Indiana ranks ninth in the nation and best in the Midwest for business tax climate, according to the Tax Foundation. Provided imag
Indiana ranks ninth in the nation and best in the Midwest for business tax climate, according to the Tax Foundation. Provided imag
Indiana continues to have the best business tax climate in the Midwest and ranks ninth among the 50 states for employing a tax system that enhances its overall business environment.

The annual rankings recently released by the nonpartisan Tax Foundation saw Indiana retain the ninth-place position the Hoosier State held in last year's State Business Tax Climate Index.

Indiana regularly has moved between ninth and 10th place over the past nine years depending on how certain index variables are calculated and the impact of tax policy changes enacted by other states.

In 2021, Indiana completed a decade-long phased-in business income tax cut that dropped the state's corporate income tax rate to 4.9%. The rate was 8.5% in 2012.

The Tax Foundation also has not penalized Indiana for hiking the state's fuel tax in 2017 by 10 cents a gallon, and an additional penny per year through 2024, because it believes the gas tax is "usually justified as a form of user tax paid by those who benefit from road construction and maintenance."

In fact, it praised Indiana for applying the full, 7% sales tax to gasoline purchases. Only five states do so, even though "there is no economic reason to exempt gasoline from the sales tax, as it is a final retail purchase by consumers," according to the Tax Foundation.

Altogether, the Tax Foundation rankings draw on more than 100 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 states and Washington, D.C.

Indiana's latest component rankings were: 15th, individual income tax (down one notch from last year); 19th, sales and excise tax (up one); 11th, corporate tax (up one); 1st, property tax (no change); and 25th, unemployment insurance tax (up two).

The stellar Indiana property tax ranking was due in large part to the constitutionally mandated property tax caps of 1% on homesteads, 2% on rental property and farmland, and 3% on business and industrial property.

In comparison, Illinois was 48th in the nation for property taxes.

"The states in the bottom 10 tend to have a number of afflictions in common: complex, non-neutral taxes with comparatively high rates," the report authors said. "States with more competitive tax systems score well in the Index because they are best suited to generate economic growth."

"This does not mean, however, that a state cannot rank in the top 10 while still levying all the major taxes. Indiana and Utah, for example, levy all of the major tax types, but do so with low rates on broad bases."

The Hoosier State's ninth-place overall ranking was slightly better than nearby Michigan (12th) and Missouri (13th).

But Indiana significantly outpaced its Midwestern neighbors of Illinois (36th), Kentucky (18th), Wisconsin (27th), Ohio (37th), Iowa (38th), and Minnesota (45th).

Among the Tax Foundation's top 10 states, the eight states that rank higher than Indiana all omit either sales or income taxes.

At the Statehouse, House Republicans are looking next year to enact new tax cuts — though likely not the elimination of an entire state revenue stream — to return a portion of Indiana's surging tax revenue to the Hoosiers responsible for generating it.

"We wouldn't be in this strong position without hardworking Hoosiers who showed an unbelievable amount of grit during very challenging times," said state Rep. Tim Brown, R-Crawfordsville, chairman of the budget-writing House Ways and Means Committee.

"We're looking at a number of options, including a permanent tax cut that would put money back in the pockets of Hoosier taxpayers."

Some 4.3 million Hoosier adults also will receive $125 each next spring because the state's reserve funds at the June 30 close of the 2021 budget year exceeded projected state spending by more than 12.5%.

"We have an obligation to put this money back in the hands of taxpayers instead of leaving it in the hands of government," Republican Gov. Eric Holcomb said.

It's not clear how any future tax cuts, or the automatic taxpayer refund, will affect Indiana's ranking on the next Business Tax Climate Index.

According to the Tax Foundation, the top five business tax climates are found in Wyoming (1), South Dakota (2), Alaska (3), Florida (4) and Montana (5).

The lowest ranked states are Maryland (46), Connecticut (47), California/Washington, D.C. (48), New York (49) and New Jersey (50).
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