Indiana has credible estimates showing that taxing services could replace property-tax revenue statewide. What remains unproven is whether the swap would protect every community’s budget or make taxes fairer for lower-income Hoosiers.

Rep. J.D. Prescott, R-Union City, plans to revive his proposal in 2027 after House Bill 1288 died in committee. His current pitch extends Indiana’s 7% sales tax to most services, preserving healthcare and education exemptions. He argues that would make taxation more predictable and fair.

The stakes are already visible locally. Hamilton Southeastern Schools projects that property-tax changes under SEA 1 will reduce expected referendum revenue by more than $45 million over 2026–2031.

There is substantive evidence behind the replacement claim. The nonpartisan Legislative Services Agency’s fiscal analysis of HB 1288 projects $13.1 billion–$15.2 billion in distributions during calendar 2028, compared with $11.6 billion in eliminated property-tax levies. Those distribution totals include charter schools and private-school vouchers.

LSA used federal economic and industry-sales data, excluded transactions already taxed, and allowed for reduced demand as services become more expensive. These are forecasts for the 2026 bill, not an assessment of a final 2027 proposal. Additional exemptions would require recalculation.

Fairness is less settled. The Institute on Taxation and Economic Policy’s analysis of 2024 law found Indiana sales and excise taxes consumed 6.9% of income for the lowest-income fifth of nonelderly households, versus 1.2% for the top 1%. Property taxes were also regressive: 4% versus 1.4%.

Those figures flag risks; they do not measure this proposed swap. Taxing services disproportionately purchased by wealthier households can make a sales tax less regressive, ITEP notes. Low-income homeowners could benefit substantially from eliminating their property bills.

Renters also bear property taxes indirectly, but immediate, dollar-for-dollar rent reductions cannot be assumed. They could face new service taxes before receiving housing savings. The household outcome depends on property-tax relief, spending patterns and rent responses.

Taxing services purchased by businesses presents another complication: taxes can accumulate through production and raise consumer prices, according to the Tax Foundation.

Local control would change substantially. Under HB 1288, the state would collect and automatically distribute replacement revenue. Counties’ and municipalities’ shares within their respective funding pools would depend 75% on population and 25% on road mileage. Schools would receive 45% of revenue remaining after reserve contributions, allocated by eligible student counts, including charter and voucher students.

Local officials would still adopt budgets, but could not set the replacement tax’s rate. The bill would prohibit new property-tax referendums and new property-backed borrowing. Existing school referendum obligations could continue as property-based fees.

A statewide surplus therefore would not guarantee that Fishers, Hamilton County or HSE receives enough. The bill includes a 10% reserve mechanism for downturns, but its fiscal note supplies no household-by-income analysis or individual-community results.

There appears to be a consensus among people I know and have experience with state lawmaking that eliminating property taxes entirely with a tax on services is unlikely in the 2027 budget session of the Indiana Legislature.  But, nothing is guaranteed.

Establishing fairness and local adequacy requires an updated fiscal estimate, household comparisons and community-specific funding projections.