Overhaul Spurs
Overwhelming Response

What this year has been about in Indiana development is an array of changes to the Indiana tax code that were finally approved by legislators in a special session in June. While most provisions will not go into effect until January 2003, the effects have been immediate. Since July 1, project inquiries have more than doubled, and an increasing number of international firms are leaving their calling cards at the state's doorstep. But the companies already there like the package too.
        "I'm sure everybody has their favorite little piece, but ours certainly is the research and development tax credit, which was extended to 10 percent," says Jack Leicht of the doubling of the credit. "The apportionment formula has been removed. Having said that, it's due to expire at the end of '04, and uncertainty is not a good thing in economic development."
        Department of Commerce spokesperson Jeff Harris points out that the language in the legislation says that the credit will be up for reauthorization in '04, as it has been in the past, and adds, "there's no reason to believe that it won't be reauthorized."
        "Look around the country in the health and life sciences field, and so many companies are still located in the primary facilities where they started, partly because technology that came out of the universities," adds Wade Lange, president of the Indiana Health Industry Forum, and formerly with both Eli Lilly and West Pharmaceutical Services. "So the R&D tax credit was critical for the predictability and for the understandability of the tax structure."
        Other changes include the repeal of the corporate gross income tax and the universally unpopular inventory tax. To make up for those moves, the sales tax has risen to six percent, the corporate AGI has jumped from 3.4 percent to 8.5 percent and significant hikes will soon kick in on things like tobacco products and riverboat wagering. But even with a gasoline tax rise from $0.15 to $0.18, most seem pleased by the net changes. Even utilities like multi-state American Electric Power, which have to shoulder a slightly higher gross income tax, were pleasantly surprised.
        "We thought that the odds were against getting that legislation done," says John Sampson, AEP's Indiana state president, praising the more level playing field. "We will be taxed the same for all deliveries of energy, whether you're an out-of-state or in-state company. Sales of energy and services is a large portion of our business besides the infrastructure itself, so we were very pleased with the outcome of that tax package for utilities."
        "Economic development is a process of elimination -- they really want to get rid of you, because there are so many opportunities out there," says Robinson, who admits to having had some difficulty in the past in explaining the state's supplemental income tax, also now stricken from the code. "This package is going to help us tremendously ... especially the elimination of the inventory tax."
        Don Gentry, who has worked in economic development for some 40 years, says Indiana was not necessarily a high-tax state before, but that it "had some taxes that people just don't like," namely the inventory tax and the tax on goods to be shipped out of state (also eliminated).
        A Vietnam POW with two Purple Hearts, and with a corporate background at Procter & Gamble, Schwarz Paper Co. and MacWilliams Corp., multi-term South Bend mayor and current Lieutenant Governor Joe Kernan has seen a lot worse fights than tax reform's struggle through the legislature. Nonetheless, he recognizes the package's importance in the minds of corporate site seekers and Hoosiers alike.
        "Indiana is going through the same types of revenue challenges as virtually every other state in the Union," he says, but the general assembly stood out for both finding revenue for education and reforming taxes in the same year. He thinks the breakthrough sets the tone for facing other challenges. "And it puts us back on lists that we have not been on," he adds, "be it because of having an inventory tax or gross receipts tax or the uncertainty."
        In fact, Kernan was able to welcome in September a new denizen to the former home of his old employer P&G, when bagged salad processor SaladTime invested $12.7 million in renovating P&G's former Plymouth facility, vowing to create 188 new jobs by 2004. The incentive package included a 10-year tax abatement from the city, $655,000 in training funds and $200,000 in industrial development grants from the state and the city.