Indiana has spent more than a decade cutting taxes and now offers one of the most business-friendly tax systems in the Midwest. Corporations pay a flat 4.9%, individuals pay a flat 2.95% state rate in 2026 (plus a county income tax), the 7% sales tax is uniform statewide, and property taxes are capped by the constitution. A 2025 law also exempted most small businesses from personal property tax on equipment.
This guide explains Indiana's business taxes for 2026, with worked examples, neighbor comparisons and planning tips for owners.
Corporate income tax
Indiana taxes C corporations at a flat 4.9% of adjusted gross income apportioned to Indiana. The rate fell from 8.5% in 2012 to 4.9% by 2021, one of the largest cuts in the country.
- Apportionment: Single sales factor.
- Combined reporting: Not required; Indiana allows or requires combined returns only in limited cases.
- Financial institutions pay a separate franchise tax at 4.9%.
- Credits: Economic Development for a Growing Economy (EDGE) credits, the Hoosier Business Investment credit, research credits and venture capital investment credits.
- Returns: Form IT-20 is due on the 15th day of the fifth month after year-end, a month after the federal return.
Personal income tax and pass-through owners
Indiana's state income tax is a flat 2.95% for 2026, down from 3.05% in 2024 and 3% in 2025. It's scheduled to fall to 2.9% in 2027.
County income taxes apply on top. Every Indiana county levies a local income tax, usually between 0.5% and 3%. Marion County (Indianapolis) charges 2.02%, and some rural counties exceed 3%. Residents pay the rate for the county where they live on January 1; nonresidents working in Indiana pay the rate of the county where they work.
For business owners:
- LLC owners, partners and sole proprietors pay the state rate plus their county rate on business income.
- S corporation shareholders pay the same on their share.
- Nonresident owners have tax withheld by the entity or file composite returns.
- PTE election: Partnerships and S corporations can pay Indiana tax at the entity level, which is deductible federally.
A 2025 law also lets cities and towns adopt their own municipal income taxes starting in 2028, with corresponding changes to county taxes, so local rates may shift in coming years.
Sales and use tax
Indiana charges a 7% sales tax with no local sales taxes, so the average combined rate is also 7%. That makes compliance simple: one rate everywhere in the state.
- Groceries and prescription drugs are exempt.
- Services are mostly exempt.
- Remote sellers with more than $100,000 of Indiana sales must collect.
- Manufacturing exemption covers equipment and materials used directly in production.
- Food and beverage taxes: Many counties charge 1% to 2% on prepared food, and hotels pay innkeeper's taxes.
Property taxes
Indiana's constitution caps property tax bills at 1% of gross assessed value for homesteads, 2% for rental and farm property and 3% for commercial and industrial property.
Business personal property such as equipment is also taxable. The 2025 property tax law (SEA 1) made two big changes starting with the 2026 assessment:
- Businesses with total personal property acquisition cost below $2 million per county are exempt, up from $80,000.
- The 30% floor on the depreciated value of new equipment no longer applies to equipment acquired after 2025, so new equipment can depreciate fully.
Payroll taxes
- Unemployment insurance: Employers pay on the first $9,500 of each employee's wages. New employers generally start at 2.5%, with construction employers starting higher.
- Withholding: Employers withhold state and county income tax.
Forming a business in Indiana: fees and ongoing costs
| Item | LLC | Corporation |
|---|---|---|
| Formation filing fee | About $100 (less online) | About $100 (less online) |
| Business entity report | $32 every two years online | $32 every two years online |
| Franchise or capital tax | None | None |
| Registered agent | Required | Required |
Worked example: $500,000 of profit
| Step | Amount |
|---|---|
| Taxable income | $500,000 |
| Indiana corporate tax at 4.9% | $24,500 |
| Federal tax at 21% on $475,500 | $99,855 |
| Total income tax | $124,355 (24.9%) |
For a single LLC owner with $150,000 of Indiana taxable income, state income tax is about $4,425. At $75,000 it is about $2,213. Add the county tax: at 2% that would be another $3,000 or $1,500.
How Indiana compares with its neighbors
Indiana is consistently ranked among the most competitive states in the Midwest. Its corporate rate is roughly half of Illinois's, and its personal property tax exemption is now one of the most generous in the country.
Choosing an entity in Indiana
- LLC: Low cost, biennial report and pass-through treatment.
- S corporation: Federal payroll tax savings with the PTE election for SALT planning.
- C corporation: About 24.9% combined rate on retained earnings, with no franchise tax.
Indiana's state and county tax for an individual can approach or exceed the 4.9% corporate rate in high-tax counties, so the state's tax code is roughly neutral between entity types.
Tax planning tips for Indiana businesses
Check your county. Because county income tax rates differ by more than two percentage points, where an owner lives can change their Indiana tax bill as much as the state rate itself. A business owner moving within the Indianapolis metro area can save or lose 1% of income depending on the county.
Revisit personal property returns in 2026. With the exemption threshold now $2 million, most small and midsize businesses will owe no personal property tax. They still need to file Form 103 with the exemption claimed so the assessor knows the business qualifies.
Claim the research and investment credits. Indiana's research expense credit is generous and can be carried forward, and the Hoosier Business Investment credit can offset tax for qualifying capital investment. Both generally require planning before you spend.
Watch the 2028 local tax changes. Municipal income taxes allowed from 2028 may raise local rates for residents and workers in some cities.
Recent changes for 2025 and 2026
- Personal income tax fell to 2.95% for 2026.
- Personal property tax exemption raised to $2 million per county from 2026, with the 30% floor removed for new equipment.
- Local income tax restructuring approved for 2028.
- Property tax relief for homeowners took effect, with shifts in local levies.
Is Indiana a good state for business?
Advantages
- Low flat corporate and personal income tax rates
- Uniform 7% sales tax with no local add-ons
- Constitutional property tax caps and a large equipment exemption
- Central location with strong logistics and manufacturing
Drawbacks
- County income taxes add complexity and cost
- Sales tax rate is high compared with neighbors' state rates
- Smaller venture capital ecosystem than Chicago
- Upcoming local tax changes create uncertainty
Compliance checklist
- File Articles of Organization or Incorporation through INBiz with the Secretary of State.
- Register with the Department of Revenue through INTIME for sales tax and withholding.
- Register with the Department of Workforce Development for unemployment insurance if you hire.
- File business personal property returns with the county by May 15.
- File the business entity report every two years.
- File Form IT-20, IT-20S or IT-65 each year.
Compare Indiana with its neighbors below, or estimate your taxes in the United States calculator. For more on entity choice, see LLC taxes.