The Brown County Council has voted to increase local income taxes, but the exact impact on taxpayers isn’t known yet.
The increase would help create an estimated $145,000 cushion for county government in 2017 and would give all non-school local government units more money to work with next year.
The current local income tax rate is 2.3995 percent. Of that, 0.3955 percent replaces property taxes that would otherwise be collected.
At the end of budget discussions Aug. 17, the county council decided to increase the 0.3955 percent property tax replacement portion to the maximum authorized by the Indiana Department of Local Government Finance for 2017.
That maximum rate has not been certified by the DLGF yet, but it will likely be an increase over the 2016 rate, which was 0.4843 percent.
The council will still have to draft an ordinance to increase the tax rate and have first and second readings at their Monday meetings Sept. 17 and Oct. 19.
Every year, the DLGF certifies a growth quotient for each county — the percentage by which a county can increase the property tax levy to fund non-school taxing units.
Brown County’s growth quotient for 2017 is about 3 percent.
But Brown County can’t increase property taxes to that level because the county is under a levy freeze.
Instead, the county has to raise equivalent funds through income tax.
The property taxes collected in Brown County can increase but only in special circumstances, such as if a new taxing unit is created or if a taxing unit incurs debt, like for a building project, said Jenny Banks, director of communications at the DLGF.
Around the end of August each year, the DLGF also issues a certified local income tax rate for property tax replacement. It uses a formula that takes multiple factors into account, including projected taxable income for the entire county and the revenue an increased property tax levy would have raised.
But the county council has to adopt that new rate for it to take effect.
State law requires the council to conduct a public hearing each year about whether to impose the higher rate.
Once the new rate has been passed, it cannot be lowered or rescinded, even if the county opts to “thaw” and begin increasing the property tax levy instead of the income tax rate.
Brown County’s last increase was in 2013, when the council raised the combined levy freeze income tax rate and property tax relief rate — a set rate of 0.0274 percent — from 0.2 percent to 0.3995 percent.
The council could have gone up to 0.4229 percent.
For 2015 and 2016, the DLGF authorized Brown County to increase the combined rate to 0.4510 and 0.4843 percent, respectively, but the council did not pass a new rate in either year, and the current combined rate is still 0.3995 percent.
As a result, the DLGF estimates that Brown County non-school units will have missed out on about $266,332 in projected revenue by the end of 2016.
About $207,000 of that would have gone to the county. Another $23,000 would have gone to Nashville. The rest would have been divided between the townships and other taxing units.
The county library and solid waste district lost out on more than $23,000 combined.
That was money they counted on when preparing their budgets for 2015 and 2016.
Find and fix
Brown County Auditor Beth Mulry discovered the discrepancy with the help of county financial consultant Jacque Clements of MAXIMUS.
During budget preparations this year, Mulry noticed that the county had less revenue during 2015 than expected, Clements said. That was when the two realized the council had not increased the income tax rate to match the DLGF growth quotient.
At the beginning of the budget process Aug. 15, Mulry told the county council about the error.
Mulry presented the council with the certified 2016 rate of 0.4843 percent, noting that it would generate around $300,000 in additional revenue if adopted. The rate the DLGF certifies at the end of August — which the council voted to adopt — will most likely be higher.
While the county’s local income tax rate is not permitted to exceed 2.5 percent, the levy freeze and property tax relief income taxes do not count toward that cap, according to state law. However, state law prevents the levy freeze income tax from ever exceeding 1 percent.