Indiana local income tax reform: Municipal Unit Strategic Taskforce (MUST) explained

Prior to the passage of SEA 1 (2025) and HEA 1210 (2026), Indiana's local income tax structure was governed by a system in which county income tax rates and their distribution were largely determined by county councils, with limited formal input from municipal entities. Tax rate changes and distributions were set through statutory formulas, and negotiations among local units were generally informal, often lacking a structured mechanism for collaboration or consensus-building among cities, towns, and the county.

With the enactment of SEA 1 (2025) and HEA 1210 (2026), significant reforms have been introduced to increase local flexibility and formalize the negotiation process. Beginning March 1, 2026, counties may establish a Municipal Unit Strategic Taskforce (MUST) comprising representatives from county councils and fiscal officers from all cities and towns within the county. This taskforce creates a formal forum for local governments to collaboratively address income tax distribution decisions. Notably, the taskforce excludes representatives from fire protection and emergency medical services and nonmunicipal civil taxing units.

The primary role of the MUST is to negotiate and unanimously approve a local income tax distribution agreement, specifically addressing the county’s maximum local income tax rates. Because agreement requires unanimity, counties and municipalities should begin coordinating early - aligning priorities, identifying potential areas of disagreement, and conducting financial modeling before formal deliberations begin. Once an agreement is reached, it must be forwarded to the Department of Local Government Finance. The department will then compile all county agreements into a report, which will be delivered electronically to the legislative council by Dec. 1, 2026.

The new process aims to foster transparent collaboration, provide municipalities with a formalized voice in tax matters, and ensure that agreements reflect the priorities of both county and municipal governments. However, success under this model will depend on proactive planning, clear communication, and disciplined consensus-building among local units. These changes represent a shift from a top-down approach to a more collaborative, locally driven model for determining Indiana local income tax rates and distributions.

How counties can prepare for the MUST Process

• Begin coordinating with municipal stakeholders before formal taskforce formation
• Identify shared priorities and potential areas of disagreement early
• Conduct financial modeling on multiple income tax distribution scenarios
• Establish a clear process for decision-making and consensus
• Prepare documentation to support efficient submission to the Department of Local Government Finance

Counties that begin planning early and approach negotiations with clear financial insight will be better positioned for successful outcomes.

How Baker Tilly can support your MUST process:

• Facilitate and moderate Municipal Unit Strategic Taskforce (MUST) meetings to support productive collaboration and timely negotiations among county and municipal representatives.
• Provide guidance and analysis on local income tax distribution strategies, including modeling potential fiscal impacts to inform decision‑making across agreement scenarios.
• Assist in drafting and reviewing local income tax distribution agreements to help ensure compliance with statutory requirements and alignment with best practices.
• Support counties with documentation and submission processes required by the Department of Local Government Finance.
• Offer ongoing advisory services to help counties monitor, update, and implement income tax agreements as community needs evolve.

Thoughtful preparation, clear financial analysis, and structured facilitation can help local governments make the most of the flexibility introduced under these new provisions.