We’re No. 10! We’re No. 10! Not exactly the rallying cry one is used to hearing, but a refrain that deserves more plaudits than usual. Here’s why Indiana’s ranking in the Tax Foundation’s 2011 State Business Tax Climate Index is noteworthy:
- It’s not easy to make substantial improvements in this area. Indiana has ranged between No.12 and No. 14 over the last five years
- The top eight seemingly head the list by default as they do not impose one of the big three taxes (sales, income or corporate income). So, without too much of a stretch, you could say Indiana is second on the list
- We’re far away from the bottom 10; in order from No. 50, that’s New York, California, New Jersey, Connecticut, Ohio, Iowa, Maryland, Minnesota, Rhode Island and North Carolina
The Indiana Chamber’s advocacy efforts certainly are contributing factors to the state ranking. Historic tax restructuring in 2002 (including elimination of the inventory and corporate gross receipts levies) is among the Decade of Policy Victories document reflecting major legislative accomplishments from 2000-2009. The Chamber has also achieved success in general property tax reductions and an expansion of a variety of tax credits (good for business, but not earning high marks in this report).
According to the Tax Foundation, the worst tax codes tend to have:
- Complex, multi-rate corporate and individual income taxes with above-average tax rates
- Above-average sales tax rates that don’t exempt business-to-business purchases
- Complex, high-rate unemployment tax systems
- High property tax collections as a percentage of personal income
Indiana’s rankings in the five categories are: corporate tax index, 21st; individual income tax index, 11th; sales tax index, 20th; unemployment insurance tax index, 12th; and property index, 4th.
Since this tax analysis game is not for the faint of heart, a little more from the Tax Foundation on how it all works.
The methodology of the State Business Tax Climate Index is centered on the idea of economic neutrality. If a state’s tax system maintains a “level playing field” for businesses, the index considers it neutral and ranks it highly. However, each state’s final score depends on a comparison with the other 49 states.
The overall index is composed of five specific indexes devoted to major features of a state’s tax system. Each of these five indexes is composed of several sub-indexes.
Each state’s laws and tax collections were assessed as of July 1, 2010, the first day of the 2011 fiscal year. Newer tax changes are the subject of commentary in an appendix but are not tallied in the scores and rankings.
The Tax Foundation has data charts, further analysis and a full 60-page report. By the way, you have to go west for most of the rest of the top 10 (in order): South Dakota, Alaska, Wyoming, Nevada, Florida, Montana, New Hampshire, Delaware and Utah.
And finally, going into a state budget year that will bring pressure to raise revenues, let’s all keep the vital importance of the tax climate in mind on business attraction and expansion decisions.