Cities, counties deal with angry locals over road funding tax ask

Indiana’s new transportation funding law is leaving local governments with a choice: pass a wheel tax or potentially lose access to one of the state’s most lucrative road funding programs.

As we’ve detailed extensively in our pages this year, one of HEA 1461-2025’s most talked-about provisions (besides tolling) ties eligibility for the state’s popular Community Crossings grant program to whether a community has adopted a wheel tax and vehicle excise surtax. Without those taxes, local governments risk losing access to a dependable funding stream for roads, sidewalks, and bridges.

Beyond this specific dedicated funding mechanism, SEA 1-2025, the recent session’s controversial property tax overhaul measure which caps certain local government funding sources, has forced local government units to dig deeper for cash. City and county officials have been warned for more than a year, as our Hannah News Service sister newsletter INDIANA LEGISLATIVE INSIGHT first reported last summer, that they must exhaust all of their local tax options before returning to the legislature for funding assistance – and local officials have taken this to heart after realizing lawmakers are serious about this effective threat.

We’ve scattered over the last several months in various issues of this newsletter the different local stories of how local governments that don’t already have wheel or vehicle excise taxes are dealing with the ask in HEA 1461.

Some communities quickly moved to pass a new wheel tax in the spring, not long after the Governor signed HEA 1461 into law. Many entities, though, are mulling a decision, as the topic has drawn ire from locals who don’t want to see their taxes rise.

Currently, 56 counties in Indiana already have wheel taxes, with varying rates, and 15 municipalities have their own as well.

That ultimatum has set off a flurry of reluctant votes from councils that otherwise may not have touched the issue. In Franklin County, officials went straight to the maximum levy – $50 on passenger cars and $80 on heavy trucks – despite residents urging them to start smaller. In Plymouth, council members admitted they hated imposing a $25 fee but said losing grant dollars would be worse. In Goshen, seniors pleaded with leaders not to pile more costs onto fixed incomes, only to see the measure pass anyway.

A key here is the fact that many local governments may not have ever touched the wheel tax discussion until now  . . .  which has been a sore point for state legislative leaders, who have become increasingly irritated at local leaders coming to them asking for more state funds, when, at least they argue, the state has given municipalities and counties ample options to increase local revenue themselves first.

We’ll take you back to the warning House Speaker Todd Huston (R) of Fishers gave in December 2024 ahead of the 2025 session: local governments need to help themselves first before coming to the state for financial assistance.  The Speaker at the time uttered local leaders “have to take some tough votes, too.”

Recall back during session, HEA 1461’s chief architect, House Committee on Roads and Transportation Chair Jim Pressel (R) of Rolling Prairie, acknowledged the “angst” surrounding the wheel tax, but reiterated that continuing one single approach won’t work for the entirety of Indiana, so it’s important to provide options to communities. Essentially, he indicated the state’s theoretical hands may end up being tied in this situation, especially with the estimated $2.4 billion road funding shortfall looming.

Keep in mind, too, that local governmental entities are also in a tough spot with the expected effects on property taxes under SEA 1-2025 – and may also have to make some difficult decisions to implement local income taxes to supplement any lost revenue on that front. So, local governments now truly are coming face-to-face with some “tough votes” . . . and it remains to be seen whether their frustration will reflect back upon – or stick to – lawmakers.

Here’s a list of all the counties, cities, and towns we have tracked that have either passed a new wheel tax this year or are currently considering the option:

  • Franklin County – Passed wheel tax and surtax (maximum rate).
  • Wayne County – Passed wheel and excise tax (minimum rate of $7.50).
  • Richmond – Still considering a wheel tax.
  • Tell City – Delayed decision; still considering.
  • Bargersville – Considering wheel and excise taxes.
  • New Whiteland – Passed wheel and excise taxes but council may repeal them before they take effect.
  • Evansville – Passed wheel and excise taxes (reduced amounts).
  • Plymouth – Passed wheel tax ($25).
  • Marshall County – Considering a wheel tax.
  • Bluffton – Passed wheel tax ($25).
  • Decatur – Passed wheel tax ($20).
  • Goshen – Passed wheel tax ordinance.
  • Madison County – Passed $25 wheel tax; council proposing a minimum to reduce burden from potential double taxation.
  • East Chicago – Postponed decision; still considering.
  • Michigan City – Passed excise and wheel taxes ($25).
  • Floyd County – Passed wheel tax ($30 starting in 2026).
  • Knox County – Has wheel tax already but county commissioner is pushing to repeal by 2029.
  • DeKalb County – Passed minimum excise and wheel taxes (to begin in 2026).
  • Henry County – Proposed wheel tax but not yet passed; still debating.
  • Bartholomew County – Beginning discussions; decision delayed until 2027.
  • Wabash County – Passed minimum excise tax

There’s also a factor of double-taxation that particularly cities and towns have to consider, if a county already has or is considering a wheel tax. According to the law, if a resident lives within a city’s limits that has a tax, and the county in which they reside also has a tax, the resident will be charged both taxes. This fact is also leading to hesitation in some municipalities, though those communities also rely on state road funding dollars. Counties, such as Johnson County, do pass down some of the revenue from its current wheel tax to the municipalities . . . but that does not meet the requirements set forth in HEA 1461.

