax, Indiana’s rate already will lower to 6.5 percent by 2015, but even with that reduction, the state’s rate is still higher than Michigan and Kentucky, Hershman said.

For the state to remain competitive, the legislation would further lower the tax to 4.9 percent by 2019. The additional reduction is anticipated to cost the state $131 million in revenue at full implementation.

As a way to make up revenue, the bill would cut in half the state’s research and development tax credit to send $15 million back to the state and sunset five state income tax credits for a $9.6 million return.

Local government officials, who testified at the hearing, said they favored the Senate’s proposal but worried any reduction in the business personal property tax without a state-provided mechanism for replacing the revenue could present a slippery slope.

“I think some ideas that have been aired in the Statehouse this year would come at our revenue sources with a cleaver,” South Bend Mayor Pete Buttigieg said. “This one is using a scalpel, and we do appreciate that.”

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