State Rundown 10/24: State Tax Talk Makes Like a Tree and Gets Colorful

As autumn brings a colorful display of foliage to many states, so too are tax proposals taking on interesting hues as states move from the summer off-season toward 2020 legislative sessions. Ohio lawmakers are blue in the face from debating and re-debating tax and budget issues there. Maryland residents again showed they can’t be called yellow-bellied when it comes to footing the bill for needed education improvements, showing their broad support for higher taxes to fund those needs even despite a hefty price tag. Alaska, Michigan, and other states are giving the green light to laws implementing their new ability to collect sales taxes from online retailers, and Massachusetts came out of the blue with a proposal to apply that ability to its corporate income tax. Meanwhile, anti-tax interests showed their true colors in pushing for personal income and business tax cuts in North Carolina and Utah, though advocates for tax justice aren’t by any means waving white flags in those states.

— MEG WIEHE, ITEP Deputy Director, @megwiehe

Major State Tax Proposals and Developments

• Lawmakers in the OHIO House and Senate opted to reverse tax policy from the state’s operating budget that would have required lawyers and lobbyists to pay tax on all levels of their business income. More here on the steps the state has taken, and then backtracked on, in recouping revenue from its LLC Loophole. Lawmakers also took steps to eliminate sales taxes on feminine hygiene products, and to allow educators to claim an income tax deduction of up to $250 on unreimbursed classroom supplies and professional development. — AIDAN DAVIS
• The chairs of UTAH’s Tax Restructuring and Equalization Task Force released their plan for reforming the state’s tax system last Friday. The plan includes expanding the sales tax to some services, increasing the tax on food to the general sales tax rates, closing some sales tax exemptions, cutting the income tax rate, increasing the exemption for dependents, and enacting a new grocery tax credit. The Speaker of the House would like to see a special legislative session before the end of the calendar year despite the requests of some to “not rush” the process. Opposition to the proposal includes concerns about raising the tax on groceries, eroding funding for education, and the plan not being bold enough. Several competing reform plans have also been submitted.  — LISA CHRISTENSEN GEE

State Roundup

• ALASKA lawmakers have forged a plan to collect taxes on out-of-state online purchases via their local sales tax jurisdictions (aka cities and boroughs; the state does not levy a statewide sales tax). Effective 2020, the tax will apply to companies making at least $100,000 worth of sales, or 100 separate transactions.
• In other ALASKA news, a ballot proposal to eliminate some oil production tax credits and restore progressive taxes on legacy oil fields continues to make its way through the ballot initiative process.
• With a veto from Gov. Gavin Newsom, CALIFORNIA cities will be able to continue to broker controversial tax deals to appeal to large corporations.
• Trying to understand Prop. CC in COLORADO? Check out these resources that explain the proposal to repurpose the TABOR refund into state public investments.
• A federal judge has partially blocked a law that requires FLORIDA residents with felony convictions to pay all court fees and fines before they can regain their right to vote. Unfortunately, the ruling leaves the burden of proof on the individuals rather than the state, requiring them to prove their inability to pay.
• State lawmakers in IDAHO have been meeting to address concerns about property taxes and limitations they may impose on local jurisdictions.
• The MARYLAND legislature’s Commission on Innovation and Excellence in Education has identified funding inadequacies in many areas—including teacher pay, pre-K, availability of school counselors and health professionals, needs in high-poverty areas, career preparation, and even basic school supply budgets—and has advanced a proposal recommending funding increases that would amount to $4 billion per year once fully implemented in 2030. Polls repeatedly find residents are willing to pay more in taxes to support these improvements.
• MASSACHUSETTS takes steps to capture revenue from out-of-state corporations. Per the 2018 Wayfair decision, the state will use companies’ economic activity, applying to taxpayers with more than $500,000 in in-state receipts, to determine whether they are liable for the state’s corporate income tax.
• In transportation news, MASSACHUSETTS lawmakers are considering a toll on motorists during peak traffic hours. The bill would create congestion pricing to cut down on heavy traffic and encourage off-peak travel. At the same time, a coalition of a dozen states and the District of Columbia are drafting an agreement, called the Transportation and Climate Initiative, to cap carbon emissions from gasoline and diesel over time.
• In MICHIGAN, lawmakers in the House unanimously passed legislation to require collecting taxes from online sales, advocates to eliminate the state’s tampon tax are back at it, and the state transportation director is calling for a bolder gas tax than the governor’s 45-cent increase.
• MISSOURI State Auditor Nicole Galloway warns that the state is “woefully unprepared” for a recession, due largely to caps on state savings and lawmakers’ insistence on tax cuts that have depleted the budget.
• NEW MEXICO is joining states like KANSAS and UTAH in forming a committee to study its tax code. Legislation enacted during the 2019 session made important progress towards addressing inequities in the tax system, but concerns about heavy reliance on oil and gas and numerous exemptions from the state’s gross receipts tax remain.
• NORTH CAROLINA lawmakers continue to hash out legislation even while the fiscal year budget stalls. A recent bill being moved by Senate finance leaders would adopt franchise tax cuts proposed in their legislative budget, resulting in a $270 million cut for corporations.
• Lawmakers in the OHIO House passed a bill allowing educators to claim an income tax deduction on unreimbursed classroom supplies and professional development (up to $250), eliminating sales taxes on feminine hygiene products, and reversing tax policy from the state’s operating budget that would have required lawyers and lobbyists to pay tax on all levels of their business income. More here on the steps the state has taken, and then backtracked on, in recouping revenue from its LLC Loophole.
• In PENNSYLVANIA, new—and new iterations of old—plans have been put forth to reduce the state’s property taxes. One would establish a property tax rebate program. Another would shift taxes away from property to the state’s sales and income taxes.
• PENNSYLVANIA state Senators have introduced legislation to legalize recreational cannabis. Senate bill 350 would set a 17.5 percent tax on retail marijuana.
• The last of VIRGINIA’s one-time tax rebate checks have now been sent, though as we noted here previously, they will largely fail to reach the low-income taxpayers paying the highest overall state and local tax rates, and they completely fail to address the state’s upside-down tax code. On the bright side, the one-time nature of the rebates means lawmakers have another chance to direct that money in future years toward better choices like making the state Earned Income Tax Credit (EITC) refundable.

What We’re Reading

• Michael Mazerov of the Center on Budget and Policy Priorities (CBPP) explains in Route Fifty how states can bolster funding for vital public services and crack down on corporate tax avoidance by requiring “combined reporting” of multi-state corporations’ profits, closing the “nowhere income” tax shelter, and improving disclosure requirements.
• Nobel Prize-winning economist Abhijit Banerjee clarifies that cutting taxes on corporations and wealthy households in the name of economic growth has always been an ineffective approach based on a self-interested myth spread by those same interests. Banerjee points out that the true role of taxes in economic growth is in funding public investments and focusing those efforts on the low- and middle-income families who drive demand by putting the money back into the economy.
• Demonstrations at the US Capitol and in many states nationwide recognized the first national Period Day to elevate the issue of period poverty and call for making menstrual products more accessible, including creating sales tax exemptions for tampons and other menstrual products.
• Pew has released new data and an enlightening report on trends in state and federal higher education funding. State investments, primarily in general purpose support, have declined, while federal funding has risen, but primarily in the form of programs like Pell Grants to students.

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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