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INDIANAPOLIS — Indiana continues to have the best business tax climate in the Midwest and ranks 10th among the states for employing a tax system that enhances its overall business environment.

The annual rankings released last week by the nonpartisan Tax Foundation saw Indiana fall one spot from the ninth-place position the Hoosier State held in last year's State Business Tax Climate Index.

There was no specific reason listed for the decline. Indiana regularly has moved between ninth and 10th place over the past four years depending on how certain index variables are calculated and the impact of tax policy changes enacted by other states.

In fact, the Tax Foundation praised Indiana for continuing to annually implement a business income tax cut that will drop the state's 5.75 percent corporate income tax rate to 4.9 percent by 2021. The rate was 8.5 percent in 2012.

"This rate reduction, among other changes, drove an improvement of six places on the corporate component of the index," said authors Jared Walczak, Scott Drenkard and Joseph Bishop-Henchman.

The organization also did not sharply ding Indiana for hiking the state's fuel tax last year 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."

The Tax Foundation rankings altogether 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 50 states and Washington, D.C.

Indiana's latest component rankings were: 15th, individual income tax (no change from last year); 12th, sales and excise tax (down two); 18th, corporate tax (up six); 2nd, property tax (up two); and 11th, unemployment insurance tax (down one).

The stellar Indiana property tax ranking was due in large part to the 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.

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In comparison, Illinois was 45th in the nation for property taxes.

"The modern market is characterized by mobile capital and labor, with all types of businesses, small and large, tending to locate where they have the greatest competitive advantage," the report authors said.

"The evidence shows that states with the best tax systems will be the most competitive at attracting new businesses and most effective at generating economic and employment growth."

The Hoosier State's 10th place overall ranking was slightly better than nearby Michigan (13th) and Missouri (14th).

But Indiana significantly outpaced Illinois (36th), Kentucky (23rd), Wisconsin (32nd), Ohio (42nd), Minnesota (43rd) and Iowa (45th).

Among the Tax Foundation's top 10 states only Indiana and Utah assess all five major taxes, but generally do so on a broad base with comparatively low rates.

The other leading states omit either sales or income taxes.

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

The lowest ranked states are Arkansas (46), Connecticut (47), New York (48), California (49) and New Jersey (50).

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