Indiana's Local Income Taxes


Revised January 2009

Indiana first allowed local governments to use income taxes in 1974. Since then many new local income tax options have been authorized. As of 2009 91 counties have adopted local income taxes, and local governments receive about $1.5 billion in local income tax revenue. In 2007 the General Assembly passed three new additions to the local income tax toolbox. Two of the three options were designed to reduce property taxes; the other to add funding for public safety. In 2007 and 2008 19 counties adopted two or three of these new options. The big tax reform in 2008 made some small changes in these local income taxes.

The following table summarizes the features of the three local income taxes. You can click on the titles of each box to see a detailed explanation of each feature.

 

Indiana’s Local Income Taxes

CAGIT

COIT

EDIT or CEDIT

Full Name

County Adjusted Gross Income Tax

 

County Option Income Tax

 

County Economic Development Income Tax

Indiana Code

I.C. 6-3.5-1.1, 6-1.1-18.5

 

I.C. 6-3.5-6

 

I.C. 6-3.5-7

Adopting Body

County Council

 

County Income Tax Council (COIT Council), made up of the fiscal bodies of the county, cities and towns, with 100 votes divided based on shares in county population

 

County Council if CAGIT has been adopted; COIT Council if COIT has been adopted; either body if county has no tax or EDIT only; County Council adopts rate for added homestead credits

Basic Tax Rates

0.5, 0.75 or 1.0% (some counties have specially authorized higher rates)

 

0.2% in first year rising to 0.6%; then to 1% at 0.1 annual increments.  COIT council make fix rate at any intermediate level (some counties have specially authorized higher rates)

 

0.1, 0.2, 0.25, 0.3, 0.35, 0.4, 0.45 or 0.5%.

Added Rates for Property Tax Relief and Public Safety

Up to 1% to freeze the non-school operating property tax levy at previous year’s level; Up to 1% to reduce existing property taxes; Up to 0.25% for added public safety spending

 

 

Up to 1% to freeze the non-school operating property tax levy at previous year’s level; Up to 1% to reduce existing property taxes;

Up to 0.25% for added public safety spending

 

 

Up to 0.25% to offset tax shift to homeowners from elimination of property tax on inventories, by funding an added local homestead credit

Combined Maximum Rates

Basic:  CAGIT + EDIT, 1.25%

With added: CAGIT + EDIT, 3.75%

 

Basic:  CAGIT + EDIT,

1%

With added: CAGIT + EDIT, 3.5%

 

3.75% in CAGIT counties

3.5% in COIT counties

0.75% in EDIT only counties

Units Receiving Revenue

All local units;

Schools receive only property tax relief revenue from first 0.25% rate;

County, cities and towns receive public safety revenue

 

All non-school units;

County, cities and towns receive public safety revenue

 

County, cities and towns

Effect on Property Taxes

Revenue from first 0.5% rate reduces property taxes;  Some revenue from next 0.5% reduces property taxes;  Civil operating levy may be frozen;  Property tax relief may be distributed to all property owners, homeowners only, or homeowners and owners of rental housing

 

COIT Council may allocate revenue for added local homestead credit up to 8%;  Civil operating property tax levy may be frozen;  Property tax relief may be distributed to all property owners, homeowners only, or homeowners and owners of rental housing

 

Homeowner taxes may be reduced by the amount of the tax shift from elimination of the property tax on inventories, with an added local homestead credit

Effect on Spending

Remaining basic rate revenue after property tax relief may be spent for general purposes;  0.25% public safety revenue  may be used for police, fire or emergency medical services, pensions or facilities

 

All revenue from basic rate may be spent for general purposes;  0.25% public safety revenue may be used for police, fire or emergency medical services, pensions or facilities

 

Revenue no longer restricted to economic development projects, may be used for general purposes; Revenue from inventory replacement rate must be used for added homestead credits

Number of Counties (1/1/09)

Total:  56

Basic CAGIT only:  7

CAGIT + EDIT:  49

 

 

 

 

Total:  28

Basic COIT only:  8

COIT + EDIT:  19

Basic + Freeze COIT: 1

 

 

Total:  75

Basic EDIT only:  7

Basic CAGIT + EDIT:  49

Basic COIT + EDIT:  19

EDIT for Inventory Replacement: 42

Added LOIT Options: CAGIT/COIT for Levy Freeze--11; CAGIT/COIT for Property Tax Relief--18; CAGIT/COIT for Public Safety--12.

