Tax Rates, Credits, and Abatements
Inventory Tax and Gross Receipts Tax
As of the year 2007, the State of Indiana no longer administers an Inventory Tax and nor does the state collect a Gross Receipts Tax.
Corporate Income Tax
In Indiana, the Corporate Gross Income Tax is evaluated at a flat rate of 8.5% (compared to Illinois' 9.5%t) of adjusted gross income. Although notably on May 11, 2011 Governor Mitch Daniels signed HB 1004 that will be incorporating a 0.5% yearly deduction of the current 8.5% corporate income tax for the next 4 years until it reaches 6.5%. A company's adjusted gross income is its federal adjusted gross income with specific adjustments. This simplified technique of tax calculation does not apply to corporations that are non-profit organizations nor does the tax apply to corporations that are classified as S corporations. S corporations do not pay federal taxes. Instead an S corporation's profits or losses are divided among shareholders and their dividends or losses in personal income are taken into consideration in regards to the individual shareholder's income taxes.
Indiana is in the process of implementing the factor for allocating corporate income taxes. Previously Indiana's sales tax was determined by calculating the state's portion of an interstate or international corporation's taxable income by considering Indiana's share of a company's property and the percentage of its Indiana workforce. By enacting this new procedure, Indiana's portion will solely be determined by the percentage of a company's sales in Indiana. This new calculation method is in the process of being incremented in and is scheduled to be complete sometime in 2011.
Sales and Use Tax
Sales tax is evaluated at a constant rate of 7%. Among the manufacturing industry, the following are exempt from sales tax: equipment, power, raw materials, electricity, and utilities. Also exempt are whole sales, items used directly in production, sales transactions made in interstate commerce, and research and development devices.
Economic Development for a Growing Economy (EDGE) Tax Credit
The purpose of this refundable tax credit is to encourage the expansion of job opportunities for Indiana residents and the overall expansion of Indiana's economy. EDGE may be applied in circumstances where Indiana is in competition with another state and/or country for a company's site location investment.
Headquarters Relocation Tax Credit
Corporations that relocate their business headquarters to Indiana may be eligible for the Headquarters Relocation Tax Credit. The credit is equivalent to half of the company's moving fees and is levied against the corporation's state tax liability. In order to be eligible for this tax credit, it is mandatory that a corporation have a minimum global income of $100 million within the taxable year directly prior to the year in which the application for credit is submitted. Following the company's relocation, it is a requirement that the company employ a minimum of 75 Indiana residents.
Hoosier Business Investment Tax Credit (HBITC)
By providing a tax credit to Hoosier companies against their Indiana tax liability, the aim of the HBITC is to promote local capital investment. The value of the credit is determined by the Indiana Economic Development Corporation (IEDC) on qualified capital investments. The IEDC takes into consideration the estimated fiscal benefits of the proposed investment. Qualified investments have the opportunity to be awarded 10% of the investment in the form of a tax credit for up to 9 years.
Research and Development Tax Credit
Businesses eligible for the Research and Development Tax Credit may be awarded up to 15% of the first $1 million spent on research expenditures that meet the criteria set forth by the Department of Revenue. The award is applied against income tax liability and may be reapplied for up to 10 years. Only items regarded as a "qualified research expense" (which consists of the cost of wages and supplies) according to the Department of Revenue's Internal Revenue Code are eligible for the credit.
Industrial Recovery Tax Credit
The intention of the Industrial Recovery Tax Credit is to incentivize investing in facilities that are in dire need of rehabilitation and updating. Following the designation of a building as an industrial recovery site, a business that invests in the specified location may be eligible for a tax credit determined by a percentage of the eligible rehabilitation costs. Requirements for this credit include that the building or building complex have been in operation for a minimum of 20 years, covering at least 250,000 interior square feet that has been at least 75% unoccupied for 2 or more years.
Venture Capital Investment Tax Credit
The goal of the Venture Capital Tax Credit is to develop the availability of capital to quickly growing Indiana businesses by attaching an additional incentive to invest in young companies looking to expand. Investments in eligible businesses result in a tax credit for individuals or corporate investors against their Indiana income tax liability. This tax credit is obtainable to any tax paying person or entity that has any state income tax liability. In order to receive this tax credit, it is required that an application be approved by the Indiana Economic Development Corporation to obtain official recognition that the supposed investment plan qualifies for a credit award. A tax payer's credit is equivalent to 20% of their investment granted to an Indiana company with in a taxable year not to exceed $500,000.
Tax abatement (PDF) is a method used by local governments to entice investors to fund new projects or rehabilitate existing sites and create job opportunities. Tax abatement can be awarded for 1-10 years. Some locations may even be eligible to serve as a TIF district and receive tax abatement privileges.
Economic Revitalization Areas
Property tax abatement may be available to taxpayers located in selected revitalization areas.