Indiana’s business taxes may not be such a bargain — but it depends what kind of business you run and how long it’s been established in Indiana, according to an organization studying business tax burdens.
The nonpartisan Tax Foundation recently released its periodic report comparing actual state tax burdens faced by real-world businesses in different industries.
The report, “Location Matters,” indicates Indiana has the fourth lowest tax burden for a research and development facility, at an effective tax rate of 5.8 percent for a firm at least 10 years old, but has the highest effective tax rate of any state on a capital-intensive manufacturer, which faces a 19.2 percent tax rate, according to a press release from the foundation.
Those figures were based on the tax burden as of April 1, 2014. However, some changes since then may alter the business tax burden, the foundation states on its website.
Indiana’s corporate income tax has already declined as part of ongoing tax reform efforts, making Indiana the most improved state since the study’s first edition.
And while the state keeps ranking poorly for manufacturing operations, other recent changes to the Indiana tax code may mean the state’s ranking improves in future editions.
The Tax Foundation indicates the state has the fifth highest tax rate on a labor-intensive manufacturer.
But Indiana has repealed a “throwback rule” since the current study’s data was collected, the foundation indicates on its website, likely lowering future effective tax rates. A throwback rule is a measure intended to ensure corporations pay state taxes on all profits, not just profits related to property, payroll and sales located in-state.
And the foundation indicated that as the state’s corporate tax rate keeps falling, it should mean improved rankings in the future, too.
For the study, Tax Foundation economists created seven model firms in different industries, and collaborated with KPMG tax specialists, who calculated the tax bill for those firms in each state, both as new facilities and as mature firms — ones that are at least 10 years old.
All but one of the seven business types were found to face lighter tax burdens if they were new firms. New retail stores, though, were found to be on the hook for an 18.2 percent tax rate, compared to a mature store’s 13.6 percent effective rate.