 

Links to More Information

To Find: Go To:
A PDF version of this table, on one page This website: Indiana's Local Income Taxes

 

Full Name
The county adjusted gross income tax is called CAGIT by just about everybody. The temptation is to say "gadget", but it should be pronounced with a "C" at the beginning. The county option income tax is called COIT by just about everybody. Some folks give it two syllables, as in co-it. The county economic development income tax is called EDIT by some, and CEDIT by others (usually pronounced "edit" or "seed-it").

Since there are now so many local income tax options, we're starting to see "LOIT", meaning "local option income tax." LOIT may stand for all of the local income tax options, or it may refer to just the three new options created in 2007.

 

Indiana Code
It's important to note that CAGIT has two code citations.  One is to the description of CAGIT itself (I.C.6-3.5-1.1), the other refers to the treatment of CAGIT adopting counties under the property tax controls (6-1.1-18.5).  CAGIT adopting counties face stricter limits on their maximum property tax levies in the year of adoption.  This means that adopting CAGIT reduces the amount of property tax that local units are allowed to raise.  While the CAGIT law shows one-quarter of CAGIT revenue as devoted to property tax relief, the added restrictions on the maximum property tax levy mean that more than half of CAGIT revenue actually is devoted to property tax relief. 

Links to More Information

To Find: Go To:
The texts of the Indiana Code relating to the local income taxes. CAGIT, 6-3.5-1.1
CAGIT, 6-1.1-18.5 (prop. tax controls)
COIT, 6-3.5-6
EDIT, 6-3.5-7

 

Adopting Body
The adopting body for the local income taxes can be confusing, mainly because of the body called the "COIT Council." The COIT Council exists only to make decisions about COIT. It will not necessarily meet as a body in order to consider adopting COIT.  Instead, one of the county, city or town fiscal bodies (councils or boards) passes a resolution recommending adoption of a COIT ordinance.  Then, the county auditor sends this resolution to the other fiscal bodies for their consideration. 

COIT Council votes are divided among the county, cities and towns within the county based on population, with the county receiving votes equal to the share of population living outside cities and towns (i.e., in unincorporated areas of the county).  For example, if a city has 36.75% of the county's population, it has 36.75 votes on the COIT council.  If a majority of votes are cast for the COIT resolution, it is adopted for the whole county.

Most counties have adopted either CAGIT or COIT (counties are not allowed to use both), so the COIT Councils have not been active in most counties for many years. However, the new local income tax options made available in 2007 may again require COIT Council action. In counties that have COIT, the COIT Council must make the decision whether to adopt the new tax options. In counties that have only EDIT, the COIT Council or the county council may make the decision.

In 15 COIT counties the County Council has the majority of the votes, because a majority of the population lives outside cities or towns. In those counties the County Council would make the decision about the new income tax options. In six COIT counties a single city or town has the majority of votes (not counting the Indianapolis-Marion County City-County Council). In these counties the city or town council effectively makes the decision for the whole county. In 14 COIT counties no single unit has the majority of the population, so a coalition of fiscal bodies is needed to adopt the new options.

The County Council makes the adoption decision for the inventory replacement EDIT tax, which funds a local homestead credit (see below).

Links to More Information

To Find: Go To:
A list of the adopting bodies for the new local income tax options in each Indiana county. This website: Who Makes the Call? Decision Making for the New Indiana Local Income Taxes

 

Basic Tax Rates
Basic rates are those first made available when these taxes originated. New legislation in 2002 and 2007 has allowed added, higher rates.

CAGIT can be adopted at 0.5%, 0.75% or 1.0%. In 2009 only 6 of 56 CAGIT counties used a rate less than 1%. Six counties have CAGIT rates above 1%, authorized by special laws.

