2017 Business Tax Climate Index map

INDIANAPOLIS — Indiana continues to have the top business tax climate in the Midwest and ranks eighth best in the nation, according to the nonpartisan Tax Foundation’s 2017 state ratings.

The Washington, D.C.-based organization analyzed more than 100 variables in each state’s tax code to determine which states are most competitive for business.

Indiana scored fourth best in the country for property taxes, 10th for sales tax and unemployment insurance tax, 11th for individual income tax and 23rd for corporate income tax.

“Employers invest in areas where they see the most potential for growth and success, and creating a tax climate to help them achieve that end is one of the most important aspects of attracting high-paying jobs to our state,” said state Sen. Brandt Hershman, R-Buck Creek, whose district includes part of Jasper County.

The Tax Foundation found Wyoming had the best business tax climate, in part because the state does not levy a business or individual income tax and its sales tax rate only is 4 percent compared to Indiana’s 7 percent.

The other states in the top 10 were: South Dakota (2); Alaska (3); Florida (4); Nevada (5); Montana (6); New Hampshire (7); Utah (9); and Oregon (10).

All of those states, except Indiana and Utah, do not assess either income or sales tax on their residents. New Hampshire omits both, relying instead on significant property taxes to fund the government.

Illinois’ business tax climate rated 23rd overall, unchanged from last year.

It bested Indiana for individual income tax as Illinois’ 3.75 percent rate is less than what Hoosiers pay when county income tax is added to the 3.3 percent state rate.

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But Illinois lagged its neighbor in every other tax category, especially property taxes which came in 46th out of the 50 states.

Among Indiana’s other adjacent states Michigan ranked 12th overall, Ohio 45th and Kentucky 34th.

New Jersey was deemed to have the worst business tax climate due to its high property taxes, poorly structured individual income tax rates and the existence of both an inheritance tax and an estate tax.

The other states in the bottom 10 were: Louisiana (41); Maryland (42); Connecticut (43); Rhode Island (44); Minnesota (46); Vermont (47); California (48); and New York (49).

In coming years, Indiana potentially could improve its rank above eighth as tax cuts that state lawmakers already have approved go into effect.

They include a reduction in the corporate income tax rate to 4.9 percent by 2021, from 6.5 percent, and a 0.07 percent decline in the individual income tax rate on Jan. 1, 2017.

“Substantive state tax reform has gained a lot of momentum over the past few years,” said Scott Drenkard, Tax Foundation state projects director. “The stagnation of our federal tax code means that policymakers are turning to state codes to boost their national and global competitiveness.”

Hershman said even though Indiana’s 4.5 percent unemployment rate is below the national average this is no time for Hoosier leaders to rest on their tax-cutting laurels.

“It is vital for Indiana lawmakers to continue fostering our business-friendly tax climate so we can build on our record employment levels in the months and years ahead,” he said.

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