Just Taxes Blog by ITEP

State Rundown 5/1: State Tax Debates Wrapping Up, and Just Beginning

May 1, 2025

.ITEP Staff

The rampant uncertainty this year extends far beyond the national economy and federal policy, as many state legislatures are declaring their tax and budget debates finished, and just getting started, sometimes in the same breath.

New York leaders, for example, wrapped up their budget debate with some progressive tax changes including an improved Child Tax Credit, while also hedging by sending out one-time rebate checks to ensure flexibility for changes to come and a potential showdown over federal funding. Florida lawmakers are also anticipating needing an extension to finish their work this year, and Washington leaders “ended” their legislative session with a balanced budget and a strong statement that a proposed wealth tax may return next year or even sooner. Nebraska and Nevada are both grappling with late-session revenue forecast reductions that may force them to reopen debates that seemed settled. Meanwhile, South Carolina and Missouri debated ways of weakening their income taxes, while advocates in Illinois launched a campaign for major progressive tax changes.

Major State Tax Proposals and Developments 

  • INDIANA wrapped up its state legislative session. Among the agreed upon changes was a higher business personal property tax exemption which was set to increase from $80,000 to $1 million in 2025 but is now delayed until 2026 and will increase to $2 million. Indiana also passed a $2 increase to cigarette and tobacco excise taxes. – NEVA BUTKUS 
  • MONTANA Gov. Greg Gianforte signed into law a multi-year tax cut (HB 337) that goes into effect over the next two years. The changes include cutting the top marginal income tax rate from 5.9 to 5.4 percent (5.65 percent in the first year), bracket changes for capital gains and the personal income tax, and doubling the state Earned Income Tax Credit from 10 to 20 percent. – MARCO GUZMAN 
  • NEW YORK leaders went past their deadline but have reached a budget agreement. Full details are not yet publicly available but the package reportedly includes: an increased Child Tax Credit amounting to $500 for older children and $1,000 for young children, income tax rate cuts on the lowest few tax brackets (which are targeted to low- and middle-income families thanks to New York’s “rate recapture” provision), cuts to a payroll tax for transportation needs, and $2 billion in one-time rebates of up to $400 per family. – DYLAN GRUNDMAN O’NEILL 
  • WASHINGTON state lawmakers balanced their budget on time, with a balanced approach including budget cuts and new revenues. Among those revenue raisers, the changes notably included a small progressive increase to the state’s innovative Capital Gains Excise Tax. The overall package was a mixed bag that included notable achievements but fell short of the equity-forward ambitions leaders proposed early this session. For example, a progressive payroll tax that would have raised billions and advanced tax fairness was scuttled after fierce lobbying by Microsoft and others in favor of Business & Occupations Tax changes. Combined with a gas tax increase and other tax bills, the final budget avoids what could have been deeply damaging budget cuts but likely makes the tax code even more upside-down in the process. However, a tax on the financial assets of the wealthy that was removed from this year’s package will live to see another day as its many proponents expressed their support and held a symbolic vote in its favor on the final day of session.  – DYLAN GRUNDMAN O’NEILL 

