INDIANAPOLIS – A House panel approved a bill Monday that would reverse a court ruling on what constitutes a tax in Indiana.
Lawmakers are trying to undo an Indiana Tax Court ruling that could have profound negative impacts on local government finance around the state.
But even some of the legislators in support of the measure disagree with the basis of the bill – a user fee versus a tax.
Rep. John Young, R-Franklin, said he isn't sure the case "is going to turn everything on its head" but that it puts the legislature in a tough position.
He added that you can call them fees all you want but "I don't know why a stormwater fee that you can't opt out of isn't a property tax."
Senate Bill 582 is a reaction to a December ruling by the Indiana Tax Court out of Hancock County in which the judge ruled stormwater fees are taxes.
"The certified administrative record indicates that (McCordsville) imposed storm water charges on nearly all the real property within its corporate boundaries," the ruling said. "While a property owner may request an adjustment to the charge, there is no indication that he can decline to use the service altogether or control the extent to which the service is used."
The ruling was necessary for the Indiana Tax Court to have jurisdiction over the case, which also involved several other issues. But its impact could be far-reaching as similar fees amount to hundreds of millions of dollars statewide.
"It would basically bring down the entire system," said Katrina Hall, public policy director for the Indiana Farm Bureau.
Indiana has maximum property tax levy limitations and if these fees are considered taxes, then many jurisdictions would be in violation, she said. Those fees also back bonds for major projects that could then be challenged.
Then there is the issue of tax caps. If these fees are considered property taxes, then more property owners will exceed the caps – costing cities, towns, counties and schools millions in revenue.
The House Judiciary Committee adopted an amendment that more tightly defines what a fee is and makes the bill retroactive to before the litigation. The bill passed easily and now moves to the full House.
Rep. Ryan Hatfield, R-Evansville, voted for the bill because he feels it is necessary to keep cities and towns afloat.
But he blamed Republicans for making it impossible for local units of government to raise enough revenue from taxes, creating the situation that has them turning to fees.
"Whether you call it a fee or a tax, it's on our citizens," Hatfield said.