COIT can be levied at rates between 0.2% and 1.0%. In 2009 all but two of the 28 COIT counties use rates of 0.5% or higher. Eleven use the maximum 1.0% rate. Two counties have special laws allowing rates higher than 1.0%.

CEDIT basic rates can vary between 0.1% and 0.5%. Four counties taxed at 0.1% in 2009; nine counties taxed at 0.5% with just the basic rate. (More taxed at this level or above when the inventory replacement rate is included.)

At one time many people who lived in a non-adopting county but worked in an adopting county paid income taxes to the county where they worked, at a reduced rate. Since all but one Indiana county now have local income taxes (Lake has not adopted), this feature of the taxes is no longer very important. Some out-of-state residents who work in Indiana pay these local income taxes, however.

 

Added Rates for Property Tax Relief or Public Safety
Since 2002 Indiana has offered counties additional local income tax options.

The tax restructuring of June, 2002, eliminated the property tax on business inventories (the "inventory tax") as of taxes payable in 2007. County Councils could vote to eliminate the taxes earlier, and 41 counties did. With the loss of inventory assessed value, local governments need higher tax rates for their property tax levies. That implied that the taxes that had been paid by business inventory owners would be paid by owners of other property. In the 2002 restructuring, counties were given the option of adopting an additional EDIT tax rate to fund an added local homestead credit, to offset this tax increase for homeowners. As of 2008 42 counties had adopted this added EDIT tax rate. The option continues to exist even though the period for early adoption of inventory tax elimination has passed.

In 2007, House Enrolled Act 1478 (Public Law 224) provided three more local income tax options.

The first would pay for the annual increase in civil government operating levies (that is, property taxes for government other than school corporations, for spending other than big capital projects). That part of the tax levy would be frozen. The maximum rate for this tax is 1%. The income tax rate is calculated so as to raise enough to pay for a particular year's levy increase, so the rate would be much lower than 1% in most counties at first. The tax must be adopted for two years initially, and the first year's rate is doubled, to establish a stabilization fund. This fund protects local units from revenue shortfalls which might occur because income tax revenue is less stable than property tax revenue. After the first two years, counties can decide each year whether to pay for the levy increase with the property tax or an added income tax rate. Once adopted, these income tax rates cannot be reduced or rescinded.

The second new option provides property tax relief by reducing existing property taxes. The maximum rate is 1%. This tax can be adopted at any rate between 0.05% and 1%, in 0.05% increments.

The third new option provides added revenue for public safety, including police, fire and emergency medical services, facilities or pensions. The maximum rate is 0.25% (0.5% in Marion County). To adopt this option a county must adopt one or both of property tax relief options, with a combined rate of at least 0.25%. The law passed in 2007 required that both property tax options be adopted, but the property tax reform of 2008 reduced this to one.

The table shows the 19 counties that adopted any of these new local option income taxes in 2007 and 2008, effective in 2008 and 2009.

 

Links to More Information

To Find: Go To:
A spreadsheet version of the above LOIT adoption table This website: Adoptions of New Local Option Income Taxes in 2007 and 2008

 

Combined Maximum Rates
Counties may adopt either CAGIT or COIT, but not both. Counties may adopt EDIT on top of COIT or CAGIT.  The combined EDIT and CAGIT basic rate cannot exceed 1.25%.  The maximum COIT and CEDIT basic rate is 1%.  EDIT can be adopted on its own at a maximum basic rate of 0.5%.  

With the added income tax options since 2002, the maximum rates can go much higher. The added EDIT tax for homestead credits can be adopted as high as 0.25%. The CAGIT or COIT tax to freeze the property tax levy can go as high as 1%, as can the CAGIT or COIT tax for property tax relief. The added CAGIT or COIT tax for public safety can be adopted at 0.25% outside of Marion County.

