LEGISLATIVE SERVICES AGENCY
OFFICE OF FISCAL AND MANAGEMENT ANALYSIS
200 W. Washington, Suite 301
Indianapolis, IN 46204
(317) 233-0696
iga.in.gov
FISCAL IMPACT STATEMENT
LS 6935 NOTE PREPARED: Jan 15, 2021
BILL NUMBER: HB 1517 BILL AMENDED:
SUBJECT: Definition of Adjusted Gross Income.
FIRST AUTHOR: Rep. Jacob BILL STATUS: As Introduced
FIRST SPONSOR:
FUNDS AFFECTED: X GENERAL IMPACT: State & Local
DEDICATED
FEDERAL
Summary of Legislation: The bill changes the definition of "adjusted gross income" (AGI) to include only
AGI (as defined in Section 62 of the Internal Revenue Code) that is derived: (1) as an employee of state or
local government; or (2) from activities conducted on or otherwise derived from real property owned by state
or local government.
Effective Date: January 1, 2022.
Explanation of State Expenditures: Local Income Tax: Changing the definition of AGI will reduce the
amount of state and local income tax collected. The reduction in collections will require additional General
Fund expenditures to fund certified distributions of local income tax to the local units. The additional
expenditures are estimated to be about $931 M in FY 2022, $2,764 M in FY 2023, and $1,260 M in FY 2024.
Local income tax distributions are based on returns filed and processed in the fiscal year prior to the year the
certified distributions for the ensuing year are calculated. For example, the certified distributions for CY
2021 are based on revenue received for tax year 2019 reported on returns filed and processed in FY 2020.
The revenue impact will begin in FY 2022. The state will be distributing about $250 M monthly in local
income tax. The local income tax trust accounts will be used first to offset the decline in collections. Once
the trust account balances are depleted, the money to pay the distributions will come from the General Fund.
Department of State Revenue (DOR): The DOR will incur additional expenses to revise tax forms,
instructions, and computer programs to reflect the changes to the definition of adjusted gross income made
by the bill. The DOR's current level of resources should be sufficient to implement these changes.
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Explanation of State Revenues: Summary - The bill repeals existing statute that defines Individual and
Corporate AGI and adds a new definition of AGI that only includes adjusted gross income that is derived
from employment with state or local government, or other activities conducted on state or local government
property. The change to the definition of AGI is effective beginning in CY 2022 and will result in a loss of
all corporate income tax revenue, and a loss of the majority of individual income tax revenue. The bill will
likely reduce revenue in the last six months of FY 2022 as taxpayers adjust their withholding and estimated
payments, but the full revenue impact will begin in FY 2023. It will result in a reduction of revenue deposited
into the General Fund by approximately $6,704 M annually.
Additional Information - The bill’s impact was estimated using individual and corporate AGI income tax
revenue projections from the Revenue Forecast Technical Committee’s forecast as of December 2020. The
Projected Individual income tax revenue that would be foregone in FY 2023 is $6,601 M and the Corporate
AGI tax revenue loss is forecasted at $609 M. These losses will be partially offset by the keeping income
earned by state or local government employees in the new definition of AGI, along with the inclusion of
income derived from activities conducted on or otherwise derived from real property owned by state or local
government. Data from the Bureau of Labor Statistics suggest that Indiana state and local government
employee wages result in about $506 M in state tax revenue. To the extent that other activities are occurring
on state or local government property, the estimated loss could be offset further by an indeterminable, but
likely negligible, amount.
The new definition of AGI only affects Individual AGI Tax and Corporate AGI Tax. The bill does not impact
revenue from the Insurance Premiums Tax, Financial Institutions Tax, Utility Receipts Tax, and Utility
Services Use Tax because they utilize a different definition of AGI.
Explanation of Local Expenditures:
Explanation of Local Revenues: In altering the definition of AGI, the bill also impacts local income tax
revenue. Because local income tax is calculated using Individual AGI, the bill will affect local income tax
collections beginning in CY 2022. However, the revenue loss to local units will likely begin in CY 2024. The
annual expected revenue loss for local units statewide is approximately $2,891 M. [This estimate includes
the partial offset of losses from the inclusion of state and local government employees in the new definition
of AGI.]
State Agencies Affected: Department of State Revenue.
Local Agencies Affected: Local units.
Information Sources: Bureau of Labor Statistics, Quarterly Census of Employment and Wages; State
Budget Agency, 2021 - 2023 Revenue Forecast.
Fiscal Analyst: Olivia Smith, 317-232-9869.
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