According to the Tax Foundation’s State Business Tax Climate Index, Indiana is among the 10 best states. This annual report ranked Indiana in ninth place on the best and worst state tax climates for business. The report assesses each state’s tax structure relative to all other states and includes major taxes such as individual and corporate income tax, sales tax, property tax and unemployment insurance tax.
Despite Indiana’s good standing overall, the state’s business personal property tax continues to be a factor as nearby states have exempted this taxation. Indiana’s business personal property tax is a levy on small business, and many have been bearing the brunt of this for years. The NFIB plans to advocate for reform or repeal of the business personal property tax to further improve the state’s business tax climate during the next legislative session. Instead of paying taxes on equipment and machinery, main street could benefit by utilizing this tax savings to better compete with big business in this tight labor market and adjust to the increased cost to do business.
It’s worth noting that the state’s ninth place ranking doesn’t include changes adopted by the Indiana Legislature this year to reduce the individual income tax over the next seven years. Once fully implemented, the individual income tax rate would tie with North Dakota as the lowest tax rate (2.9%) of any state with an individual income tax. It will be interesting to see whether the individual income tax rate reductions will improve Indiana’s standing in future rankings.
Indiana’s unemployment (UI) insurance tax was ranked in 27th place which may be due to some shortcomings in the UI’s structure such as comparatively poor experience formulas and charging methods. Indiana’s UI tax regime was challenged during the great recession but the and state legislature has since worked diligently to shore up the UI fund and the tax mechanisms that replenish it. Much attention and focus will continue to be placed on ways to improve Indiana’s UI tax structure to achieve a better ranking in the future.
View the full Tax Foundation’s 2023 State Business Tax Climate Index.