Add these up, and CAGIT counties could see income tax rates of up to 3.75%--the basic 1% CAGIT, the basic 0.25% EDIT, the 0.25% EDIT for homestead credits, 1% for the levy freeze, 1% for property tax relief, and 0.25% for public safety. The local income tax would exceed the 3.4% state income tax. Combined with the state tax, income taxpayers would pay 7.15%. In COIT counties the maximum rate is a quarter point lower, 3.5%, because the combined COIT and EDIT basic rates are 1.0%. That rate also is higher than the 3.4% state rate, and taxpayers would pay a combined state and local rate of 6.9%.

The table shows the local income tax rates and revenues as of 2008. Two counties (Jasper and Pulaski) had local income tax rates greater than 3%. Ten counties had rates between 2% and 3%, and sixteen more had rates from 1.5% to just less than 2%. Fifty-one counties had rates of 1% to just under 1.5%, and the rest, twelve counties, had rates less than one percent. Lake County had no local income tax as of 2008.

Links to More Information

To Find: Go To:
A spreadsheet version of the above tax rate and revenue table for 2008 This website: 2009 LOIT Rate and Revenue Table
Tables showing revenues by tax type for Indiana counties since 2004 Indiana Budget Agency Website (scroll down to "Local Income Tax Distributions")
Distribution of local income tax revenue to units within each county. Department of Local Government Finance website (click on county name, then CAGIT, COIT or CEDIT under Reports)
Current county income tax rates for residents and non-residents, by county Indiana Department of Revenue website
Tax rates, revenues and descriptions of the local income taxes, from the Indiana Legislative Services Agency's annual handbook (since 1999) Indiana Legislative Services Agency, General Assembly website

 

Units Receiving Revenue
CAGIT revenue from the basic rate goes to all local units, including counties, townships, cities and towns, school corporations, library districts and other special districts (such as fire protection districts or solid waste management districts). School corporations share only in revenue from the first one-quarter percent of the income tax rate, and all of it must be used to reduce property taxes.

Revenue is distributed based on each unit's share in total property tax collections, with some adjustments.

COIT revenue from the basic rate goes to all local units except school corporations. If the county decides to fund an added local homestead credit with COIT revenue, the tax relief is subtracted first, and then the remainder is distributed to local units based on shares in the property tax levy.

EDIT revenue also can be distributed based on property tax shares, but only to the county, cities and towns.  If the adopting body chooses, however, EDIT revenue can be distributed based on shares in total population, with the county's share equal to the population outside cities and towns (that is, in unincorporated areas of the county).

The added CAGIT or COIT revenue to freeze the civil operating property tax levy is allocated based on the increases in that levy due to each unit. Each unit receives the amount it would be due had the revenue been collected with a property tax. Any excess goes into the stabilization fund. Any shortfall comes out of the stabilization fund.

The added CAGIT or COIT revenue for public safety is distributed to the county, cities and towns only. Distributions are based on shares in the property tax levy, with adjustments.

The added EDIT revenue for homestead credits to offset the inventory tax shift, and the added CAGIT or COIT revenue for property tax relief, are paid to local units to make up revenue lost due to the added property tax credits. Property taxpayers subtract these credits from their tax bills, and the local income tax revenue is distributed to local units to deliver the full revenue budgeted from the gross property tax levy.

The distribution of local income tax revenue has had its controversies in recent years. Local income tax revenue is collected by the state at the same time as state income tax revenue.  Taxpayers calculate their county income tax on the same form as their state income tax, and remit their tax with one check.  Withholding from paychecks includes both state and county income taxes.

At one time the State Budget Agency calculated the amount to be distributed to counties each year, based on estimates of revenue collections.  Estimating revenue collections was tricky.  In 2001, for example, the Budget Agency had to set certified distributions for calendar year 2002.  To do this, they used data from the State Department of Revenue on income tax collections in each county.  In 2001, the most recent data available was from 1999.  Changes in revenue collections after 1999 were not completely accounted for in the revenue distributions for 2002.

This became a big problem for counties after the stock market crash that started in 2000, and the recession that followed in 2001.  Taxable incomes were reduced because taxpayers had much less capital gains income.  But revenue distributions for 2002 had been set in 2001, based on data from 1999.  More was distributed than was collected for that year, because of this data lag. 

