LEGISLATIVE SERVICES AGENCY
OFFICE OF FISCAL AND MANAGEMENT ANALYSIS
FISCAL IMPACT STATEMENT
LS 7421 NOTE PREPARED: Jan 20, 2025
BILL NUMBER: HB 1646 BILL AMENDED:
SUBJECT: Local Option Sales Taxes.
FIRST AUTHOR: Rep. Isa BILL STATUS: As Introduced
FIRST SPONSOR:
FUNDS AFFECTED:XGENERAL IMPACT: State & Local
XDEDICATED
FEDERAL
Summary of Legislation: The bill allows counties, cities, and towns to adopt a local sales tax applicable
to tangible personal property delivered (not by common carrier) within the geographic boundaries of the
political subdivision.
The bill provides that the local option sales tax revenue may be used for infrastructure improvements.
The bill provides that the Department of State Revenue (DOR) shall maintain several data bases of local sales
tax data associated with the local option sales tax, in accordance with the requirements of the Streamlined
Sales and Use Tax Agreement.
The bill adds the local option sales tax to the list of local taxes that may be captured by the state in the case
of a local unit failing to make timely debt payments and sources of revenue that may be used by the local unit
to make debt service payments.
Effective Date: July 1, 2025.
Explanation of State Expenditures: DOR: The bill requires the DOR to maintain several data bases related
to local sales taxes and the jurisdictions that have adopted the local option sales tax. The DOR must annually
provide local fiscal officers with information on the tax collected from each business and provide notification
when a taxpayer is delinquent in remitting the local option sales tax. The bill’s requirements represent an
additional workload and expenditure on the DOR outside of its routine administrative functions. Existing
staffing and resource levels, if currently being used to capacity, may be insufficient for full implementation.
The additional funds and resources required could be supplied through existing staff and resources currently
being used in another program or with new appropriations. Ultimately, the source of funds and resources
required to satisfy the requirements of this bill will depend on legislative and administrative actions.
State Comptroller: The bill requires that a nonreverting special account within the General Fund be
established for each county or municipality that imposes the local option sales tax. The State Comptroller
HB 1646 1 is required to distribute the local option sales tax revenue accumulated at the end of the previous month under
the special account to the county or municipality that imposed it. The task can be accomplished within
existing resources and staff.
Explanation of State Revenues:
Explanation of Local Expenditures: The bill provides that before the fiscal body of a county or
municipality may adopt an ordinance to impose or rescind the local sales tax, it must hold a public hearing
on the proposed ordinance, and it must provide the boundary information and the date, time and place of the
public hearing. The bill also provides that the fiscal body of a county or municipality that adopts tax must
send the DOR a certified copy of the ordinance and transmit information concerning changes to the
boundaries immediately. These requirements should be able to be implemented using existing staffing and
resources.
Explanation of Local Revenues: The bill allows a county or municipality to adopt a local sales tax at a rate
of 1%. The start date of the local option sales tax collection depends on the public hearing results and
ordinance specifications. The local sales tax is estimated to increase local revenue between $0.20 M and
$0.23 M per 1,000 population in the county or municipality that imposes the local option sales tax. The
estimation is based on data from the 2024 Revenue Forecast, Indiana population projection, and assumptions
of demand elasticity. The actual local sales tax revenue collection depends on economic conditions, local
population, and per capita income. [Assuming all counties adopt the local option sales tax in CY 2026, the
total local revenue increase would be between $1,360 M and $1,580 M. This total would be greater to the
extent municipalities also adopt local option sales taxes.]
The bill provides that the county or municipality that adopts the local option sales tax may use the tax
revenue only for infrastructure improvement, and the unused local option sales tax revenue may be
transferred to the rainy day fund of a political subdivision. The bill also provides that the local sales tax may
be captured by the state when the local unit fails to make timely debt payments, and it may be used by the
local unit to make debt service payments.
State Agencies Affected: Department of State Revenue, State Comptroller.
Local Agencies Affected: Counties and municipalities.
Information Sources: Revenue Forecast Technical Committee, December 2024 Revenue Forecast.
Fiscal Analyst: Qian Li, 317-232-9671.
HB 1646 2