Each year, numerous Indiana counties have taken advantage of increased local income tax (LIT) flexibility since the consolidation of the former CAGIT, CEDIT and COIT into a single LIT. This past year was the most active yet, as nearly one in every three Indiana counties took action to adjust their LIT rates ahead of the Oct. 31, 2019, deadline for 2020.
Of the 28 counties that adjusted their rates, 22 increased the total rate, with increases ranging from 0.1% to 1.1%. Five counties maintained the same total rate, while reallocating among the various components. Just one Indiana county reduced its total rate. For 2020, Indiana counties will maintain rates ranging from 0.5% to 3.38%, with a statewide median of 1.75% and mean of 1.77%.
Since 2017, the first year under the consolidated LIT, the median LIT rate across Indiana’s counties rose to 1.75% from 1.5% for 2020. Likewise, the mean rate rose to 1.77% from 1.59% over the same four-year stretch.
Due to increased expenses and declining revenues and cash balances, many counties are turning to LIT particularly to assist with projects to relieve jail overcrowding. Legislation passed in 2018 allows counties to adopt a rate of up to 0.2% to fund construction and operating expenses related to correctional and rehabilitation facilities. With 2020 rates certified, 24 counties have now adopted all or a portion of the available jail LIT component. For counties that adopted after June 30, 2019, no more than 20% of the revenue may be used for jail operating expenses.
For more information on this topic, or to learn how Baker Tilly Municipal Advisors can help, contact our team.
If you have questions about your options or the potential impact of taking action, your Baker Tilly team can provide you with the necessary analysis to make a decision. If an adjustment to your county’s rate makes sense, we are your trusted advisor to guide you through the process.