It became apparent by 2003 that too much had been distributed.  So the Budget Agency cut distributions in 2003, by more than the drop in collections, to make up for the excess distributions of previous years.  Revenues in most counties dropped significantly in 2003, 2004 and 2005.

The state now distributes revenue that it knows it has collected. The data lag also creates a problem under this system. The amount of revenue collected in 2007 may not be distributed to counties until 2008 or 2009. Counties will be constantly "behind the curve," especially if revenue is growing rapidly. This method will avoid the shortfall problem during recessions, however.

Another controversy concerns the distribution of local income taxes based on shares in the property tax. CAGIT, the original local income tax, was invented to allow counties to deliver property tax relief in addition to the state programs created by the Bowen administration in 1973.  Property tax levies of all governments within a county were to be reduced proportionately.  This explains why the local income tax revenue is usually distributed among local units based on shares in the property tax levy.  

This can be a sensitive issue among local units.  It means that local units sometimes see decreases in their local income tax revenues, because their shares in the property tax levy have fallen even as total income tax revenue has increased.  Property tax shares can increase suddenly if a local unit establishes a new cumulative fund, annexes new territory, or especially if the unit issues a bond and begins collecting property tax revenue for debt repayment.  That unit's share of local income tax revenue will increase; the shares of all other units will decline. This system may create an incentive for local officials not to reduce property taxes, because it costs the local unit income tax revenue as well.

The 2008 property tax reform eliminated some property tax levies, but local option income tax revenue will be distributed as if these levies had not been eliminated. In addition, the new "circuit breaker credits" reduce property taxes received in many jurisdictions. Local income tax distributions are made before these credits are subtracted from tax revenues.

Another distribution issue arises from the fact that the income tax has a fixed rate for the whole county, while property tax rates differ within the county. When income tax revenue is used for property tax relief, delivered through a county-wide percentage credit on property tax bills, those with higher property taxes receive more relief in dollar terms, and those with lower property taxes receive less relief. This implies that the income tax revenue of people in low tax jurisdictions flows to property taxpayers in high tax jurisdictions. This was one reason that Lake County did not adopt a property tax relief income tax in 2007. The General Assembly provided three new ways of distributing LOIT property tax relief, just for Lake County, in the property tax reform of 2008 (HEA1001, sections 333, 343).

Links to More Information

To Find: Go To:
The sections of the 2008 property tax reform law, HEA 1001 (Public Law 146), dealing with the distribution of local income tax revenues within a county. General Assembly website (HEA 1001 text, scroll down to sections 228, 329, 336, 339, 346 and 869)
The sections of the 2008 property tax reform law, HEA 1001 (Public Law 146), dealing with income tax distributions in Lake County. General Assembly website (HEA 1001 text, scroll down to sections 333, 343)

 

Effect on Property Taxes
Revenue from the first one-quarter of one percent of the basic CAGIT revenue becomes "property tax replacement credits."  It is divided among all local units, including school corporations, based on shares in the total property tax levy.  This revenue is subtracted directly from the property tax levy on budget form 4-B.  

Revenue from the next one-quarter of one percent of CAGIT also reduces the property tax levy dollar for dollar, but the mechanism used to accomplish this is different.  The state's property tax controls impose a maximum property tax levy on local units.  Local units that adopt CAGIT see their maximum levy reduced, first by the total amount of revenue collected by that second quarter of one percent of CAGIT.  You can't see this on the budget form, there is no entry for the certified share portion of CAGIT revenue.  It's just that the maximum levy a unit is allowed to raise is less than it would have been without CAGIT.

Revenue from the third one-quarter of one percent of CAGIT can be used to replace Federal General Revenue Sharing lost since 1986.  Between 1973 and 1986, the Federal Government sent aid directly to counties, cities, towns and townships.  This program was cancelled in the mid-80s.  To make up for this lost revenue, the General Assembly modified CAGIT.  This modification remains.  An amount up to the revenue equal to Revenue Sharing in 1986, up to the whole third quarter of one percent of CAGIT, can be added to local unit budgets.  The remainder reduces the maximum property tax levy, dollar for dollar.

