Indiana has one of the lightest tax burdens in the United States.
State Taxes
Indiana has no gross receipts tax and no inventory tax.
Corporate Income Tax
The Corporate Adjusted Gross Income Tax is calculated at a flat 8.5 percent of adjusted gross income. 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
Indiana’s Sales and Use Tax is one of the lowest in the Midwest. The 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.
Property Tax
Real and personal property tax is assessed at 100 percent of market value. Tax rates and exemptions vary among local jurisdictions.
Research and Development Tax Credit
This credit (also known as the Research Expense Tax Credit) is based on the increase in Indiana R&D over the prior three-year base. In the base year, research expenses must have been at least half of the research expenses in the current year. The credit amounts to 10 percent of qualified research expenses on the first $1 million of investment. Beginning in 2008, the credit increases to 15 percent. The credit is applied against income tax liability and may be carried forward for fifteen years before 2008 and ten years beginning in 2008. There is no carry back, and the credit is nonrefundable. This program operates under the Department of Revenue and uses the definition of “qualified research expense” from the Internal Revenue Code (which includes the costs of wages and supplies).
Patent Income Exemption
Taxpayers are exempt from certain income derived from qualified utility and plant patents. Qualified taxpayers are eligible for an exemption of 50 percent of patent income for each of the first five years. The exemption percentage decreases over the next five years to 10 percent in the tenth year. The total amount of exemptions claimed by a taxpayer may not exceed $5 million per year. This benefit is available only to companies with 500 or fewer employees.
Individual Income Tax
Indiana’s personal income tax is 3.4 percent of federal adjusted gross income (with certain exemptions and deductions).
Taxpayer: Individuals, partners, stockholders in S corporations, and nonresidents with income from sources in Indiana.
Tax Base: federal adjusted gross income with additions for the amounts subtracted on federal returns for interest income, net operating losses derived from sources outside Indiana, state income taxes, local property taxes and recoveries of previously allowed deductions.
Tax Bracket: Filed income taxes in excess of $100,000 are subject to a 4.4% individual income tax rate.
Major Deductions and Exemptions: Income tax which is exempt under federal law or the Constitution; a $1,000 deduction for the taxpayer, spouse and each dependent; rent up to $1,500; a $1,000 exemption for each person who is age 65 and over and/or blind.
Worker’s Compensation:
Indiana has a very business friendly Worker’s Compensation law. Worker’s Compensation rates in Indiana are among the lowest of the nation’s 50 states. An estimate of the annual cost for Worker’s Compensation can be calculated with the worker’s compensation code or description of the business process and the total payroll.
An Indiana employer may purchase worker’s compensation through a private company or through self insurance. When using a private company, the company must be authorized to transact worker’s compensation insurance business in the State of Indiana. For self insurance, a company must furnish the Worker’s Compensation Board with an application and satisfactory proof of the employer’s financial ability to directly pay the compensation in the amount and manner when due as provided in the worker’s compensation statutes.
2007 Worker’s Compensation Cost Comparison
| State |
Annual Average Wage |
Ave. Wayne County Rate |
Mock 100 Employee Premium |
| Indiana | $35,850 | $1.97 | $70,624.50 |
| Illinois | $45,650 | $3.82 | $174,383.00 |
| Michigan | $40,800 | $4.13 | $168,504.00 |
| Ohio | $37,550 | 1 | 2 |
| Kentucky | $33,550 | $4.52 | $151,646.00 |
1-No figures on average worker’s compensation rate available
2-No computation on mock 100 employee premium possible
Method of Computation:
Yearly Average Wage is calculated by multiplying the State Average Weekly Wage by 50 (50 weeks resulting in 2,000 hours a year). For an individual employee the premium would be calculated by dividing the Yearly Average Wage by 100 (since the Workers Compensation rate is per $100) and multiplied by the average Workers Compensation rate. To obtain the mock premium for 100 employees the individual premium can be multiplied by 100 or in this case just multiply the Yearly Average Wage by the average Workers Compensation rate.
