Corrections & Clarifications: The city must pass the tax increase by Sep. 1, not Dec. 31.
At a June Indianapolis City-County Council committee meeting, residents pleaded with councilors to find a way to not raise vehicle taxes.
“I’m 81 years old. I do not want to have to go back to work to pay taxes and to pay for my living, but that’s what we’re facing because we’re taxed on taxed on taxed,” said Charis Carpenter, a resident speaking at the meeting.
Councilors supporting Proposal 192 — which would increase the excise surtax for passenger vehicles from $20 on average to $100 and the wheel tax for heavier vehicles from either $10 and $40 to $240 — argue the tax is a predictable way to generate $78.4 million, needed to access more state road funding.
In 2027, Indianapolis will need to generate $50 million in new infrastructure revenue to receive $50 million from the state, thanks to 2025 House Bill 1461 and 2026 Senate Bill 179 passed by the Republican-dominated Indiana General Assembly. The revenue needed to access state funds will rise every year. In 2028 the city will need to generate $70 million to receive the $50 million grant. After, Marion County’s contribution will have to increase by $10 million annually in order to qualify for the state’s $50 million match. Once the revenue isn’t met, there will be no future opportunities to try again.
The proposal faces a crucial committee vote on Tuesday.
By increasing vehicle taxes, accessing Indiana’s matching transfer, and making the budget more efficient, Democratic Councilor Andy Nielsen, who presented the proposal, says it will generate more than $850 million in infrastructure funding over the next five years. If taxes don’t increase, Nielsen said residents will be forced to pay for increased vehicle damage from potholes, and the council may risk a worsening credit rating due to poor infrastructure which could impact bond borrowing.
However, those in opposition to Proposal 192, including Democratic Indianapolis Mayor Joe Hogsett, say the increased vehicle taxes are not the only way to generate new revenue. City County-Council President Maggie Lewis welcomed the mayor and others with ideas to work alongside councilors on plans to develop long-lasting revenue for infrastructure. As the need to find a plan that will generate revenue by the Dec. 31 state deadline looms, there are no official proposals on the table other than the vehicle taxes.
Many possible options would depend on legislative changes from Indiana’s General Assembly. Tax relief based on income or car condition are not allowed due to Indiana state law, according to Nielsen.
Stephanie Wells, president of the Indiana Fiscal Policy Institute, said there is no silver bullet solution to equitably address Indianapolis’ need for infrastructure funding. Wells said she predicted Indianapolis would raise taxes after Indiana House Bill 1461 in 2025 gave Indianapolis the ability to raise taxes and finance projects.
“I think hard decisions have to be made at local levels in order to maintain appropriate levels of road funding, which include maintenance and we know that citizens really care about having properly maintained roads,” Wells said.
Here are three future alternatives to an increase in vehicle taxes for Marion County residents:
Commuter tax
A commuter tax aims to make up for lost property revenue for those who use Indianapolis roads for work but pay taxes in their counties. It would most likely target Marion County’s “donut counties:” Boone, Hamilton, Hancock, Hendricks, Johnson, Morgan, and Shelby County. In 2018, the last time a commuter tax plan was widely discussed, Mayor Hogsett said it would “more equitably distribute income taxes.”
According to the most recent data on commuters based on tax returns, 178,800 people commuted into Marion County for work in 2023. Of those commuters, 52,000 lived in Hamilton County.
However, a commuter tax, which would allow Marion County to collect income taxes of people who live elsewhere but work in the county, is out of the hands of Indianapolis’ city-county council. It would need to happen at the state-level, likely with the support of suburban counties’ governments. In the past, Hamilton County mayors and commissioners opposed a commuter tax, so the idea never advanced.
Few cities use a commuter tax and instead rely on pre-tax public transportation benefits to reduce traffic. In Philadelphia, non-resident commuters pay a 3.43% wage tax, slightly lower than the 3.74% wage tax for city residents.
“Folks want a commuter tax and they need to understand that this body does not have the authority to create a commuter tax,” Lewis said after the committee meeting. “We have to work with the tools that were given to us.”
Republican Indiana Rep. Jim Pressel, chairman of the Roads and Transportation Committee who authored House Bill 1461, did not respond to questions about whether he’d be interested in a commuter tax or other ways to help Indy get the state match.