Revenue from the last quarter of one percent is used for a combination of added spending and property tax relief.  In the first year, half of the revenue is "spendable," half reduces the maximum levy.  After the first year, the share that is spendable increases.Increases in certified shares (revenue from all but the first quarter of one percent) after the first year are spendable.  The revenue can be added to budgets.  It does not have to be used for property tax relief.

This division of the CAGIT rate into four parts applies only when CAGIT is adopted a one percent.  When CAGIT is adopted at one-half of one percent, the rules for the first two quarters apply.  At that rate, all of the CAGIT revenue must be used for property tax relief in the first year.  Increases in certified shares after the first year are spendable.  When CAGIT is adopted at three-quarters of one percent, only the rules for the first three quarters apply.  

COIT need not affect property taxes at all. All of the revenue from COIT could be added to budgets. However, the COIT Council can adopt an added local homestead credit.  The homestead credit is a state funded program that reduces homeowner property taxes.  COIT counties can increases the state rate by a maximum of 8 percentage points. 

Basic EDIT revenue has no direct effect on property taxes. The added EDIT revenue for homestead credits to offset inventory tax elimination also results in an increase in the homestead credit. The amount of the added homestead credit equals the calculated shift in taxes from inventory owners to homeowners.

The added CAGIT or COIT revenue to freeze the civil operating levy will reduce the annual increase in property taxes by a small amount. If adopted for many years in a row, however, it could cause a significant shift in taxes from property to income.

The added CAGIT or COIT revenue for property tax relief can reduce property taxes significantly right away. An important question from the taxpayer's point of view is whether the added income tax payment is more or less than the property tax cut. Some taxpayers will pay less in total taxes, some will pay more.

Who pays more and who pays less depends on the method that the county chooses to distribute the property tax relief, and on the taxpayers’ mix of taxable income and taxable property. Counties can decide to distribute the tax relief in three ways. They can distribute it as an equal percentage reduction to the tax payments of all taxpayers, including homeowners, farmers and other business owners. They can distribute the relief as an equal percentage reduction to the tax payments of homeowners only. Or, they can distribute it as an equal percentage reduction to the tax payments of homeowners and owners of rental property (landlords) only. Or, they can choose a mix of any or all of these three options.

Owners of different types of property fare differently under these three distribution schemes. Farmers own much taxable land, but often have relatively low taxable incomes. Farmers tend to benefit if the tax relief is distributed broadly--their property tax cut will exceed their income tax increase. If they do not share in the property tax relief, however, and they pay the added income tax, their total tax bills will rise.

Corporate businesses do not pay individual income taxes, so they do not pay the added local income taxes. When relief is distributed to all property, corporate property receives a tax break. Corporations pay less. When relief is distributed to homesteads or rental housing, corporations receive no tax break, and still pay no added income tax. They are unaffected.

Small businesses (such as partnerships or S-corporations) pay the individual income tax. If the property tax relief is distributed to all property, small businesses will see a property tax cut. Some businesses will pay more in added income taxes, some will pay less. If the property tax relief is distributed to homesteads only, small businesses do not receive a property tax cut, and so will pay more overall. If the tax relief also goes to rental housing owners, small businesses that own rental housing likely will see overall tax reductions. Those that don’t own rental housing will see overall tax increases.

Renters do not own taxable property, and so do not receive a property tax break under any distribution formula. Renters with taxable income pay more in income taxes, and so pay more overall. If tax relief is distributed to rental housing owners, owning rental housing becomes more profitable. More such housing may be built, and the added availability of rental housing could reduce rents, or cause them to increase more slowly. If this happens, lower income renters eventually may benefit overall from tax relief to their landlords.

Retired homeowners own property. Some of their retirement income is tax exempt, so the reduced property taxes under each distribution formula are likely to exceed the added income tax payments. Retired homeowners are likely to benefit.

