Indiana Approves Tax Changes, Including Corporate Tax Rate Reduction May 2, 2011 Joseph Bishop-Henchman Joseph Bishop-Henchman Indiana’s legislature adjourned Friday after approving a budget that now goes to Gov. Mitch Daniels (R). The $28 billion two-year budget includes a $1 billion surplus. Included in the budget and in other bills enacted this session are several tax provisions: Automatic Taxpayer Refund. When the state’s rainy day reserves exceed 10% of budgeted spending (about $1.4 billion), the money will be split 50-50 between the teachers’ pension stabilization fund and refunds to taxpayers via an income tax credit. (The threshold is unlikely to be reached during the next budget biennium.) Corporate Income Tax Reduction. From the current 8.5% rate, the rate will drop in steps to 6.5%, by ending a tax credit for the purchase of out-of-state municipal bonds. Indiana was the only state to offer the credit to all state bonds, not just its own. The rate reduction schedule: July 1, 2012: 8.0% July 1, 2013: 7.5% July 1, 2014: 7.0% July 1, 2015: 6.5% Ends net operating loss carrybacks after 2011. Modifies the tax on smokeless tobacco to be at a lower rate than the tax on cigarettes, better reflecting the risk associated with the product relative to cigarettes. Reduces unemployment insurance benefits by 25 percent to forestall a tax increase and begin repaying $2 billion in loans from the federal government. Establishes a commission to study the effectiveness of economic development tax credits and programs. A Democratic proposal to suspend the state’s gasoline tax and sales tax on gasoline during the summer months was not included. Stay informed on the tax policies impacting you. Subscribe to get insights from our trusted experts delivered straight to your inbox. Subscribe Share Tweet Share Email Topics Center for State Tax Policy Indiana Cigarette and Tobacco Taxes Corporate Income Taxes