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Tax Foundation 2016 state business tax climate index

The nonpartisan Tax Foundation recently rated the 50 states based on business tax climate. Indiana remained 8th for the second year in a row, while Illinois jumped to 23rd after the state's temporary corporate and individual income tax hikes expired in 2015.

INDIANAPOLIS | Indiana maintained its eighth-place ranking for best business tax climate, while the expiration of a temporary tax hike helped Illinois climb to 23rd, according to the nonpartisan Tax Foundation's 2016 state ratings.

This is the second year in a row Indiana has ranked eighth for business tax climate, after moving up two slots in 2014 following passage of a series of business tax cuts by the Republican-controlled Legislature that will continually lower corporate taxes into the next decade.

"Our state is in an extraordinary position today, one that really makes us the envy of much of the rest of the nation," said House Speaker Brian Bosma, R-Indianapolis, citing Indiana's 4.5 percent unemployment rate, AAA bond rating, and $2.1 billion reserve fund.

Indiana's business tax climate is tops among Great Lakes states, followed by Michigan at 13th, Illinois at 23rd, Kentucky at 28th, Ohio at 42nd and Wisconsin at 43rd.

Wyoming, South Dakota, Alaska, Florida and Nevada were the highest-rated states. Vermont, California, Minnesota, New York and New Jersey were deemed to have the worst business tax climates.

Indiana scored best for its low, 3 percent, business property tax rate, good for a fifth place rating in that category.

The state ranked 11th for both individual income tax and sales tax, 14th for unemployment insurance taxes and 20th for corporate tax rate, a score that probably will improve in years to come as the rate declines to 4.9 percent from the current 6.5 percent.

However, Indiana is unlikely to advance much higher in the overall rankings, because it assesses corporate and individual income taxes, as well as a state sales tax — though generally at lower rates than many other states.

But the states ranked ahead of Indiana all forego at least one of those revenue streams, though they tend to make it up through higher collections on natural resources or tourism.

Illinois moved up eight places this year due to the Democratic-controlled General Assembly and Republican Gov. Bruce Rauner allowing the 2011 individual and business temporary income tax hikes to expire, as scheduled, in 2015.

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That dropped Illinois' corporate income tax rate to 7.75 percent from 9.5 percent, and reduced the individual income tax rate to 3.75 percent from 5 percent.

At the same time, those tax rate reductions also blew a $2.5 billion annual hole in Illinois state revenue that lawmakers have failed to find a way to fill.

Indeed, Illinois still is without a spending plan now five months into the state's 2016 budget year, leaving social service agencies and universities scrambling for cash, and even Illinois Lottery winners aren't getting paid.

That doesn't matter to David From, state director of the anti-tax group Americans for Prosperity, who cheered Illinois' improved business tax climate ranking.

"Our state is now in a better position to compete for jobs because we have a better business environment than in years past," From said.

"However, this report also shows that the massive tax hikes being advocated by many in Springfield will have the effect of making the Land of Lincoln a worse climate for job growth."

In any case, high property tax rates are likely to prevent Illinois from advancing in the Tax Foundation's overall business tax climate rankings. Illinois scored 45th out of 50 states for property taxes.

The state ranked 10th for individual income taxes, 33rd for sales taxes, 36th for corporate income taxes and 39th for unemployment insurance taxes.

Tax Foundation Policy Analyst Jared Walczak said Illinois, and many other states, should use their scores as a guide to enacting tax reforms that bolster their business climates.

"The stagnation of our federal tax code means that policymakers are turning to state codes to boost their national and global competitiveness," Walczak said. "The state codes are ripe for reform, and it's encouraging to see many states taking action."

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