By Cedric D'Hue 1
Indiana Code § 6-3-2-21.7, effective Jan. 1, 2008, aims to encourage innovation by giving entrepreneurs and small businesses a break on Indiana state income taxes. By enacting a law that exempts income generated by using or selling patented products and services, Indiana has taken a major step toward establishing itself as a leader in emerging technologies and industries and has provided a model that others states might want to emulate.
An effort to strengthen the state’s existing focus on biotech, pharmaceutical, medical device and equipment companies, the law strives to encourage new patents from Indiana companies and make the state more attractive to new companies looking for a profitable marketplace. Although Indiana is currently 19th in the nation in patents per capita,2 the state wants to lead the pack, and providing economic incentives for innovation is a proven way to do so. By being the first state in the nation to offer this type of incentive, Indiana is seizing an advantage and showing its determination to rise to the top.
The new law defines qualified taxpayers as, among other things, Indiana individuals and small businesses with no more than 500 employees or affiliates. The law allows these qualified taxpayers to exempt up to half of the income receiv...