Very few states have an inventory tax, which is the property tax applied to the value of inventories.  Indiana is one that does.  But with the tax restructuring of June 2002, the inventory tax's days are numbered.  The inventory tax will be gone for taxes paid in 2007. 

That's a long way off.  But counties can end the inventory tax sooner, and at least 14 counties have done so.  Learning how is like a little seminar in Indiana local taxation.

It takes three steps.

• Step One.  Adopt a 100% inventory deduction.  Inventories will still be valued for the property tax, but then the new deduction subtracts all of this assessed value from the taxpayer’s assessment.  That's likely to raise property tax rates for everyone else, if local governments are still going to collect the same amount of property tax revenue from the reduced tax base. So. . .
   

• Step Two.  Defend homeowners from tax hikes.  Counties can add a local homestead credit to the statewide 20% credit, enough to make sure homeowners don't pay any more taxes.  But this tax break costs money, and the state doesn't have any.  So. . .
   

• Step Three.  Raise a local income tax. Counties can adopt or increase their Economic Development Income Tax (EDIT), with a rate high enough to make up for the lost revenue from the higher homestead credit. 

Some taxpayers win.  Some taxpayers lose.  Why bother to rearrange taxes like this?  In the hope that lower business taxes will attract new business investment, so there will be more jobs and higher incomes in the county.  That’s the hope of all of Indiana starting in 2007.  Some counties are looking to get a head start. 

Want to know more?  Click here.