Let’s take a look at what some local governments are dealing with on the home front.

Wayne County opted for the statutory minimum of $7.50 per vehicle, but even that divided its council, as we reported in our last issue. One member argued the move would lead to double taxation in Richmond, where the city is considering its own wheel tax.

Some communities have hesitated. Tell City delayed a vote after residents voiced strong opposition, and the East Chicago City Council tabled its decision, saying the proposed $25 fee was too high to start with.

Elsewhere, leaders pushed forward. In Plymouth, officials noted they disliked imposing an extra $25 fee but concluded forfeiting state money would be worse. “We just need to do what we have to do to continue the same types of services,” Mayor Robert Listenberger (D) asserted, noting the program had already underwritten major street projects, WBND-TV ABC 57 in South Bend reports. He noted as well the qualification changes for the Community Crossings Matching Grants have upset original plans and policies for the town. Marshall County also passed a wheel tax, further complicating the situation, too.

The Wabash County Council this week approved an excise tax for passenger vehicles of $7.50 and wheel tax for commercial vehicles of $5, the minimum legal amounts. The tax will be in effect for three years and will generate an estimated $282,000.

Evansville passed its own wheel tax but trimmed rates by $5 from the original proposal in response to public complaints. The Evansville Courier & Press reports council members wanted to cushion residents from being “double-taxed,” since Vanderburgh County already has its own fee, according to Indiana Bureau of Motor Vehicles data.

The Goshen City Council also faced pushback, with seniors warning the tax would be a heavy burden, though others argued it was a necessary trade-off for better roads.

Bluffton and Decatur adopted taxes of $25 and $20 respectively, with both city councils acknowledging residents would be unhappy but insisting they had little choice.

Counties are wrestling with similar dilemmas. Floyd County approved a $30 tax starting in 2026 to avoid losing as much as $1 million in aid. DeKalb County went with the minimum – but warned rates may have to rise.

Madison County, again, worried about overlapping city and county taxes, is lobbying lawmakers for changes to avoid double billing. Henry County has delayed final passage after disputes over exemptions, while Bartholomew County has pushed its decision off until 2027, bracing for backlash from locals. Knox County leaders are even floating the idea of phasing out their wheel tax entirely by 2029, betting future legislatures might rethink the law.

In some towns, cynicism is kicking in. New Whiteland approved a wheel tax in the spring following the passage of HEA 1461 to stay eligible for state money . . . but now the New Whiteland Town Council is talking about repealing it before it ever takes effect, with the option to bring it back when convenient. Town council members were told that municipalities without a wheel tax could still have access to excess funding from the Community Crossings program annually, so that became enough reason for the council to reconsider its decision, to avoid implementing any new taxes on residents, the Johnson County Daily Journal reports.

Now, there’s not a lot of clarity on how much, if any, excess funds could be available, but, there is an outline on how it’s calculated.

The law requires the state comptroller to first distribute $100 million from the fund for matching grants to local units. After that, the comptroller will transfer the value of all state tax credits to the Indiana Department of Revenue from 2026 to 2028, allocate $20 million for state highway construction and improvements from 2026 through 2030, and direct $50 million to Indianapolis beginning in 2027. The remaining funds after those allocations will go to local units that have enacted a wheel and excise tax and submitted an updated transportation asset management plan to Purdue University within the past year, according to the law.

New Whiteland council members were also clear in their frustration with the state, with Councilor John Schilawski (R) calling the actions by legislators a “shell game.”

These debates are revealing some of the discomfort with what a lot of officials see as a state mandate in disguise. Lawmakers did not technically order local governments to levy wheel taxes . . .  but by tying them to Community Crossings eligibility, critics say the legislature effectively forced their hand.

Local leaders can push the blame back onto the state, in hopes of redirecting some criticism up to legislators, and many councils around the state have made their reluctance clear and aren’t shying away from pointing fingers toward the State House before taking a vote to pass a tax . . . which may make it a little easier for local units to go ahead and do so.