Many states are reaching their end-of-June budget deadlines, and major tax policy changes look to have big implications as states are forced, per federal policy, to do more with less.

In Maine, the governor signed a budget that will double the state’s child tax credit amount for young kids, increase the real estate transfer tax and tobacco and cannabis taxes, tax streaming services, and phase out the pension deduction. Meanwhile, lawmakers in Ohio have agreed on a budget, which now moves to the governor, that would move the state to a flat 2.75 percent income tax—a plan that will undoubtedly provide a windfall for the most well-off. And the governor of Montana made some late legislative vetoes as he prepared to sign the state budget. The vetoes could help the state avoid shortfalls in 2028 and 2029, but the biggest reason the state is facing them in the first place is due to major income tax cuts that were recently signed into law.

Major State Tax Proposals and Developments

• MAINE Gov. Janet Mills signed the state budget into law, which includes doubling the Dependent Exemption Tax Credit for children under six (from $300 to $600); a $1.50 increase to the state tax on tobacco; adding streaming services to the sales tax base; increasing the cannabis sales tax rate; establishing a phaseout of the pension deduction; and increasing the real estate transfer tax. — MARCO GUZMAN
• OHIO legislators reached a budget agreement that would create a 2.75 percent flat income tax, eliminating the top bracket of 3.5 percent for those earning more than $100,000 per year. The tax cut would overwhelmingly benefit the wealthy, and the state estimates it would result in $1.1 billion in lost revenue per year starting in fiscal year 2027. The budget is set to be voted on by both the House and the Senate and will then be sent to Gov. Mike DeWine’s desk for his signature after the legislature’s final approval. — MILES TRINIDAD
• The RHODE ISLAND General Assembly approved its annual budget, which creates a new tax on non-owner-occupied homes valued above $1 million that would fund low-income housing tax credit redemptions. The plan also includes a two-cent increase in its gas tax—which is expected to generate $15 million—extends hotel taxes to short-term rentals, doubles the local hotel tax rate, and levies additional fees and tolls. Lawmakers rejected a handful of proposals that may be revisited, including a digital advertising tax, a cigarette tax increase, and a proposed millionaire’s tax on high earners. The bill now moves to Gov. McKee for his signature. — MILES TRINIDAD

State Roundup

• FLORIDA lawmakers have renewed their commitment to reduce property taxes in 2026 after party infighting and budget concerns largely stalled conversations this year.
• Taxes on nicotine products will increase in ILLINOIS on July 1. Cigarette taxes will increase by $1 per pack, while taxes on chewing tobacco, vapes, and nicotine patches will increase from 15 to 45 percent.
• MONTANA Gov. Greg Gianforte made several last-minute vetoes before finalizing the state budget. The efforts may help stave off future budget shortfalls in 2028 and 2029, but the largest contributor to the projected shortfall is the income tax cut the governor recently signed into law, alongside the recent cuts approved in 2021 and 2023.
• NEBRASKA lawmakers are beginning to look ahead to their next budget which will span fiscal years 2027-2028 and 2028-2029. The state’s recently passed budget relies on short-term fund sweeps to achieve temporary balance, and previously enacted income tax cuts are still phasing in, leading to a $129 million projected shortfall that many fear will continue to grow. Anticipated federal cuts will only make the budget tighter.
• A proposal to address NEVADA’s underfunded schools and inflexible property tax system failed again this year due largely to fears of political blowback if lawmakers were to vote for tax increases.
• NEW YORK City’s new Democratic mayoral candidate has proposed an ambitious and incredibly popular agenda of enhanced public services like universal childcare and affordable housing investments, with taxes on corporations and millionaires to fund them.
• OHIO’s recently approved budget agreement includes a number of other provisions beyond the proposal to move the state to a less equitable flat tax. Within the budget, there’s $600 million to move the Cleveland Browns’ stadium outside of Cleveland, an end to Medicaid expansion for 770,000 Ohioans if the federal FMAP parentages are cut, and a bevy of property tax measures that lead to reduced local revenues to fund public education. Meanwhile, an OHIO organization pushing for a ballot measure to eliminate property taxes said that it likely will not have enough signatures to meet the November ballot deadline. However, the group will continue to collect signatures to get the petition on the ballot next year.
• Some OREGON lawmakers are skeptical of a major transportation funding bill, leading to the House Speaker negotiating with fellow Democrats and sending the bill back to committee where amendments can be considered. The bill would require every Democrat to support the bill if all Republicans oppose it. The original bill includes an eventual 15-cent increase to the state’s 40-cent gas tax, a new 2 percent tax on new car sales, a new 1 percent tax on used car sales, and increases to other title and registration fees. The proposal is expected to raise $14.6 billion for state needs over the next decade.
• Though it is not expected to force lawmakers into a special session this year, WASHINGTON’s latest revenue forecast showed a developing shortfall of $720 million in the next four years.

What We’re Reading

• The Chicago Tribune investigates the connection between local property taxes in the southeastern Chicago suburbs of Indiana and emergency response times.
• San Jose requires residents to pay for sidewalk repairs outside their homes, which costs homeowners an average $3,000 – despite the fact that sidewalks are city land.
• Willamette Week discusses the political fight over Preschool for All in Multnomah County, which is paid for through a low-rate high-earner tax.

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