Many Hoosier legislators and administrators quote the Foundation’s State Business Tax Climate Index. As of July 1, 2020, Indiana ranked #9 among the 50 states. That places us in the top quintile of favorable states. Such eminence! We’re up there with Wyoming (#1), South Dakota (#2), and Alaska (#3).
How do we get to be #9? For that Index, we rank #13 in Corporate Income tax, #15 in Individual Income tax, #20 in Sales tax, and #27 in Unemployment Insurance tax. There must be something that propels us up to #9. Turns out we are #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.