With spring in full bloom, many state lawmakers are reaching tax policy agreements. Out west, lawmakers in North Dakota and Texas have moved major property tax cuts. Meanwhile, in the east and south, Vermont appears likely to pass an expansion to its Child Tax Credit and Earned Income Tax Credit, and South Carolina lawmakers are aiming to make deep, drastic cuts to the state’s income tax.

Elsewhere, many state budget negotiations are advancing alongside tax proposals. Minnesota lawmakers have proposed adding a “baby bonus” to the state’s Child Tax Credit. Montana is reshuffling property taxes to second homes and short-term rentals and away from homeowners and renters. And property tax changes in Nevada have stalled after concerning revenue collections.

Major State Tax Proposals and Developments

• The NORTH DAKOTA legislature passed a major property tax bill, backed by Gov. Kelly Armstrong, that provides a $1,600 primary residence credit and caps annual property tax increases at 3 percent. It also caps how much school districts can raise property taxes. The bill will result in $473 million in property tax cuts for 2025-27. Lawmakers dropped a gas tax increase that was initially being considered. – MILES TRINIDAD
• Lawmakers in VERMONT passed legislation that would increase age eligibility for the state’s Child Tax Credit from five to six years old, expand the Earned Income Tax Credit for workers without children in the home from 38 percent of the federal credit to 100 percent, increase the phaseout threshold for exempting Social Security and military retirement income, and create a refundable $250 tax credit for veterans earning up to $30,000. The bill now moves to the governor’s desk. – MILES TRINIDAD
• The SOUTH CAROLINA House of Representatives approved a bill that could lead to the elimination of the state’s income tax. The plan would reduce the top marginal tax rate from 6.2 percent to 5.39 percent and tax income under $30,000 at a 1.99 percent rate. If revenues allow, however, the two rates would be combined into one flat rate of 1.99 percent that would be further reduced until the tax is eliminated. Senate leaders have thrown cold water on the proposal, stating that they will not take up the bill this session and instead hope to further study it in the coming months. – NEVA BUTKUS
• The TEXAS House and Senate announced that they have reached an agreement on property tax cuts that includes increasing the homestead exemption from $100,000 to $140,000 and allowing homeowners to write off eligible parts of their property used for business. – NEVA BUTKUS

State Roundup

• The HAWAIʻI Legislature passed a bill that would increase its transient accommodation tax (TAT) from 13.25 percent to 14 percent, which is expected to raise $100 million for disaster mitigation to prevent wildfires, flooding, and coastal erosion.
• Many ILLINOIS localities are increasing sales taxes on groceries, replacing the recent cut to the state’s grocery sales tax. Some local leaders expressed a need for the revenue, while state policymakers defended the decision to cut the grocery tax.
• MINNESOTA lawmakers have until the end of June to finalize their budget. The first full proposal out of the House includes a $100 “baby bonus” for newborns that would be added to the state’s Child Tax Credit.
• Some MISSOURI senators have filibustered a bill providing a small child care tax credit, believing that the legislature should instead be debating more conservative priorities.
• MONTANA legislators sent a package of bills to Gov. Greg Gianforte that will raise property taxes on second homes and short-term rentals and reduce taxes on homeowners and landlords.
• A NEBRASKA lawmaker on the Appropriations Committee has released an alternative state budget that fills the current shortfall by repurposing hundreds of millions of dollars the state is currently devoting to local property tax offsets. Most of that would flow to schools and counties, offsetting property taxes in a different way, while about $122 million would fund state services to avoid fund sweeps which were recently proposed to cover the shortfall.
• A recent revenue update has NEVADA lawmakers giving renewed attention to property tax reform proposals that could do away with the state’s unique system wherein home taxable values automatically depreciate over time even if market values rise.
• A group of disgruntled OHIO homeowners has submitted a petition for a constitutional amendment to eliminate property taxes. The effort comes after the legislature formed a special committee to pursue property tax reforms. The petition requires approval from the attorney general and the Ohio Ballot Board before signature gathering can begin to place it on the ballot.
• A proposal in PENNSYLVANIA to legalize recreational cannabis advanced out of the House Health Committee by a 14-12 vote along party lines. Gov. Josh Shapiro’s budget estimates that a 20 percent tax on the wholesale price of recreational cannabis products would generate about $15.6 million along with $11.4 million in sales tax revenue.
• Legislators in TEXAS are considering restricting local governments’ tax revenues if they adopt policies the statehouse disagrees with. One bill, SB 2858, would expand the state’s “Death Star” bill and allow the state to freeze local sales and property tax collections if the attorney general sues over alleged violations of state law.
• The VERMONT Senate has advanced a property tax bill that is expected to increase the average education tax bill by 1.1 percent, a modest rise compared to last year’s 13.8 percent increase, but the bill relies on using surplus funds to reduce the increase in the rates.

What We’re Reading

• ITEP examines the final budget adopted by the Maryland General Assembly, which makes progress in advancing tax equity while boosting state revenues to address a looming budget deficit. The major changes to the personal income tax include new income tax brackets, reduced itemized deductions, and a capital gains surcharge. Meanwhile, low- and middle-income Marylanders will benefit from a higher standard deduction and a modestly enhanced Child Tax Credit.
• A recent commentary in the Iowa Capital Dispatch breaks down Iowa’s regressive shift towards consumption taxes. Hikes to sales tax hit working families the hardest — far more than income tax cuts can offset. Finally, the piece considers the implications of Iowa’s shrinking revenue picture for the future and what might happen if the state passes a proposed constitutional limit on taxation.
• The Urbanist provides an excellent summary of Washington’s recently completed legislative session and the tax and budget questions that are likely to continue being discussed.

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