INDIANAPOLIS — Indiana has retained its title as the best business tax climate in the Midwest, despite lawmakers this year hiking fuel taxes by 10 cents per gallon to pay for infrastructure improvements across the state.
The annual rankings released Tuesday by the nonpartisan Tax Foundation place Indiana ninth in the nation for having a tax system that enhances its business environment.
That was slightly better than Michigan (12th) and Missouri (16th). But Indiana significantly outpaced Illinois (29th), Kentucky (33rd), Wisconsin (38th), Iowa (40th), Ohio (45th) and Minnesota (46th).
"It's a very solid performance," said state Sen. Brandt Hershman, R-Buck Creek, chairman of the Indiana Senate Committee on Tax and Fiscal Policy.
The Tax Foundation rankings draw on 114 tax variables sorted into five components — income tax, sales tax, corporate tax, property tax and unemployment insurance tax — which then are weighted to reach a component and final score and rank for each of the 50 states and Washington, D.C.
Ironically, Indiana's sales tax rank, which includes fuel and other excise taxes, improved two spots to ninth in the country, notwithstanding the gas tax hike approved by the Republican-controlled General Assembly and Republican Gov. Eric Holcomb.
"I'm not surprised at all," Hershman said. "The Tax Foundation believes in user fees and they view gas tax as a user fee, so they believe that is part of a sound tax structure design."
The Tax Foundation also credited Indiana for not allowing local sales taxes to be stacked on top of the 7 percent state rate, for having a broad sales tax base with few exemptions and for not taxing business inputs so only the ultimate purchaser of a product pays sales tax.
Indiana ranked fourth in the country for property taxes, thanks in large part to its constitutionally mandated property tax caps of 1 percent on homesteads, 2 percent on rental property and farmland and 3 percent on business and industrial property.
The Hoosier State also ranked 10th for individual income tax and unemployment insurance tax, and 23rd for corporate income tax.
Hershman expects Indiana's corporate income tax rank will improve in the years ahead as previously enacted tax cuts take the rate from the current 6 percent to 4.9 percent by 2021. The rate was 8.5 percent five years ago.
"It's a very aggressive selling point for us, and I think it has a lot to do with why we have such a low unemployment rate and why we've been pretty successful in attracting economic investment to the state," Hershman said.
Indiana's overall rank continues to be effectively tied with Utah.
Last year, Indiana ranked eighth and Utah ninth. The Tax Foundation switched their positions this year to put Utah ahead of Indiana.
The top five business tax climates are found in Wyoming (1), South Dakota (2), Alaska (3), Florida (4) and Nevada (5).
The lowest ranked states are Minnesota (46), Vermont/Washington, D.C. (47), California (48), New York (49) and New Jersey (50).