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Editorial 9 MIN READ

Indiana in April 2018: a flat 3.23%, a biennial $31, and a state that keeps cutting the corporate rate

A filing fee of $95 online, a report due every two years rather than every one, and a corporate tax scheduled to step down again on July 1

The Editors
Staff, Incorporator.org
9 min read Updated
Contents 6 sections
  1. The mechanics, on INBiz
  2. The Business Entity Report, biennial rather than annual
  3. The tax stack, from the top down
  4. Cluster economics and the Elkhart case
  5. Who this state actually makes sense for
  6. Sources

n Indiana LLC costs $95 to file online through INBiz, and $31 to keep alive every two years rather than every one. Those are the two numbers that make the math cleaner here than almost anywhere else in the Midwest.

This is a guide for someone forming in April 2018, when the state has just finished moving its business filings onto a single portal, the corporate rate is on a published glide path to 4.9%, and the federal tax code underneath everything shifted in December. The Indiana LLC formation mechanics are simple; the tax layering is where the work is.

The mechanics, on INBiz

You file Articles of Organization with the Indiana Secretary of State, Business Services Division. The statute is the Indiana Business Flexibility Act, codified at IC 23-18, and the contents requirement is IC 23-18-2-4: the name of the LLC, the street address of its registered office in Indiana, the name of its registered agent at that office, a statement of duration (perpetual is fine, and is the default most filers pick), and, if the LLC is to be manager-managed rather than member-managed, a statement to that effect. Any other matters the members want in the charter can go in, but most don't. Five lines and a signature.

You file through INBiz, the one-stop portal the state rolled out in April 2016 and has been adding agencies to ever since. The Indiana Professional Licensing Agency joined in late 2017, and the Attorney General's office followed shortly after. The portal ties the Secretary of State, the Department of Revenue, and the Department of Workforce Development together, which means one account will register the entity, request state tax registration, and open the unemployment-insurance file in a single pass. Mail filing is still available via State Form 49459, but the online filing is cheaper and the turnaround is faster.

The fee schedule sits in IC 23-18-12-3. Articles of Organization cost $95 when filed electronically and $100 when filed on paper. There is no separate expedite tier because online filings are processed on the same business day; the mail lane is the only one where you'd pay extra elsewhere, and in Indiana you just pay the five-dollar paper premium and move on.

After filing you'll want an EIN from the IRS, which takes as long as Form SS-4 takes to fill in, and an operating agreement, which Indiana does not require you to file but which IC 23-18-1-16 defines and which the default rules in IC 23-18-4 will supply in its absence in ways you probably don't want. The operating-agreement default is a question founders tend to ignore until a dispute puts them in front of it; in Indiana, as in most states, the default is equal control regardless of capital contribution, which is the wrong answer for most co-ventures.

The Business Entity Report, biennial rather than annual

Indiana is one of the few states that does not charge an annual report. It charges a biennial one. The Business Entity Report is due every two years in the LLC's anniversary month, and the fee is $31 online or $50 by mail. The biennial rhythm is set by IC 23-0.5-2-13, the Uniform Business Organizations Code provision that swept in alongside the Business Flexibility Act.

The schedule is tied to the formation year's parity. An LLC formed in 2017 files in odd-numbered years; one formed in 2018 files in even-numbered years. The Secretary of State will accept the filing up to 90 days before the due month, and INBiz sends email reminders if you gave it an address. There is no headline late fee, but IC 23-0.5-6-1 makes failure to file grounds for administrative dissolution. The practical sequence is: 60 days past due, the state sends notice; 60 days after notice, the entity is administratively dissolved. Getting reinstated is not hard, but it costs a reinstatement fee on top of the overdue report, and it puts a gap in the good-standing record that a future lender or acquirer will ask about.

On total three-year cost, this is the math. Delaware LLCs pay $300 a year in flat tax, so a three-year Delaware run is $900 plus the $90 formation, or $990. Indiana pays $95 at formation, files once at month 24 for $31, and doesn't file again until month 48; the three-year Indiana run totals $126. The dollar gap is not small, and the paperwork gap is not small either: an Indiana founder who files on the nose of year two will forget about the Secretary of State entirely in the interim.

The tax stack, from the top down

The federal side first. The Tax Cuts and Jobs Act was signed on December 22, 2017, and the big pass-through move, the 20% qualified business income deduction under IRC § 199A, is live for tax years beginning in 2018. An Indiana LLC taxed as a partnership or a disregarded entity, which is what most single-member and two-member LLCs are by default, is a pass-through; the members pick up the income on their federal 1040s and compute the § 199A deduction there. The proposed regulations are not out yet, and the wage-and-W-2 limitations, the specified-service-trade exclusions, and the taxable income phase-ins are all doing real work inside the statute that practitioners will be parsing through the summer.

Indiana has not conformed to § 199A at the state level and will not, because Indiana starts its individual income tax computation from federal adjusted gross income rather than from federal taxable income. AGI is struck above the § 199A deduction on the federal form. So the state flat rate applies to the full pass-through income without the federal 20% haircut. Indiana's individual rate is 3.23%, reduced from 3.30% by the 2013 cut that phased through 2015 and 2017. The 3.23% is flat, with no brackets.