State Roundup

  • Lawmakers in FLORIDA may extend their legislative session as the House and Senate disagree over final budget and tax plans. The centerpiece of the House plan focuses on reducing the state’s general sales tax rate from 6 to 5.25 percent and would reduce other sales tax rates by 0.75 percent, as well. The legislation also redirects some tourism development taxes to local government coffers. Senate leaders have proposed exempting clothing items and shoes that cost $75 or less from sales tax, reducing the business rent tax, and enacting more sales tax holidays. Additionally, Gov. Ron DeSantis is pushing for a $1,000 property tax rebate. 
  • Meanwhile, FLORIDA House lawmakers have created a committee to craft a constitutional amendment addressing property taxes for the 2026 legislative session. Policies for consideration include requiring municipalities to hold referendums on property taxes, creating new homestead exemptions of $500,000 for homeowners and $1 million for seniors, and capping assessment increases, among other policies. The House also passed $5 billion in cuts to sales and other taxes, but that bill’s fate is highly uncertain and it is opposed by Gov. Ron DeSantis. 
  • Advocates in ILLINOIS released a bold set of progressive tax proposals that could raise billions for shared priorities in the state. The options include cracking down on corporate tax avoidance through Worldwide Combined Reporting and other means, raising existing progressive taxes such as the corporate income tax and estate tax, and creating new taxes such as a “mark-to-market” wealth tax on billionaires and a Capital Gains Excise Tax modeled after the highly successful version in Washington. 
  • Lawmakers in KANSAS negotiated changes to the state’s low-income housing tax credit after initial legislation sought to eliminate the program. The program subsidizes the building of affordable housing through $25 million in tax credits a year. The compromise legislation will keep the credits until 2028 but lower the yearly maximum from $25 million to $8.8 million.  
  • The MISSOURI House is debating a proposal to shift to a flat personal income tax and reduce the top rate over several years. When fully implemented, the state estimates the measure will cost $1.7 billion. With several other tax proposals still in the mix, the legislature has three weeks of session remaining. 
  • NEBRASKA lawmakers, already facing a difficult reckoning from previous tax cuts, saw the state’s shortfall grow last week as forecasters took the ailing national economy and tariffs into account. Reversing those ill-advised income tax cuts or pulling back on state-funded property tax offsets seem politically improbable, so legislators are chipping away at the shortfall through smaller changes. These include: sales tax expansions to more services and pop and candy, reducing state contributions to the teacher retirement system, raiding cash funds intended for other purposes, reducing business tax subsidies, and various budget cuts. Meanwhile a bill is advancing to further reduce the state’s progressive inheritance tax and replace the revenue with regressive fee increases on things like vehicle inspections and marriage licenses. 
  • The NORTH DAKOTA Senate unanimously passed a property tax bill – which includes significant provisions such as a primary residence credit, renters rebate, and disabled veterans property tax credit – totaling over $511 million in cuts over two years. This bill serves as an alternative to a property tax bill supported by Gov. Kelly Armstrong that is currently in a conference committee with major points of contention. 
  • Meanwhile, the NORTH DAKOTA House passed legislation that would raise the state gas tax for the first time in 20 years, increasing the tax by 5 cents to 28 cents per gallon. The change is expected to generate approximately $70 million over the next two years to fund road repairs and construction. The House added the increase as an amendment to the Senate’s transportation funding bill after the Senate narrowly rejected a separate effort to increase the tax by 3 cents.  
  • LOUISIANA lawmakers are considering more than doubling the state’s tax rate on sports betting from 15 to 32.5 percent. The legislation would also dedicate 25 percent of the funding to the state’s Supporting Programs, Opportunities, Resources and Teams (SPORT) fund that benefits student-athletes at Louisiana public universities. 
  • SOUTH CAROLINA lawmakers went back to the drawing board to work on three variations of income tax proposals after an initial plan faced strong opposition, and negotiators in the House appear to have settled on a revision that would initially set the tax to 1.99 percent on the first $30,000 of taxable income and 5.99 percent on the remainder – and then slowly ratchet it down until it is eliminated. The bill still faces a long road to passage and potential for strong opposition. 
  • The WISCONSIN legislature and governor have continued to negotiate the state’s budget process. Legislative leaders have expressed openness to include revenue changes within the overall budget. 

What We’re Reading 

  • Stateline reports on the tax cuts that have been approved by state legislatures during this set of 2025 state sessions.  The takeaway: the cuts mostly favor the rich. The piece reports that most of the cuts passed or under consideration will benefit the wealthy and lead to more regressive tax codes where low-income families pay an even larger share of their total income in taxes.    
  • Iowa Public Radio tells the story of several states working to eliminate or reduce state sales taxes on groceries. 
  • Vermont Public Radio released an explainer on the opportunities and challenges of adopting a tax on second homes. 

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 Aidan Davis at [email protected]. Click here to sign up to receive the Rundown via email. 


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