* LOIT represents a shift in taxation from property to income
The shift is on.
In a special meeting Tuesday, the Clay County Council approved a pair of ordinances increasing the County Adjusted Gross Income Tax (CAGIT) to institute what council members had hoped they never would have to: a Local Option Income Tax (LOIT).
Of the ordinances, one sets a 0.75 percent increase, which serves as property tax replacement on qualified residential property, making it more of a shift than a true increase.
"It is a dollar-for-dollar shift of taxation from a property tax to an income tax," Council President Mike McCullough said. "This will not be generating any additional revenue for taxing units, but recouping some of the lost revenue from the property tax caps."
Umbaugh and Associates, Indianapolis, CPA Manager Jason Semler told The Brazil Times the effect of the increase will be seen on all properties that will be under the 1 percent cap, which begins in 2010, along with some of those under the 2 percent cap.
"The qualified residential properties include all homestead, apartments and rental properties," Semler said.
By passing the property tax replacement LOIT, it opened the door for the council to pass the second ordinance, which sets an additional 0.25 percent for public service.
"The property tax caps look to be really good for homeowners, but not so good for public service," Brazil Police Chief Dave Archer said. "I am for the LOIT because I think we need it. With lost revenue, budgets get tight and when we lose an officer, we can't hire a new one, and while the LOIT may not allow us to get the extra guys, it will help out in other areas."
By passing the Public Safety LOIT, it may generate approximately $1 million in additional revenue which will be spread across all taxing units.
"It will help to keep jobs in public safety, and will hopefully help keep the people safer," McCullough said.
Before voting on the ordinances, the council opened the floor to questions from those in attendance.
Clay County resident Ronald Hofmann asked the council for clarification as to where and how the LOIT would be collected.
"It is basically an adjustment to CAGIT and some will have it taken out as a payroll deduction," McCullough said. "Taxpayers will see the difference on either the CAGIT or County Tax deduction on their paychecks."
McCullough added the council had until Oct. 31 to pass a LOIT, which prompted resident Matt Christie to ask, "Is this a permanent thing."
"There is discussion out there that the legislature may tweak things to allow counties to have the Public Safety LOIT only, so changes could be made," McCullough responded. "However, we are in a position where we can't wait that long to see what they will choose to do."
While council members and those in attendance admitted increasing taxes is never a favorable move, some said there are positive aspects in this situation.
"There are indications that show counties with a LOIT that are applying for grants score higher on the applications, giving them a better chance at being awarded grant funding," Clay County Commissioner Paul Sinders said. "Grants are a great thing because it is funding that does not have to be returned and if we don't get them, someone else will."
Council Member Larry Moss added, "This is a matter of fairness and I have always felt property taxes are one of the most unfair taxes because not everyone is a home or business owner. Although income tax is not very fair either, I believe it is more fair than property taxes because it is more across the board than on just a select group."
McCullough said the council has had the option to institute a LOIT since 2008, but held off, in part, because the county had a healthy Rainy Day Fund, and there was the thought that the state legislature would go back and review House Bill 1011, which put the property tax caps in place.
Although the council unanimously approved both ordinances, which increases the CAGIT from 1.25 percent to 2.25 percent, it was not a decision that came lightly.
"It has been really tough and we all have been to countless meetings and seminars and constantly juggled figures just to have the hope to keep the county running," Council Member Dolores Johnson said.
Rothrock added, "We have all stressed over this decision, and for me, it has been as much as anything else in my life."
While the ordinances go into effect immediately, the increase in CAGIT will not begin until Jan. 1, 2010.
The next regular meeting of the Clay County Council will be 6 p.m., Monday, Nov. 2, in the Commissioners' Courtroom at the Clay County Courthouse.
Where will it go?
The following is a breakdown of how much estimated additional funding taxing units could receive for public safety (law enforcement, fire protection, etc.) based on the 0.25 percent Public Safety LOIT:
|City of Brazil||$318,915|
Note: Amounts based upon estimated adjusted gross income of $415,746,100.
Source: Umbaugh and Associates, Indianapolis.