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Is sales tax fair? Depends on who you ask

The “T-topic” will likely be banned at most Thanksgiving tables tomorrow, but it’s far-reaching implications are likely to have Hoosiers buzzing before long.
As with most tax proposals, some folks will be thankful, and others will not.
A key element of Gov. Frank O’Bannon and Lt. Gov. Joseph Kernan’s proposed “21st Century Tax Plan” is designed to reduce property tax bills by absorbing welfare costs and a portion of school costs. In return, other taxes would go up, including the five-percent sales tax, which would increase to six percent, or six cents on the dollar.
That begs the question: Is the sales tax a fair tax, or does it place an unfair burden on those less able to pay?
“I think the sales tax is really, well, in a way it’s fair, and in a way it’s not,” said Lanesville farmer Clarence Hausz. “The people spending the most have the most to spend, but somebody just barely getting by, more of their money goes to taxes.
“There’s no way to be really fair to everybody.”
Hausz and others are concerned with an anticipated increase in property taxes from the reassessment, when property is to be valued for tax purposes at the market price. That is expected to increase property taxes for some homes, especially older ones that previously got a break due to their age, by 33 percent. Part of the tax restructuring plan is to lessen that burden substantially.
Indiana Farm Bureau members believe steps must be taken to reduce the property tax burden.
“Our members already think property taxes are a problem,” said Indiana Farm Bureau President Harry Pearson. “They don’t see any need to make a bad problem any worse.”
Part of the problem is that farmers pay residential taxes, too, because the tax rate on agricultural land applies only to fields, pastures and other land involved in agricultural production.
The anticipated increase varies from county to county. In Harrison County, Pearson said the Indiana Fiscal Policy Institute estimates that residential property taxes will go up by nearly 9.8 percent, while property taxes on agricultural land will increase by 1.9 percent.
Property taxes are already too high, so any increase is too much, Pearson said.
“It’s just not a fair and equitable means of funding government,” Pearson said. “If someone makes no income for a particular year, or even loses money, property taxes are still due, because they have no connection to a taxpayer’s ability to pay. We have to find a better way.”
The inventory tax on businesses, which the 21st Century plan would eliminate, is also seen as grossly unfair. Doing away with it would be a major step in the right direction, many believe.
Little is known about a franchise tax, which would partially replace the inventory tax, except that an annual fee would be charged businesses based on the company’s volume of business in Indiana.
James LaDuke, owner/operator of Albin Jewelers in Corydon, said, “The inventory tax is the most unfair tax in the world. Any tax would have to be a little more palatable than an inventory tax for businesses.”
LaDuke said that’s partly because inventory which doesn’t sell year after year is taxed year after year, so businesses are forced to sell stock at cost or at a loss to keep from losing greater inventory taxes.
“We don’t buy this stuff to own it,” he said. “It gets taxed year after year. That’s not fair.”
Exactly how the reassessment will affect tax bills is still an unknown, as well as how the proposed new tax plan would work in practice rather than theory. So some believe caution is in order.
“I would rather wait and see what the fallout is with the new assessment before they go out and start new taxes,” said retired Corydon banker J. Gordon Pendleton. “I’ve always felt the sales tax is a regressive tax (which hurts those people who can least afford it). If they’re going to build in a lot of protection for the low-income people, I would probably be for it.”
Darrell Voelker, director of the Chamber of Commerce of Harrison County, sees the sales tax issue another way.
“I’ve always somewhat agreed that sales tax is a fairer tax and increasing it is not a terrible thing,” he said, adding that consumers will have to spend just a little more in sales taxes for products they buy.
Of the overall tax restructuring plan, Voelker said, “Right now, I’d like to say that I’m comfortably optimistic that this is a good package.”
He said to judge the effect of any changes in property taxes, corporate or business taxes, sample returns and property tax bills should first be calculated using the current and then the proposed figures to know which is best.
The proposal is “a work in progress,” and one that is expected to be debated extensively in the Indiana House and Senate before a new plan is adopted, said Rep. Paul Robertson, D-Depauw, and Sen. Richard Young, D-Milltown.
“Definitely, it needs to be done,” Hausz said.
Otherwise, he said, “It’s a mess. Things are going to get bad.”