State Rundown 1/9: New Year, New Pushes for Tax Policy Changes

It’s a new year, and state legislatures across the country are resolved to write new tax policy. Tax debates are heating up nearly everywhere in the early days of 2025, but states’ fiscal situations vary dramatically.

New York is considering expanding the state’s Child Tax Credit following Gov. Hochul’s proposed expansion. On the other side of the country, California’s fiscal outlook has dramatically improved after several years of deficits. However, the state has little room for new spending. Meanwhile, Maryland faces a $3 billion revenue deficit in the coming fiscal year. And Maine is considering both tightening spending and increasing some taxes.

Major State Tax Proposals and Developments

• After two years of budget deficits, CALIFORNIA Gov. Gavin Newsom proposed a $322.5 billion balanced budget. However, his plan would further pull from rainy day funds to finance new priorities including tax incentives for the film industry. The state’s fiscal outlook has stabilized due to rising tax collections. While the state faced several years of deficits, it did not increase taxes due to significant savings. — ELI BYERLY-DUKE
• NEW YORK Gov. Kathy Hochul announced a proposed expansion of the state’s Child Tax Credit known as the Empire State Child Credit. The proposal would increase the maximum credit to $1,000 per child under the age of 4 and $500 per child ages 4 to 16. Families earning up to $170,000 annually would qualify for the credit which is expected to impact 2.75 million children. — MILES TRINIDAD
• UTAH Gov. Spencer Cox and state lawmakers aim to cut taxes for the fifth year in a row. The governor has his eye on eliminating the state’s tax on Social Security benefits, and a bill to reduce the flat income tax rate from 4.55 percent to 4.45 percent has already been introduced. — MARCO GUZMAN
• The WYOMING Secretary of State announced a ballot initiative to cut property taxes by 50 percent for certain homeowners. The proposal will appear on the 2026 general election ballot. The state already lost $13 million in education funding when a 4 percent property tax cap on residential property was approved, and it is not yet known how much this citizen-led initiative will reduce revenue in the state. — MARCO GUZMAN
• MAINE Gov. Janet Mills’ budget commission sent a memo to lawmakers announcing plans for a lean budget with targeted tax changes — potentially in the form of cigarette, cannabis, or casino tax increases — in the coming year. — MARCO GUZMAN

State of the State Addresses

• In his 2025 State of the State address, IDAHO Gov. Brad Little committed to another round of tax cuts — to the tune of $100 million— this year.
• NORTH DAKOTA Gov. Kelly Armstrong announced a plan to eliminate property taxes for most homeowners within a decade. The plan would also establish a 3 percent annual cap on local property tax budgets and apply to all property types. Armstrong’s plan follows a failed ballot initiative in November that would have eliminated all property taxes based on assessed values.

State Roundup

• A bill in ALABAMA would raise the online sales tax rate to 9.25 percent. Proponents say it would help local brick-and-mortar businesses compete with online retailers.
• ARKANSAS’ tax revenue for the first half of the 2025 fiscal year is down nearly $4 billion or 2.9 percent compared to this period last year due to cuts to the state’s individual and corporate income taxes.
• Municipalities in IOWA who bet big on property tax exemptions for data centers are now worried about the state’s 2 percent annual growth cap on property taxes to fund local governments and their ability to fully fund cities experiencing economic growth.
• KANSAS has officially eliminated sales taxes on groceries as of 2025. A 2022 law phased out the tax over three years.
• KENTUCKY lawmakers are considering an additional cut to the state’s personal income tax from 4.0 percent to 3.5 percent.
• LOUISIANA’s state sales tax increased to 5 percent in 2025, solidifying its position as having the highest local-state sales tax rate in the nation.
• MARYLAND Gov. Wes Moore is planning to propose $2 billion in budget cuts in an effort to address the upcoming revenue shortfall. The state is projected to face a $3 billion deficit in the new fiscal year. Additional details will be announced next week.
• Legislative leaders in MISSOURI are considering significant cuts to the state’s personal income tax, with many hoping to eventually eliminate the tax. However, some have called for cuts to property taxes instead.
• OHIO’s Joint Committee on Property Tax Review and Reform released its long-delayed report to address property tax concerns in the state. The report included 21 recommendations, including passing a refundable circuit breaker when property taxes exceed 5 percent of an occupant’s income.
• Lawmakers in SOUTH CAROLINA are pushing for “historic” tax cuts in 2025 but disagree as to whether the focus should be on lowering the top personal income tax rate or reducing the sales tax rate through the elimination of sales tax exemptions.
• A WASHINGTON state lawmaker appears to have accidentally sent out a presentation outlining revenue-raising tax proposals for the 2025 legislative session. Plans include raising taxes on big corporations, lifting the limit on state and local property tax collections, and a new tax on residential properties sold for more than $3 million. Senate Democrats also hope to expand the Working Families Tax Credit and create a property tax exemption for homeowners and renters tax credit.
• WISCONSIN Republican lawmakers vow to prioritize tax cuts this legislative session, citing the state’s $4.5 billion surplus. Such cuts will likely be at odds with the priorities of Gov. Tony Evers.

What We’re Reading

• High Country News and Montana Free Press report that a unique quirk in the state’s tax code has allowed owners of million-dollar homes to benefit from preferential tax rates by receiving agricultural designations.

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