Indiana Once Again Ranks in Top 10 for Business Tax Climate

Indiana is among the 10 best states according to the Tax Foundation’s State Business Tax Climate Index. The Tax Foundation reports annually on the best and worst state tax climates for business. Indiana remains ninth in the ranking, a position it has held since 2021. 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.

Not included in the ranking are changes adopted by the Indiana Legislature this year to reduce the individual income tax by 8% in 2023 with further rate reductions slated through 2029. Once fully implemented, the individual income tax rate would be the same as North Dakota, which currently has the lowest tax rate (2.9%) of any state with an individual income tax. It remains to be seen whether these rate reductions will improve the state’s standing in future rankings.

Indiana has been dethroned by New Mexico in the 2023 ranking of the property tax component of the Index. The state’s business tangible property tax continues to be a factor with nearby states (Illinois, Iowa and Ohio) having exempted tangible personal property from taxation. The Chamber continues to advocate for reform or repeal of the business tangible property tax to further improve the state’s business tax climate.

The structure of Indiana’s unemployment insurance (UI) tax (ranked 27^th) remains in the middle of the pack. The culprit may be comparatively poor experience formulas and charging methods. During the Great Recession, Indiana’s UI tax regime was challenged, and state legislators have since worked diligently to shore up the UI fund and the tax mechanisms that replenish it. Representative Dan Leonard (R-Huntington) is regarded by many to be the preeminent UI policy expert in the Legislature. His defeat in the May primary is a significant blow and it is critical that another legislator is identified to assume the mantle and carry on this important work.

View the full Tax Foundation’s 2023 State Business Tax Climate Index.

David Ober is the Indiana Chamber’s vice president of taxation and public finance. Ober, a native of Noble County, started with the Chamber in June 2022 and is a former state legislator and commissioner for the Indiana Utility Regulatory Commission.