An Indiana Department of Revenue representative disputes local officials’ charges that the state short-changes locales here in the income tax revenue they’re due.
It’s not that local concerns about how income tax funds are processed are off the mark. It’s just that other factors — notably the idiosyncratic practices of employers and taxpayers — make it tough to follow income tax money as it winds its way through the government bureaucracy with 100 percent certainty.
“By statute, we are properly collecting and distributing county income tax,” DOR spokesman Bob Dittmer said in an e-mailed response to queries on the matter. Department officials “are not aware of any viable and effective administration solution” to address concerns about how the funds are distributed.
Leaders across Elkhart County have long clamored that locales here don’t get the proper amount of income tax revenue they’re due. They’ve pointed to undocumented immigrants, charging that many don’t file tax returns with the state each April, thus reducing the pool of income tax revenue to be returned to counties, cities and other taxing units here.
With taxing units fighting to maintain services and stay in the black, it’s a high stakes game.
All told, Elkhart County government, the seven cities and towns here, the 16 townships, the six library systems and the seven school districts are to get $43.7 million this year in income tax revenue between them, according to the Elkhart County Auditor’s Office. That’s a far cry from the $177.23 million in net property taxes that accounting firm Umbaugh & Associates expects for Elkhart County. Still, income tax revenue accounts for a sizable chunk of revenue.
THE PROCESS: TWO VIEWS
The state collects income tax revenue from employers, who withhold it from their workers’ pay. Only after workers file their tax returns, though, are income tax funds corresponding to Elkhart County — and all other counties — sent back, based on who actually fills out returns.
That process, locals say, is flawed and prevents local communities from recouping the revenue applicable to the undocumented immigrants and others who don’t file, millions of dollars per year, perhaps. Indiana Rep. Wes Culver, R-Goshen, proposed a measure to address local officials’ concerns, House Bill 1479, but it never received a committee hearing and stalled.
Dittmer, though, disputes local officials’ contention that they’re short-changed. He points to several factors that suggest the matter may not be as cut-and-dried as locals worry:
There’s no way for the DOR to know how much income tax revenue, if any, was withheld from the paychecks of undocumented workers or others not filing returns. If none was withheld — they claim numerous exemptions, for instance, reducing withholding — then none may even be forthcoming to taxing units.
“Thus, no one knows the impact of this situation,” said Dittmer.
The state, Dittmer notes, bases income tax distributions to locales on data reported in income tax returns, not actual payments made, according to Dittmer. Thus, if a deadbeat filer doesn’t pay the amount he or she owes, locales still get the applicable income tax revenue and the state is left with the task of trying to collect the money. In fiscal year 2012, $50 million worth of taxes that had not yet been collected was distributed to counties.
“We continue to work on collecting these funds, but are not always successful,” said Dittmer.
Employers calculate the withholding taxes sent in to the state in many ways. Some withhold too much, some withhold too little, and the only accurate way to figure out each taxpayer’s true burden is via annual tax returns.
It’s true, Dittmer said, that income tax distributions are based on returns filed, per state law, and that additional “residual” withholding taxes would theoretically be retained in the state general fund. However, that doesn’t mean the state ends up with more than its fair share.
“Because we cannot currently quantify any such number,” Ditmer said, “there is no certainty that any residual actually exists.”
Taxing unit Expected revenue
Elkhart County $13,093,648
City of Elkhart $10,419,882
Elkhart County jail $7,237,608
Elkhart schools $1,012,115
Goshen schools $552,431
Concord schools $225,137
* Includes funds going to the other four Elkhart County school districts, three other towns, 16 townships and six library systems.
Source: Elkhart County Auditor’s Office. Funds come from the 1% adjusted gross income tax, 0.25% jail tax and 0.25% economic development income tax.