Legislature pleases job creation official; More money for tech research; corporate tax hike defeated

Business proponents also played defense during the session, including defeating a corporate income tax increase proposed by House Democrats.

Some Republicans regretted that the state tied its minimum wage to the federal level, which is expected to be raised soon, and that Indiana is paying less to retailers who collect sales tax.

"I'm disappointed the focus was not more on economic development," said Rep. Randy Borror, R-Fort Wayne. "We still must always remember that the best thing we can do for everyone in the state of Indiana is to create jobs. That takes care of a lot of problems in the state."

But Borror and Feltman did appreciate several moves.

They praised lawmakers for giving $3 million a year to a high-growth business incentive fund, noting there are 10 other states with money in flexible pots used to go after economic development.

"Right now, we have a few buckets that are statutorily limited to corporate tax credits, training dollars, etc.," Feltman said.

And the current crop of incentives is largely geared to help the manufacturing industry.

Other states have become creative in searching for ways to help the more high-tech industries. Money in the high-growth fund could be used for virtually anything the Indiana Economic Development Corp. determines, including covering a company's moving expenses, buying a piece of equipment or paying a year's worth of rent.

"Things that hit the company's bottom line in Year 1," Feltman said. "It's unfortunate we are in this competition but it's a reality. States and cities are going after job-creating investments like never before, and we need every tool we can find."

Research and technology

Another victory was the funding of the 21st Century Research and Technology Fund with $69.75 million over the next two years.

The fund uses state grants to stimulate diversification of the state's economy by developing and commercializing advanced technologies in Indiana.

The first draft of the budget approved by House Democrats eliminated the fund.

"It has been funded since 1999 and that was a huge win," Feltman said. "There was some concern by me and others that it would not be there in the end."

Borror said several lawmakers over the years have criticized the fund because the overwhelming majority of the money goes to the "golden triangle" of research institutes, Purdue University, Indiana University and a small amount to the University of Notre Dame.

"The money isn't going out to different parts of the state," he said. "It's incumbent upon the IEDC to further market it and for businesses to apply."

Borror and Feltman stressed that the Indiana Economic Development Corp. has since changed how the money is distributed so that it focuses less on universities and more on innovative startup companies.

"We don't want this intellectual property sitting on a shelf in a university," Borror said. "We want it in the mainstream."

Feltman also conceded that some of the money previously went to large companies with huge research budgets, and that the state didn't track related outcomes.

Now before grants are made from the fund, the proposed project goes through a peer review process by state business leaders. The Indiana Economic Development Corp. also charts more specifically job growth related to the grants.

Similarly, the Indiana Economic Development Corp. will oversee a new $20 million life sciences fund that the General Assembly chose to create. It will provide grants to IU and Purdue to recruit and retain world-class scholars and researchers.

"That is a shred of the amount of money requested by IU," Borror said. "This doesn't, I believe, scratch the surface of where we need to be as a state."

But Borror is pleased about the passage of House Bill 1424 legislation on certified technology parks that he co-authored.

"The reason why it was needed is a desire on the part of tech park executives to make sure the parks are operating at the highest standard," he said. "We need to make sure tech parks that are funded by state government are performing."

The state has 18 certified tech parks, including the Northeast Indiana Innovation Center in Fort Wayne, and they are allowed to capture up to $5 million in sales tax revenue generated locally by the parks instead of the money going to the state General Fund.

"But not all of the parks are growing and creating jobs," Feltman said. "A lot of them aren't living up to expectations."

The new law allows the Indiana Economic Development Corp. to better track each park's progress and revoke certification if certain goals are not being met.

Sales tax changes

Of all the changes made by the General Assembly, there appears to be just one that could be a detriment to state retailers.

While the Indiana Economic Development Corp. did not take a position on the reduction of the merchants' sales tax allowance, Republicans did.

Under current law, retailers who collect sales tax for the state of Indiana are allowed to keep 0.83 percent of the tax collected to cover some maintenance and expenses.

"It's a pittance. It's nothing, roughly half of a cent for every dollar that you collect for the state," said Rep. Dan Leonard, R-Huntington.

But Senate Bill 500 created a three-tier system in which businesses that collect up to $60,000 in taxes or have annual sales less than $10 million would remain at the 0.83 percent level.

Businesses that collect more than $60,000 in taxes but not more than $600,000 between $10 million and $100 million in annual sales would see their allowance slip to 0.6 percent.

And finally, for businesses collecting more than $600,000 in taxes which means more than $100 million in annual sales the allowance drops to 0.3 percent.

The change brings the state $15.3 million in revenue annually, which is money that retailers lose.

While often referred to as the Wal-Mart provision during the session, it affects all large retailers in the state.

Jason Wetzel, Wal-Mart's Indiana spokesman, said the change will cost his company about $1.4 million annually on the $276 million in sales tax collected each year.

"Many other states have a vendor's allowance or retailer's allowance," he said. "We are performing a valuable service to the state by collecting sales tax and remitting it in a timely fashion.

"There are costs incurred with that service, and we thought it was appropriate under the current system to be compensated in some fashion."

Wetzel noted that several states are considering similar changes, including Ohio, and that he understands when budgets are tight legislators look for "low-hanging fruit."

But he emphasized that the change will hurt more than just Wal-Mart.

"Every car lot up and down the street probably does $10 million in business, even a lot of restaurants do," Leonard said.

Leonard's own furniture store business will not be affected because the allowance remained the same for small businesses.

Debate on the issue during the legislative session was often intense, including Rep. Eric Turner, R-Marion, calling the change a tax on retailers.

"The cost of doing business for people who we ask to be agents of the state of Indiana and collect the taxes that are due to the state is not insignificant," said Rep. Matt Whetstone, R-Brownsburg. "Anytime we take away money from those agents we harm them. It's not a good situation."

But the Republican administration of Gov. Mitch Daniels did not fight the change, even suggesting it in a government efficiency inquiry last December.

That report found that 23 states do not give any vendor allowance, and that many large retailers have systems that report and remit sales tax electronically at a relatively low cost.

"The fee is overly generous to the large retailers," the investigation found, suggesting a $10,000 cap per retailer that would have generated a savings of $11 million.

nkelly@jg.net

At a glance Economic development actions in the legislature included: $3 million a year to a high-growth business incentive fund $69.75 million over two years to the 21st Century Research and Technology Fund Reduction of sales tax allowance for large retailers