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Sep 01, 2015

Fiscally Attractive

If beauty is in the eye of the beholder, then the aesthetic that CEO's and decision makers are looking for in a location to start and grow a business is an attractive bottom line.

Balance sheets, ranking maps and charts generated from research data are not necessarily a glamorous proposition to everyone, but to the truly savvy entrepreneur looking to move from startup to IPO and beyond, the actual numbers can be quite alluring.  Taking a closer look at a state’s empirical data and rankings can show you which locations have real fiscal beauty, and which ones are hiding flaws that could lead to serious problems down the road.

While no data poll or ranking can tell you everything you need to know about choosing the best location, there are plenty of illuminating data sets out there, and they can be very useful to show which states really are the best for your business.

The Tax Foundation is a fantastic, nationally-recognized source. If the Tax Foundation says you have the best tax environment for business in the nation, then you’re doing pretty well. If you’re in the top ten, that’s a great accomplishment. If you’re in the bottom ten, that might be a problem.

So let’s take a look at the 2016 Tax Foundation rankings for State Business Tax Climate Index. We’re actually inside the top ten in Indiana at #8, and we’re ahead of a state like Texas at #10 which has 0% income tax. And that’s something worth a closer look.

The Tax Foundation uses five separate categories to make their Business Tax Climate Index ranking: Corporate Tax, Individual Income Tax, Sales Tax, Unemployment Insurance Tax and Property Tax.  The overall ranking map is great, but it doesn’t quite tell the whole story at first glance.

Texas is ranked 10th overall, but ranks outside the top ten in four of the five categories and is actually one of the worst states in the nation for Corporate Tax (41), Sales Tax (37) and Property Tax (34), but having no personal income tax gives them a better overall score than you might otherwise expect.

The results for a top-ten state like Texas are closer to one of the lower ranked states like Illinois which has an overall Tax Foundation ranking of 23rd in the nation and is one of the worst states for Corporate Tax (36), Unemployment Tax (39) and Property Tax (45).

Indiana, on the other hand, has results more consistent with their overall ranking of 8th in the nation and is placed much closer to the top ten for Individual Income Tax (11), Sales Tax (11), Unemployment Tax (14) and Property Taxes (5).

So what if we take an even closer look at those five Tax Foundation categories and give the states a letter grade in each category based on their ranking? A national ranking of 1-10 is an A, 11-20 is a B, 21-30 is a C, 31-40 is a D and 41-50 is an F. Then we can average the results for an overall tax GPA.

If you look at the interactive chart below you have quite a different view of the Tax Foundation results shown in a state tax report card of sorts.

The individual rankings weighted equally form a substantially different picture than the overall ranking that the Tax Foundation gives by combining the scores and weighting them in their analysis that “rewards states on particularly strong aspects of their tax systems (or penalizes them on particularly weak aspects)” according to the Tax Foundation.

And there you have it: the numbers and stats behind the rankings can be that much more revealing.  The top state in one tax category isn’t necessarily the top state in all tax categories, and as economic developers, we have to look at a bigger picture and choose which combination of categories is most attractive for what we’re trying to accomplish. 

Indiana is deliberately making smart financial decisions and defining what a state can do to pass the savings of efficient government onto its citizens by eliminating debt, keeping taxes low and continually passing a balanced budget.

In terms of being fiscally attractive, there are few states that can even come close to producing such a handsome balance sheet. It’s what makes Indiana such a compelling location to start and grow a business, and it’s what makes Indiana a state that works.

For more info about A State that Works contact Brittany Mann  at 317.995.0847 or email