Layer on county income tax. Indiana's 92 counties each adopt their own local income tax rate under IC 6-3.6, the consolidated local tax statute that took effect January 1, 2017, and merged the old CAGIT, COIT, CEDIT, and special-purpose local taxes into a single LIT with three rate components: property-tax relief, public-safety, and expenditure. The statewide range runs from roughly 0.5% to about 3.38% depending on the county, with the cap set at 2.5% for most counties and 2.75% for Marion County (Indianapolis). A pass-through member pays the LIT on resident county income the same way they pay state tax: at the individual level, on the 1040-equivalent IT-40.

The corporate rate is on a published schedule. The 2014 tax package, HEA 1001, phased Indiana's corporate adjusted gross income tax down from 6.5% in fiscal 2016 to 4.9% by fiscal 2022. The fiscal year runs July 1 to June 30, so the rate history looks like 6.25% effective July 2016, 6% effective July 2017, 5.75% effective July 2018, and 5.5% effective July 2019, ending at 4.9% on July 1, 2021. An LLC that elects C-corp treatment under Treas. Reg. § 301.7701-3 pays the corporate rate; one that takes the default pass-through treatment, or elects S-corp status, does not.

Indiana also has a 7% sales tax, which is why Indiana retailers and SaaS sellers with Indiana nexus are watching South Dakota v. Wayfair, the case the Supreme Court will hear on April 17. Wayfair asks whether Quill v. North Dakota's physical-presence rule still binds in the era of remote internet sales. If the Court modifies or overturns Quill, Indiana's remote-seller nexus rules, and the collection obligations they carry, change with it. That is a live question for any Indiana LLC planning to sell across state lines.

Cluster economics and the Elkhart case

The reason to form in Indiana rather than somewhere cheaper is usually that the business does work here. Indiana leans hard on manufacturing, on logistics (the Indianapolis airport's FedEx hub is among the largest cargo facilities in the country), and on agriculture. The single clearest cluster story is Elkhart County in the north, where something like 80% of US recreational-vehicle production happens inside a roughly 20-mile radius. Thor, Forest River, and a long tail of suppliers make Elkhart the most concentrated single-industry town in the country.

If the LLC is a supplier to that cluster, a fabrication shop, a plating operation, an electronics subassembly vendor, a transporter moving finished coaches to dealers, forming in Indiana makes obvious sense. The customers are here, the workforce is here, and the property is here. Same logic applies to the medical-device cluster around Warsaw, which accounts for an outsized share of US orthopedic implants, and to the pharmaceutical operations around Indianapolis anchored by Eli Lilly.

If the LLC is a remote consultancy with no Indiana footprint other than the founder's home office, the calculus is different and thinner. Indiana has a cheap biennial, but the registered-agent market here is smaller than Wyoming's or Nevada's, and the state has no privacy-LLC pitch; members' and managers' names appear on the articles and on the biennial report, and those filings are searchable on INBiz. The value Indiana offers is operational, not reputational.

Who this state actually makes sense for

Three kinds of entities belong in Indiana in 2018.

The first is any operating business with a physical presence here, whether that's a manufacturing line, a warehouse, a retail storefront, or a professional practice serving Indiana clients. Forming at home saves the foreign-qualification step, which Indiana requires for any out-of-state entity "transacting business" in the state under IC 23-0.5-5. For an operating business, forming elsewhere and qualifying back is a paperwork tax for no benefit.

The second is a holding company that owns Indiana real property or Indiana-situs operating subsidiaries. The Indiana series LLC statute at IC 23-18.1, enacted by HEA 1336 in 2016 and effective January 1, 2017, adds a compartmentalization tool that single-parcel real-estate investors in particular have been waiting for. It's newer than the Delaware, Illinois, and Texas series regimes, and a cautious user should still hold separate LLCs rather than a single series where the asset count is small; the inter-series liability shield has not yet been tested in Indiana case law.

The third is a small professional practice (law firm, accounting firm, consultancy) whose owners live and work in Indiana. Indiana allows the LLC form for licensed professionals with scope limits set by the relevant licensing board; the practice benefits from the low-friction biennial and the flat state rate. A multi-state practice is a different question.

Everything else, the venture-backed tech company aiming at an out-of- state exit, the anonymous-holding strategy, the pre-IPO holding entity, belongs somewhere else and will end up somewhere else. Indiana is not a state-shopping state. It is a state for businesses that are already in Indiana or are moving to Indiana.

If you are forming this quarter and the business is operational and local, file the Articles of Organization through INBiz this week, set a calendar reminder for your biennial month two years out, and pay attention to the July 1 corporate rate step-down only if you plan to elect C-corp treatment. If the business is mobile and the founder is not, look at the state the founder lives in before defaulting to anything in particular. The Indiana premium over a no-state-tax jurisdiction is real but bounded, and the operational reasons to be here, or not, will decide the question more cleanly than the tax math will.

Sources

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