Business Tax Overview
Indiana is nationally recognized as a low tax state for business, ranking 9th nationally and 1st in the Midwest in the Tax Foundation’s 2018 Business Tax Climate Index. Our total state and local business tax burden as a percentage of Gross State Product is recognized as one of the lowest in the country. We have no gross receipts tax and no inventory tax.
Corporate Income Tax
Indiana’s corporate income tax is reducing from 6.0% to 4.9% by 2021. The tax rate is dropping by about 0.25% per year until 2021 as the decrease is phased-in. Adjusted gross income is a company’s federal adjusted gross income with certain adjustments. This method of determination simplifies tax calculations for corporations and does not apply to S corporations and not-for-profit organizations.
To determine Indiana’s share of an interstate or international corporation’s taxable income, a company’s adjusted gross income is apportioned based upon a single-sales factor with Indiana’s portion based solely on the portion of the company’s sales in Indiana. Adjusted gross income is a company’s federal adjusted gross income with certain adjustments. This method of determination simplifies tax calculations for corporations and does not apply to S Corporations and not-for-profit organizations.
Sales and Use Tax Exceptions
Indiana’s Sales and Use Tax is tax is calculated at a rate of 7 percent. In manufacturing, the following are exempt from the sales tax: raw materials, equipment, power, electricity, and utilities. Wholesale sales, items used directly in production, and sales made in interstate commerce are exempt. In addition, the purchase of research and development equipment is exempt from the tax.
Real and personal property tax is assessed at 100 percent of market value, with certain deductions and/or exemptions available. Property tax rates in Indiana vary among local jurisdictions, but are effectively capped at 3.0% for business property pursuant to state law. The average rates for Bartholomew County include an average rate of 1.4757% for unincorporated areas, and an average rate of 2.50% for the City of Columbus.
Indiana’s personal income tax is 3.23 percent of federal adjusted gross income (with certain exemptions and deductions). Local counties can also adopt county option and/or county economic development income taxes, up to a combined rate of 1.25%.
We understand that it can be difficult to make an “apples to apples” comparison when it comes to evaluating costs of doing business between different states. Our colleagues at the Indiana Economic Development Corporation have kindly provided us with the following state-by-state comparison. If you would like information on a state that is not listed, please contact us.