“Facts and Figures, How Does Your State Compare?” is an annual publication of the Tax Foundation. It is mailed to every state legislator and governor.
Many Hoosier legislators and administrators quote the foundation’s State Business Tax Climate Index. As of July 1, 2020, Indiana ranked No. 9 among the 50 states. That places us in the top quintile of favorable states. Such eminence! We’re up there with Wyoming (No. 1), South Dakota (No. 2), and Alaska (No. 3).
How do we get to be No. 9? For that index, we rank No. 13 in corporate income tax, No. 15 in individual income tax, No. 20 in sales tax, and No. 27 in unemployment insurance tax. There must be something that propels us up to No. 9. Turns out we are No. 2 in property taxes on business and that offsets all those other taxes.
In the early 1970s, Indiana got about a third of its state and local tax revenues from property taxes. Today, about a quarter of our tax collections come from property taxes.
On a per capita basis, including every infant, our property taxes are $1,033 and we rank 39th behind the highest state, New Jersey ($3,378 per capita), with Alabama 50th at $598 per capita.
Alternatively, Indiana ranks 30th with property tax paid at 0.81% of owner-occupied housing value. By this measure, Alabama is lowest (at 0.37%) among the 48 continental states, while New Jersey is again in first place at 2.13% of value.
While Indiana is low on property taxes, we make it up on sales taxes. Our 7% statewide sales tax rate is the highest in the nation (tied with MS, RI, and TN). Unlike most states, we don’t permit local sales taxes or have a statewide sales tax earmarked for local governments.
Indiana has the lowest statewide flat tax (3.23%) on individual income. Most states have graduated income tax rates as incomes rise, in addition to local income taxes. Indiana’s state income tax raises $900 per capita, the 10th lowest amount in the nation among the 43 states with income taxes.
Our gasoline tax rate at 42.16 cents per gallon is the 10th highest in the nation, lower by 10 cents from Illinois, but higher than neighboring KY, MI, and OH.
Indiana’s gasoline taxes and license fees pay for 68.7% of our state and local road spending, the highest level in the nation. As crossroads of the nation, with heavy truck traffic, we might ask, “Do we get our fair share of federal highway funds?”
Before any action by the current Indiana legislature, we had the 13th lowest cigarette tax rate. No vaping or marijuana tax. The 7th lowest tax on spirits, the 15th lowest tax on wine, and the 8th lowest tax on beer.
Thus, Indiana’s low taxes are favorable for both business and unhealthy choices.