State Rundown 1/17: Budget Deficits, Online Sales Tax, and More

The big news this week in state tax law is that the U.S. Supreme Court has agreed to take on the issue of online sales, nexus, and sales tax collection. States have increasingly lost out on sales tax revenues as more transactions have shifted online from brick-and-mortar stores and the laws determining who is required to collect and remit sales taxes haven’t kept up. This is potentially good news for states—25 of which National Association of State Budget Officers (NASBO) reports started the new year with budgetary deficits. In other news, grappling with the local impact of federal tax reform remains front and center in states including Idaho, Michigan, Montana, and New York as reported below. And while some states like Texas and West Virginia are advocating for measures that would increase procedural hurdles to raising needed revenue in the future, other states like Hawaii and Washington State are advocating progressive proposals to make a new state EITC refundable and enacting a carbon tax.

— Meg Wiehe, ITEP Deputy Director, @megwiehe

• The U.S. Supreme Court has agreed to hear a case challenging the law that retailers without physical presence in a state cannot be required to collect and remit taxes for online sales. Thirty-six states and the District of Columbia petitioned the court to take up the issue. The court is expected to hear oral arguments in April 2018.
• Revised revenue estimates in Idaho led to revisions in Gov. Otter’s budget, with little change in programmatic spending and more savings to the state’s rainy-day fund. In the first days of session, lawmakers have already introduced a tax conformity bill (limited to 2017) and the House has unanimously passed a bill to cut the unemployment insurance tax paid by employers.
• House lawmakers in Michigan released a proposal yesterday to reinstate the state’s personal exemption and raise it to $4,800 by 2020. They also propose creating a $100 refundable tax credit for taxpayers ages 62 and older.
• Officials in Montana are in disagreement over the impact of federal tax reform on state income tax laws, specifically as it relates to changes in provisions related to business pass-through income. What’s at stake? A potentially $29 million budget deficit that may require a special legislative session to address.
• Lawmakers in Colorado are considering a bill to tax the use of plastic bags statewide. The proposal would levy a 25-cent per bag tax and earmark the new tax revenue to support affordable housing initiatives.
• Legislation out of the Hawaii House of Representatives would make the state’s recently established earned income tax credit (EITC) refundable.
• Fairness in Oil Taxes legislation was introduced in the Alaska The bill would increase the state’s oil and gas minimum tax from four to seven percent, raising approximately $225 million.
• A resolution in the West Virginia House would amend the state Constitution to require future tax and fee increases be approved by a two-thirds majority of the Legislature.
• In his budget address, New York Anthony Cuomo explores a voluntary payroll tax, charitable contributions to the state, and congestion pricing.
• Texas Abbott released a plan early this week to “rein in skyrocketing” property taxes. His proposal would cap revenue growth for localities at 2.5%, requiring support from two-thirds of voters to succeed. This proposed cap is far lower than the debated and failed proposals of 4% and 6% considered by the state legislature last session.
• Online shoppers in Louisiana will be receiving notifications starting this month that they owe taxes for goods purchased online from sellers outside of the state. Meanwhile, lawmakers and the governor are facing off over what if any actions will be taken around the looming fiscal cliff. The politics of the situation do not favor a good outcome for the residents of Louisiana.
• Efforts to raise the cigarette tax are underway in Indiana and New Mexico, led by health and education groups.
• In Washington State, lawmakers have hit a road block in efforts to reform the car-tab tax—how to modernize valuation without gutting transportation projects at a time that regional authorities were planning to expand light rail infrastructure. In other news, several prominent businesses are joining the effort to pass a carbon tax.

What We’re Reading…

• According to Governing, these are the biggest issues for state and localities to watch in 2018.
• NASBO has the report on the state of state budgets in the new year: 25 states are starting out with deficits.
• A new Wonkblog post from the Washington Post suggests income inequality is about to get a whole lot worse.
• Governing reports that more states are looking to study alternatives to the gas tax for funding road maintenance and construction projects, while Stateline chimes in that more states are seeing toll roads as a favorable option.
• Concerned that dynamic scoring highlights the costs of raising revenues while completely discounting the benefits from new revenue spending? Us, too. You might be interested in Greg Leiserson’s paper outlining an alternative approach to macroeconomic analyses and dynamic scores that seeks to better illustrate rather than obscure the fundamental economic tradeoffs lawmakers face.

If you like what you are seeing in the Rundown (or even if you don’t) please send any feedback or tips for future posts to Meg Wiehe at [email protected]. Click here to sign up to receive the Rundown via email.

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