Budget cuts
Rather than raise new revenue through increased taxes, Republican Indianapolis City Councilor Josh Bain said it is possible to “slash” existing budgets in an interview on the Rob Kendall Show. Bain did not respond to requests for comment on his idea, and if the plan is still being considered. Republicans only hold six out of 25 seats on the council, meaning they have little control over what passes.
“Don’t let anybody tell you that the state is forcing us to raise taxes or that the state is forcing us to come up with new revenue,” said Bain in the interview, arguing Democratic councilors are restructuring the state’s match threshold to mean higher taxes. Bain wrote an amendment to Indianapolis’ budget in 2024 to allocate $225 million to the Department of Public Works by reducing other departments’ budgets (which failed along party lines). He has an unlikely ally now: Mayor Hogsett, who also doesn’t want to raise taxes.
Hogsett has a “responsible plan to meet the 2027 match requirement without raising taxes,” Emily Kaufmann, a spokeswoman for the mayor’s office, said. The plan relies on shifting revenue growth to infrastructure, rather than other spending. Unlike Bain’s plan, however, it doesn’t center on making cuts to existing expenditures.
“This administration has time and time again continued to increase road funding and at the same time receive the highest credit ratings from three out of four ratings agencies,” Kaufmann said. “For additional important context: this administration has spent $1.7 billion in transportation infrastructure funding over the last ten years without raising taxes. The council has approved this funding every year.”
According to Councilor Nielsen at the Administration and Finance Committee meeting, $500 million out of the $1.7 billion Indianapolis budget is discretionary spending. Discretionary funds are part of the general fund and are not fixed or mandatory in their purpose. Campbell Ricci, policy director at Accelerate Indiana Municipalities, said even if funds could be reallocated, that may not feel possible.
“I suppose you could call it discretionary, but it probably doesn’t feel discretionary when you’re budgeting, especially if you have police and fire union contracts that you have to pay on a multiple year basis,” Ricci said.
Nielsen said the council will need to annually cut to achieve the matching threshold in the future regardless of revenue changes. Last year, the city-county council cut $44 million in existing spending.
Delivery fees and other taxes
Another potential option that Wells pointed to in two other states are retail delivery fees. In Colorado, all deliveries to consumers via vehicle (such as though Amazon) are subject to a 28-cent fee. Minnesota charges a similar 50-cent fee on purchases equal to over $100, a stipulation designed to protect lower-income customers. In the first year of adoption, Minnesota’s retail delivery fee was projected to generate $59 million in revenue, over the amount needed in Indianapolis.
A similar delivery fee was proposed in House Bill 1461 in 2025 but thrown out in an amendment. The fee would’ve allowed counties to impose a 50 cent to one dollar surcharge on all retail deliveries, including ride shares. If Indianapolis added a 50-cent fee, they could receive $20 to 24 million in annual revenue, according to the bill’s fiscal analysis.
Already, local governments could struggle to keep up road funding due to a reliance on gas taxes. Nationally governments are forecasting a drop in gas tax revenue as electric vehicles become more common. In 2024, 39 states, including Indiana, required an additional registration fee for electric vehicles. Gov. Braun has suspended Indiana’s gas tax since April. Indianapolis loses about $3.7 million per month without the gas tax, according to Indianapolis Controller Abigail Hanson. Braun, though, has committed to paying back local governments.
What’s next for the council
On June 16, the Rules and Public Policy Committee will vote to recommend approval or denial of the tax increase by the full council. The council can then vote on adoption at its July 6 meeting. If the proposal is adopted, the tax hike will be effective on Jan. 1, 2027. Residents won’t feel the impact of the increase until they renew their annual vehicle registration.
Indianapolis City-Council must tell the state by Dec. 31 of each year if they will be able to meet the match threshold. The council must pass the tax increase by Sep. 1 in order for it to be effective started in 2027, according to Indiana state law. If the city cannot meet the match by the end of the year, they will not receive any funds from Indiana moving forward unless legislation changes.
Lucy Tobier is the politics reporting intern for the Indianapolis Star. She can be reached at ltobier@gannett.com or on X at @TobierLucy
This article originally appeared on Indianapolis Star: Indy council is pushing a vehicle tax hike. How else could Indy fund roads?
Reporting by Lucy Tobier, Indianapolis Star / Indianapolis Star
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By Lucy Tobier, Indianapolis Star | USA TODAY Network