Employed homeowners own property and earn taxable income. Generally most homeowners pay more in total taxes when the tax relief is distributed to all taxpayers. Most homeowners pay less in total taxes when the tax relief is distributed to homesteads only. When tax relief is distributed to homesteads and rental housing, it is unclear whether most homeowners will pay more or less.

If a taxpayer receives a circuit breaker credit, the property tax reduction effect of the local option income taxes is reduced. This is because the local tax credits funded by LOITs are calculated before the circuit breaker credits. LOIT credits will reduce tax bills and make fewer taxpayers eligible for the circuit breaker credits. Some of the LOIT credits will replace circuit breaker credits, so there would be no added tax relief for the taxpayer. Taxpayers with significant circuit breaker credits are more likely to pay more in net taxes, if they pay the local income tax.

 

Effect on Spending
The part of basic CAGIT not used for property tax relief can add to spending. This is the share of the third quarter percent equal to the amount received from the old Federal Revenue Sharing program, and a fraction of the fourth quarter percent. All of basic COIT revenue can be spent, though some can be used for property tax relief for homesteads.

At one time use of basic EDIT revenue was restricted to economic development projects (like infrastructure at industrial parks) and public capital projects (like county jails). However, this has been amended so that now EDIT revenue can be used "by a county, city, or town for any lawful purpose for which money in any of its other funds may be used" (see 6-3.5-7-13.1(b)(3)). This implies that there are no restrictions on the uses of basic EDIT revenue.

The added EDIT tax for homestead credits to offset inventory tax shifts, and the added CAGIT/COIT taxes for the civil operating levy freeze and property tax relief, are not spendable. They replace property taxes dollar for dollar.

However, local option income tax credits like these can reduce the eligibility of taxpayers for circuit breaker credits, by reducing their property tax bills. Circuit breaker credits are revenue losses for local governments. If these credits are reduced, losses are reduced. In effect, part of the property tax relief from the LOIT credits can be added revenue for local governments, because of circuit breaker credit reductions.

The added CAGIT or COIT rates for public safety are spendable. Public safety is broadly defined, including police and law enforcement systems, firefighting and fire prevention systems, emergency ambulance services, emergency medical services, hazardous materials emergencies, probation departments, community corrections programs, juvenile detention facilities, county jails, communications systems, and pension payments. Counties, cities and towns share the revenue.

 

Number of Counties
As of January 2009, 91 of the 92 counties have one or another of the local income taxes. Only Lake County does not have an income tax.

The 2008 property tax reform presents counties with a couple more reasons to consider the 2007 local option income taxes. First, the local income tax for property tax relief can reduce revenue losses from the circuit breaker. What appears to be pure property tax relief can generate added revenue by reducing the credits taxpayers receive when their tax bills exceed the property tax caps. Second, in 2009 in some counties homeowner taxes will rise significantly, above what they were in 2008 (though they will still be below what they were in 2007). This is because of a change in the way property tax relief is delivered. A local option income tax could lessen or eliminate this "tax echo."

 

Links to More Information

To Find: Go To:
A spreadsheet table showing LOIT tax rates and revenues by county for 2008 This website: 2009 LOIT Rate and Revenue Table
Tables showing rates and revenues by tax type for Indiana counties since 2004 Indiana Budget Agency Website (scroll down to "Local Income Tax Distributions")
Current county income tax rates for residents and non-residents, by county Indiana Department of Revenue website
Tax rates, revenues and descriptions of the local income taxes, from the Indiana Legislative Services Agency's annual handbook (since 1999) Indiana Legislative Services Agency, General Assembly website
What county officials and county residents might consider in making decisions about the new local income tax options, from Summer 2007. This website: Hot Topic: What Might a County Consider in Making the New County Income Tax Decision?
The Legislative Services Agencies analysis of circuit breaker losses and "tax echo" counties, from March 2008. This website: LSA Tax shift memo, March 2008 (see pp. 2-5 for county circuit breaker losses; pp. 33-51 for year to year tax changes)