LEGISLATIVE SERVICES AGENCY
OFFICE OF FISCAL AND MANAGEMENT ANALYSIS
200 W. Washington St., Suite 301
Indianapolis, IN 46204
(317) 233-0696
iga.in.gov
FISCAL IMPACT STATEMENT
LS 7177 NOTE PREPARED: Jan 6, 2020
BILL NUMBER: HB 1417 BILL AMENDED:
SUBJECT: Individual Adjusted Gross Income Tax Rates.
FIRST AUTHOR: Rep. Borders BILL STATUS: As Introduced
FIRST SPONSOR:
FUNDS AFFECTED: X GENERAL IMPACT: State
DEDICATED
FEDERAL
Summary of Legislation: The bill decreases the Indiana individual adjusted gross income tax rate from
3.23% to 3.07%.
Effective Date: January 1, 2021.
Explanation of State Expenditures: Department of State Revenue (DOR): The Department of State
Revenue will incur additional expenses to revise tax forms, instructions, and computer programs to reflect
the changes made by the bill. The DOR's current level of resources should be sufficient to implement these
changes.
Explanation of State Revenues: Summary: The bill will result in a revenue loss to the state General Fund.
The revenue loss from the rate reduction is estimated to begin in FY 2021 and is outlined in the table below.
State General Fund Impact Percent Reduction in Tax
Fiscal Year
(in Millions) Revenues
2021 - $148.5 -2.3%
2022 - $307.2 -4.7%
2023 - $318.4 -4.7%
The fiscal impact will continue in years after FY 2023. The analysis assumes that the individual income tax
filers will change their quarterly estimated payments and income tax withholding payments based on the
reduced tax rates. These adjustments will occur starting January 1, 2021, for tax year 2021. The full impact
HB 1417 1
of the rate phase down would occur in FY 2022 and thereafter.
Additional Information: Under current law, Indiana imposes a flat income tax rate of 3.23% on adjusted gross
income (AGI) of individual income taxpayers. The bill decreases the rate by about 5% to 3.07% starting
January 1, 2021.
Since the fiscal year begins on July 1, any change in the tax rate beginning January 1 will lead to the fiscal
year having two different tax rates. The average of the two different tax rates occurring in FY 2021 was
calculated and used to estimate the revenue loss. The Revenue Technical Committee forecast (December 20,
2019) for individual income tax revenue were used as the base forecasted revenue. Results from empirical
literature on taxable income elasticity along with the proposed decrease in tax rate were used to calculate the
impact of the rate change on taxable income for each fiscal year. In FY 2022 and years thereafter, the fiscal
impact will continue to result in an estimated revenue loss of about 4.7% of the income tax collections at the
current tax rate. All of the state individual income tax is deposited in the state General Fund.
Explanation of Local Expenditures:
Explanation of Local Revenues:
State Agencies Affected: Department of State Revenue.
Local Agencies Affected:
Information Sources: State Revenue Forecast, December 20,2019. OFMA Income Tax Database. State
Revenue Forecast, December 17, 2012. OFMA Income Tax Database. Long, James E. “The Impact of
Marginal Tax Rates on Taxable Income: Evidence from State Income Tax Differentials.” Southern Economic
Journal 65(4): 855. Bruce, Donald, John Deskins, and William Fox. (2005) On the Extent, Growth, and
Efficiency Consequences of State Business Tax Planning." Donald Bruce, John Deskins, and William Fox.
(2006). "On The Relative Distortions of State Sales, Corporate Income and Personal Income Taxes."
Fiscal Analyst: Randhir Jha, 317-232-9556.
HB 1417 2


Statutes affected:
1. Introduced House Bill (H): 6-3-2-1