Indiana’s Local Income Taxes: The Recession and After

Larry DeBoerPurdue UniversityMarch 31, 2011

Purdue Cooperative Extension Service

Local Income Tax Distributions to CountiesThe amount to be distributed to a county during an ensuing calendar year equals the amount of county adjusted gross income tax revenue that the budget agency determines has been: (1) received from that county for a taxable year ending before the calendar year in which the determination is made; and (2) reported on an annual return or amended return processed by the department in the state fiscal year ending before July 1 of the calendar year in which the determination is made; as adjusted for refunds of county adjusted gross income tax made in the state fiscal year.

[6-3.5-1.1-9 for CAGIT; 6-3.5-6-17 for COIT; 6-3.5-7-11]

Local Income Tax Distributions to Counties

Income earned by county residents in 2009

And reported on Tax Returns through June 30, 2010

Is the amount distributed to counties in 2011

The distribution in 2011 reflects economic activity of 2009

Local Income Tax Distributions, 2011

• Based on tax returns reported from July 1 2009 to June 30 2010

• Returns from income earned in 2009• 2009 was the worst year of recession, so

distributions declined by 16%, on average

Local Income Tax Distributions, 2009

• Based on tax returns reported from July 1 2007 to June 30 2008

• Returns from income earned in 2007 before the recession got really bad

• Distributions from state paid out of income tax withholdings and payments from 2009 when the recession was worst

• Distributions exceeded withholdings and payments in many counties

Local Income Tax Distributions to Counties

The budget agency shall certify an amount less than the amount determined under subsection (b) if the budget agency determines that the reduced distribution is necessary to offset overpayments made in a calendar year before the calendar year of the distribution. The budget agency may reduce the amount of the certified distribution over several calendar years so that any overpayments are offset over several years rather than in one (1) lump sum.

Local Income Tax Distributions, 2012-13

• In the budget bill proposed in the House:• HB1001, SECTION 95 [paraphrased]. The

amount certified for distribution to counties in state fiscal years 2009, 2010, and 2011 will have exceeded the amount of local income taxes $609,700,000. The budget agency is directed to reduce certified distributions in calendar years 2012, 2013, and 2014 by $408,276,000 to those counties to which overpayments were made.

Unemployment Rates, Elkhart and Hendricks Counties

Elkhart

Hendricks

Average LOIT Balances as Percent of Collections, 2009

Change in Unemployment Rate, 2007-2009

LOIT Balance Percent

Number of Counties

Under 5% 6.4% 33 5% to 7% -1.9% 29 Over 7% -2.9% 29 All Counties 0.9% 91

End-of-2009 Balances as Percent

of CollectionsLess than -5%

-5% to 5%

More than 5%

NoTax

4% per year Collection GrowthBalances recover by 2015

8% per year Collection GrowthBalances recover by 2013

Data for Individual Counties on the Budget Agency’s website

• At www.in.gov/sba/2363.htm; scroll to the bottom of the page

• Local Income Tax Information Reports– How 2011’s distribution was determined

• Local Income Tax Balance Reports– Each county’s trust balance history, monthly

collections, distributions, interest earnings and balances since the beginning of the tax

Indiana’s Local Income Taxes: The Recession and After

Larry DeBoerPurdue UniversityMarch 31, 2011

Purdue Cooperative Extension Service