Indiana local income taxes reorganized

Indiana has adopted legislation repealing the county adjusted gross income tax (CAGIT), the county option income tax (COIT), the county economic development income tax (CEDIT), and the various local income taxes for special purposes and projects and combining them into a single local income tax with three rate components. The existing local taxes are repealed effective January 1, 2017, and the taxes in effect on May 1, 2016, will be consolidated into the new law.
The Office of Management and Budget is directed to work with state agencies and county governments to document the existing taxes and assist in the transition to the new tax. As part of the transition to the new structure, a county may not adopt any ordinances under the former taxes after June 30, 2016. Further, an adopting body cannot take any action under the new local income taxes article before July 1, 2016, even though it is effective July 1, 2015.

There are three rate components of the reorganized local income tax: expenditure rate, property tax relief rate, and special purpose rate. The revenue collected from a rate component may be used only for the purpose established in the statute. Each rate component serves a function similar to an existing local option income tax. 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%, except for Marion County, the rate for which is 2.75%. The property tax relief component is used to fund a property tax credit to reduce property tax liabilities, and the rate is set at a maximum 1.25%. Finally, the special purpose rate component is a distinct rate implemented for a specific purpose by a particular county and the rate can vary. Excluding the special purpose rate, the maximum local income tax rate is 3.75% for all counties except Marion County, which has a maximum rate of 4%.

Further, effective May 6, 2015, Rush County is authorized to impose a CAGIT tax rate for the construction, renovation, operation, or maintenance of a county jail. The tax rate adopted by the county can range from 0.15% to 0.6%. (P.L. 243; H.B. 1485, Laws 2015, Laws approved May 6, 2015 and effective as noted above.)

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