While tax news has slowed as summer comes to an end, there are rumblings beneath the surface that could be an inauspicious sign of the times ahead for states and state budgets.

In the wake of the tax changes authorized in the new federal tax and spending law, states have begun doing their due diligence to see how conformity will affect revenues. Colorado lawmakers will start a special session soon to address these and other issues that could result in a $750 million budget gap.

Meanwhile, other states and localities are simply looking for revenue to fill holes that already exist. In Wyoming, lawmakers are eyeing an increase to the state fuel tax to help fill a more than $400 million transportation shortfall, and the mayor of Chicago, Illinois, is looking at a menu of revenue-raising proposals to make up the $1.1 billion budget gap the city could face next year.

Major State Tax Proposals and Developments

• COLORADO’s special session will begin August 21, and lawmakers are focused on filling a $750 million budget shortfall due in most part to the Trump megabill, which made a series of tax changes that the state will automatically adopt if lawmakers do not act to “decouple” from them. – MARCO GUZMAN

State Roundup

• DELAWARE lawmakers wrapped up a special session focused on property taxes after property values increased when three counties went decades without conducting property value assessments. Gov. Matt Meyer signed several bills into law that provide flexible payment options, issue refunds to those who overpaid, and call for a review of the assessment process.
• The city of Chicago, ILLINOIS, is expecting a $1.1 billion budget gap for 2026. Mayor Brandon Johnson is considering numerous revenue-raising proposals to fill the gap including a corporate payroll expense tax, a head tax, and congestion pricing in downtown modeled after New York.
• MARYLAND’S first-in-the-nation digital advertising tax was ruled as violating the U.S. Constitution by a federal appeals court because the law prohibited Big Tech from telling customers about the tax, which violated free speech. The law continues to be challenged in other courts, including Maryland Tax Court where the case is still ongoing.
• NEBRASKA’s School Financing Review Commission, a body created earlier this year to be an ongoing effort to improve school funding and property tax policy, has begun meeting. Stakeholders are hoping the commission yields results soon, as a new analysis projects the state’s Education Future Fund is already on track to run out of money within the next five years.
• NEW YORK is facing a cumulative $34.3 billion budget gap over the next three years, a level not seen since the Great Recession, according to a report from the state comptroller. The report also details how the state will have to simultaneously adjust to federal cuts to health care and other priorities totaling over $20 billion a year as a result of the recent megabill.
• Cincinnati, OHIO, is starting a program to keep 250 low-income homeowners in their homes through a property tax debt relief program. The program will buy off over $800,000 in property tax debt that would otherwise go to a property tax sale.
• TEXAS lawmakers started a second special session after Democratic House members sunk the initial special session over newly proposed congressional maps. Property tax cuts are again on the agenda.
• WYOMING legislators are considering increasing the state’s fuel tax from 23 to 33 cents per gallon by 2028 to help fill the transportation department’s $411 million yearly shortfall that the state could face over the next 10 years.

What We’re Reading

• An op-ed from the chief economist of the National Association of Counties details the funding struggles that counties will face due to federal budget cuts.
• Stateline digs into how states are bracing for the combination of billions of dollars of federal cuts to programs like Medicaid plus onerous new red tape that will add state-level costs.
• The Institute for Public Good has released a report pushing for Chicago to adopt a high-earner payroll tax to close the budget gap and improve tax progressivity in the city.
• Kayla Kitson at the California Budget & Policy Center lays out the taxes of corporations in California. Large profitable corporations can reduce their profits to nearly zero through the water’s edge election, net operating losses, and a shelf of tax credits. The four-part series calls for a more sensible and fair approach to corporate taxes in California including mandatory worldwide combined reporting, limitations on the use of credits, and higher rates on some of the most profitable corporations.

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