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Indiana Tax Business Climate And Tax Credits And Incentives



Monika Milkes, Tax Climate And Tax Credits In Indiana

This month we travel to the Crossroads of America, the Midwest state of Indiana. It is known for its farmland and renowned auto race, the Indianapolis 500, held at the Indianapolis motor speedway. In the capital, Indianapolis, theatres and galleries line Massachusetts Avenue. The city’s downtown is home to the iconic Soldiers and Sailors Monument, the Canal Walk promenade and the Indianapolis Museum of Art and its wide-ranging collections.

The state includes two natural regions of the United States: the Central Lowlands and the Interior Low Plateau. The Till Plains make up the northern and central regions of Indiana. Much of its appearance is a result of elements left behind by glaciers. Central Indiana is mainly flat with some low rolling hills (except where rivers cut deep valleys through the plain, like at the Wabash River and Sugar Creek) and soil composed of glacial sands, gravel and clay, which results in exceptional farmland. Northern Indiana is similar, except for the presence of higher and hillier terminal moraines and hundreds of Kettle lakes.

In Northwest Indiana, there are various sand ridges and dunes, some reaching nearly 200 feet in height. These are located along the Lake Michigan shoreline and also inland to the Kankakee Outwash Plain. Southern Indiana is characterized by valleys and rugged, hilly terrain, contrasting from much of the state. Here, bedrock is exposed at the surface and isn’t buried in glacial till further north. Because of the prevalent Indiana limestone, there are numerous caves, caverns, and quarries in the area.

Business Climate

The state’s five leading exports are motor vehicles and auto parts, pharmaceutical products, industrial machinery, optical and medical equipment, and electric machinery. Northwest Indiana has been the largest steel producing center in the U.S. since 1975 and accounted for 27% of American-made steel in 2016.

Indiana is home to the International headquarters and research facilities of pharmaceutical company Eli Lilly in Indianapolis, the state’s largest corporation. Evansville is also home to the world headquarters of Mead Johnson Nutritionals. Overall, Indiana ranks fifth among all U.S. States in total sales and shipments of pharmaceutical products and second highest in the number of biopharmaceutical related jobs.

Along with corn, soybeans are also a major cash crop. Other crops include melons, tomatoes, grapes, mint, popping corn and tobacco in the southern part of the state. Most of the original land was not prairie and had to be cleared of deciduous trees. Many parcels of woodland remain and support a furniture-making sector in the southern portion of the state.

Tax Climate  

Indiana has a flat state individual income tax rate of 3.23%, which ranks 35th in the nation. The top corporate income tax rate is 6%, which ranks 24th in the nation. The state sales tax rate is 7% with exemptions for food, prescription medications and over-the counter medication. However, in some jurisdictions, an additional food and beverage tax is charged on sales of prepared meals and beverages.

Other taxes that are of interest to consumers are the gasoline tax and cigarette tax. The state levies a gasoline tax of 33.59 cents per gallon, which ranks 13th in the nation, and a state cigarette tax of $1.00 per 20-pack, which ranks 29th in the country.

Indiana is one of the many states that jumping on the economic nexus bandwagon. The state is disregarding physical presence and making it easier for companies to pay taxes into their state. They are requiring out-of-state retailers to collect and remit sales tax to the state if it has more than $100,000 in gross revenue or if the retailer has 200 or more transactions, likely effective 10/1/18. (Note that this is currently a prohibition on enforcing the economic nexus statute until a pending declaratory judgement action is resolved.)

Indiana is fairly aggressive in its approach to taxation of technology products for sales tax purposes. All digital products are taxable. Prewritten computer software that is electronically downloaded is taxable, while custom computer software that is electronically downloaded is exempt from taxation. Lastly, SaaS is taxable. How products are produced, sold and delivered is critical to determining its tax status.

Tax Incentives and Credits

Indiana offers many business tax incentives, corporate tax credits and economic development programs for companies creating new jobs and investment in Indiana. The business tax structure is also very competitive. Indiana’s corporate income tax is decreasing from the current 6.5% to 4.9% by 2021. Here are a few of those incentives:

Headquarter Relocation Tax Credit- The Headquarters Relocation Tax Credit (HRTC) provides a tax credit to a business that relocates its headquarters to Indiana. The credit is assessed against the corporation’s state tax liability. For more information on this credit, click here.

Patent Income Tax Exemption- Certain income derived from qualified patents and earned by a taxpayer are exempt from taxation. The Tax Exemption for Patent-derived Income defines qualified patents to include only utility patents and plant patents. The total amount of exemptions claimed by a taxpayer in a taxable year may not exceed $5 million. For more information regarding this exemption, click here.

Random Facts

  • The first long-distance auto race in the U.S. was held on May 30, 1911 at the Indianapolis Motor Speedway.
  • Explorers Lewis and Clark set out from Fort Vincennes on their exploration of the Northwest Territory.
  • Marcella Gruelle of Indianapolis created the Raggedy Ann doll in 1914.
  • Indiana ships over 70 million tons of cargo by water each year, which ranks 14th among all U.S. states.
  • In 1862, Richard Gatling, of Indianapolis, invented the rapid-fire machine gun.
  • At one time, 12 different stagecoach lines ran through Indiana on the National Road (now U.S. Interstate 40).

Have a tax question about doing business in Indiana?

Contact Monika Miles.

 

 

Monika founded Miles Consulting Group in 2002. The firm focuses on multi-state tax consulting—helping their clients navigate state tax issues such as sales tax and income tax in interstate commerce, including e-commerce.

Prior to forming the firm, Monika worked for over 11 years in Big 4 Public Accounting and 1 year in industry. Monika has provided such services as federal and state income/franchise tax compliance and consulting, sales/use tax consulting, audit support, and credits and incentives reviews. She has served clients in a variety of industries including manufacturing, technology, telecommunications, construction, utility, retail and financial institutions.

Monika graduated from the University of Texas at El Paso (UTEP) with a BBA in Accounting/Finance and has a Masters in Taxation from San Jose State University.

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