Source: Bureau of Labor Statistics http://www.bls.gov/
Source: IEDC Business Incentives http://www.in.gov/iedc/
Unemployment Insurance
Unemployment Insurance:
New employer rate: 2.7%
Experienced employer average rate: 1.1%
Taxable wage base: $7,000
Indiana also has a very business friendly Unemployment Insurance law. Indiana has an advantage over most other states in terms of the average rate employers pay and the wage base to which it is applied. New employers in Indiana contribute to the Trust Fund at a rate of 2.7% on the first $7,000 an employer pays to each employee during a calendar year. After three years an experience rating will be determined based on the losses occurred. At that time a new rate will be calculated and evaluated every year. Every Indiana employer contributes to the system that pays temporary benefits to wage earners who lose their jobs through no fault of their own. The Indiana Department of Workforce Development administers the state’s unemployment insurance system.
2007 Unemployment Tax comparisons
| Indiana | Illinois | Michigan | Ohio | Kentucky | |
| New Emp. Rate | 2.70% | 4.00% | 2.70% | 2.70% | 2.70% |
| Maximum Rate | 5.50% | 8.60% | 10.30% | 7.50% | 10.00% |
| Minimum Rate | 0.10% | 0.90% | 0.06% | 0.20% | 0.30% |
| Average Tax Rate | 2.65% | 1 | 1 | 1 | 1 |
| Wage Base | $7,000 | $9,800 | $9,000 | $9,000 | $8,000 |
| New Emp. Cost/Emp. | $189 | $392 | $243 | $243 | $216 |
| Maximum Tax | $385 | $843 | $927 | $675 | $800 |
| Minimum Tax | $7 | $88 | $5 | $18 | $24 |
| Average Tax | $186 | 2 | 2 | 2 | 2 |
| Average Duration (Weeks) | 13.26 | 1 | 1 | 1 | 1 |
Source: Stats Indiana http://www.stats.indiana.edu/
Source: Department of Workforce Development
Note: 1 indicates that no figures is unavailable
Note: 2 indicates that no computation is possible
Other State Taxes:
- Alcoholic Beverages: Malt beverages, $.115/gallon; liquor, $2.68/gallon; wine, $.47/gallon
- Tobacco Products: $.55/pack of 20
- Gasoline Tax: $.18/gallon
- Special Fuel and Motor Carrier Fuel: $.16/gallon
- Hotel Innkeepers Tax : 5%
Single-Sales Factor
Indiana is phasing in the single-sales factor for apportioning corporate income tax. Indiana had determined its share of an interstate or international corporation’s taxable income by weighing the Indiana portion of a company’s property and the proportion of its employees in Indiana. The single-sales factor will calculate the Indiana portion based solely on the portion of a company’s sales in Indiana. This change is being phased in and will be complete by 2011.
Local Taxes
County Adjusted Gross Income Tax (CAGIT) – 1.25% of adjusted gross personal income (not imposed on corporations). Deducted by employer, collected by state and reimbursed to county.
County Economic Development Income Tax (CEDIT) - .25% of adjusted gross personal income. To be used for economic development projects in Wayne County.
Local Property Tax
Taxpayer: Owners of real property and tangible personal property located in Indiana on the date of assessment. The assessment date is March 1.
Tax Base: Property taxes in Indiana are imposed at the local level on real property (land and buildings) and certain types of personal property. Business personal property consists of inventories, machinery and equipment, special tooling, and construction in progress.
Tax Rate: Township and county officials determine the assessed value of personal property annually and real property are reassessed whenever a change is made, or at least every four years. The property is assessed at 1/3 the true tax value (not market value). True tax value is determined through the application of the rules of the State Board of Tax Commissioners.
Property Tax Deductions:
- Homestead Deduction – This is a $2,000 deduction from assessed value or one half of total residential assessed value (whichever is less)
- $1,000 Mortgage Deduction – Mortgage balance must be over $3,000 to get full deduction
- $2,000 Over 65 Deduction – You must be 65 prior to January 1 of the year in which you file; Your assessment cannot be over $23,000; Your adjusted gross income cannot be over $25,000
- $2,000 Blind/Disabled Deduction – You must have a doctor’s statement or an award letter from Social Security stating disability or blindness; Your adjusted gross income cannot be over $17,000
- $2,000 Total Disabled Veteran Deduction – Eligibility may be established by a pension certificate, total assessment cannot exceed $113,000, award of compensation, disability compensation check issued by the Dept. of Veteran’s Affairs
- $4,000 Partially Service Connected Disabled Veteran Deduction – Eligibility may be established by a pension certificate, award of compensation, disability compensation check issued by the Dept. of Veteran’s Affairs.
Business Tax Abatements - See Business Assistance Section
