One of the last bills signed by Gov. Mike Braun from this year’s legislative session sets the stage for more haggling in 2027 over the funding for local governments.A wide-ranging bill on numerous state and local tax matters approved by legislators last month includes provisions for a one-year delay on planned major changes to local income taxes and orders up a new report on how cities and counties could share that tax revenue.
The revamp of the local income tax system was a key part of Senate Enrolled Act 1 during the 2025 session as legislators and Braun sought to cut residential property taxes. Those local income tax changes were to take effect in 2028, but are now being delayed until 2029 as they get a new look.“We have really struggled to pigeon hole every city and town and county in the same mold in the state of Indiana with SEA 1, and we realize that that is a difficult task to pull off,” Senate Tax and Fiscal Policy Committee Chair Sen. Travis Holdman said.The plan approved in 2025 included capping total local income tax rates for all counties at 2.9%, down from 3.75%. Cities and larger towns would be allowed to impose rates up to 1.2% within that county total, a power they have not had before. Under current law, they have to get the agreement of county officials in order to impose a local income tax.The organization representing Indiana’s cities and towns projected that nearly half of municipalities larger than 3,500 people would see cuts to their potential local income tax revenue from the changes.
Those include 45% reductions in Crawfordsville, which would drop about $3 million in revenue, and Clarksville, which would see a nearly $4.5 million decrease, according to Accelerate Indiana Municipalities.This year’s House Bill 1210 allows counties to establish a Municipal Unit Strategic Taskforce with county and municipal representatives to negotiate an agreement on how they would distribute local income taxes in the future.Those agreements will be compiled by the state’s Department of Local Government Finance for a report to legislative leaders by Dec. 1.
Amy Krieg, government affairs director for the municipalities group, said she was glad legislators are willing to take a look at possible revisions to the 2025 overhaul plan.“There’s a recognition now amongst the legislators, especially following this session, that there will be more work done over the next several years, and this will be, certainly, a multi-year discussion in the making,” Krieg told the Capital Chronicle.This year’s bill, which Braun signed into law on March 12, also calls for a legislative study committee to further review property tax deductions and exemptions ahead of the 2027 session.Holdman, the Senate tax committee leader, said his goal was to ultimately “come up with a more streamlined, tailored plan to fit everybody’s needs.”“We really are looking for the counties and the cities and towns to get together and come up with a plan they would recommend to us on how that (income tax) distribution needs to occur in each county, because the counties are all not alike,” Holdman said. “Contrary to our efforts to put everybody in the same box, it just doesn’t work that way.”
