Just Taxes Blog by ITEP

State Rundown 10/10: Always Something Old, Something New in State Tax Debates

State Rundown 10/10: Always Something Old, Something New in State Tax Debates

October 10, 2019

Meg Wiehe
Meg Wiehe
Deputy Director

Creative thinking from Pennsylvania lawmakers has helped them discover that the Wayfair ruling allowing states to collect sales tax from online retailers can also help them identify and tax corporate profits earned in their borders. Similarly, New York leaders had the vision to put bold environmental goals in place and identify a carbon price as a potential pay-for. Gubernatorial candidates in Mississippi and Kentucky showed less ingenuity, proposing tax cuts even though Mississippi is still phasing in a massive tax cut from a few years ago and Kentucky’s next election isn’t until 2020. Meanwhile, the old idea of eliminating income taxes is so strong in Texas that anti-tax interests have gotten a constitutional ban on income taxes onto the state ballot even though the state doesn’t have one. And “What We’re Reading” is stocked this week with good reading about the role tax policy can play in addressing inequities related to income, wealth, and race.

— MEG WIEHE, ITEP Deputy Director, @megwiehe

Major State Tax Proposals and Developments

  • The number of corporations filing state tax returns in PENNSYLVANIA is expected to expand due to the state’s adoption of the economic nexus standard under the Wayfair internet sales tax case. Starting in 2020, corporations with no physical presence, but at least $500,000 in sales, will be required to file a Pennsylvania corporate net income tax return. — AIDAN DAVIS
  • What might be some unintended consequences for constitutionally barring an income tax in TEXAS—a state that doesn’t even levy an income tax? Read more about it here.

State Roundup

  • After much consideration and controversy, ALASKA’s Gov. Mike Dunleavy’s administration announced the amount of residents’ 2019 Permanent Fund Dividend (PFD) checks. The payments of $1,606 per recipient are much lower than the $2,910 amount that would have been calculated using the state’s statutory formula. However, given the budget deficit that would have accompanied the higher PDF (in the absence of a willingness to raise taxes or reconsider a state personal income tax), lawmakers opted for an alternative approach.
  • The head of ARIZONA’s House transportation committee has proposed a gas tax increase that would be used to build new and maintain existing roads. The state’s gas tax rate has not changed since 1991, but Gov. Doug Ducey is unlikely to consider—let alone approve—a tax increase.
  • Drivers will be paying more at the pump starting this week in ARKANSAS with an increase to the sales tax on motor vehicle fuels but they will also be benefiting from improvements to the state highway system.
  • A campaign to keep TABOR refunds to invest in better roads, schools, and bridges in COLORADO launched this week. The stakes of the campaign are high as a test case for more substantive reforms in the future.
  • DISTRICT OF COLUMBIA councilmembers enacted a sales tax on sugary beverages as part of the budget passed earlier this year, which went into effect this week. They are now seeking to replace it with an excise tax so it can do more to improve health outcomes (excise taxes are passed to consumers by businesses through higher prices, so customers see this before making their purchase, whereas sales taxes don’t show up until the customer is already checking out).
  • FLORIDA Gov. Ron DeSantis is proposing to raise the minimum starting salary for teachers in public schools from $39,000 per year to $47,500. Floridians are eager to hear more, including whether the proposal will do anything for veteran teachers and how it will be funded.
  • A county prosecutor in GEORGIA is urging the state to legalize and tax cannabis.
  • IOWA ended its fiscal year with a $289 million surplus but lawmakers are remaining reserved about possible uses for the funds, a smart move considering recent national trade policy damage to corn and soy markets, the strong possibility of an impending recession, and the state’s own bizarrely complicated phased-in and trigger-based tax cut enacted in 2018.
  • Confusion and conflict surround the roll out of the new policies for collecting taxes from online sales in KANSAS that went into effect last week as the state’s Attorney General contests the legality of the rule that doesn’t exempt small businesses.
  • KENTUCKY’s Gov. Matt Bevin announced that he will propose a comprehensive tax reform bill if he wins his reelection bid this November. Details of such a plan remain vague. However, in previous years he has suggested that reform would entail further lowering the income tax rate while raising rates on or expanding sales taxes. This sort of “swap” would create a more upside-down tax system and widen income inequality in the Bluegrass State.
  • Both leading candidates for MISSISSIPPI governor in 2020—Attorney General Jim Hood and Lt. Gov. Tate Reeves—are already talking taxes in the lead-up to the election, despite the major ill-advised tax cut passed in 2016 that is still being phased in. Reeves has teased further income tax cuts and Hood is talking about halving the state’s 7 percent tax on groceries.
  • NEBRASKA legislators seeking property tax reductions—in part to stave off a ballot initiative that would create an (unfunded) income tax credit for 35% of property taxes—are focusing on expanding the sales tax base to currently exempted items and services, and are considering also including a small sales tax rate reduction.
  • NEW YORK lawmakers legislated a requirement for a 100 percent emissions-free electric grid by 2040, and a carbon-free economy by 2050. According to a recent study, these aggressive climate change goals could be achieved with the help of charging power generators a carbon price (i.e. assigning a price to greenhouse gas carbon dioxide emissions from power plants).
  • OHIO, an early adopter of accepting bitcoin for tax payments, is taking a step back and reevaluating the process that put the online portal and payment mechanism into place.
  • In a context in which lawmakers have been trying to make the case that UTAH doesn’t have a “revenue problem” but a “spending or allocation problem,” a new report shows that state taxation has decreased substantially over the last 25 years.

What We’re Reading

  • Highlighting some extremely important research to be included in a forthcoming book on inequality and taxes by Emmanuel Saez and Gabriel Zucman, David Leonhardt of the New York Times writes that total state, local, and federal taxes have gone from reducing inequalities to exacerbating them (adding new detail to a fact we shout from the rooftops regularly), including a powerful animated graph showing just how dramatic the shift has been.
  • USA Today reports on Census data showing income inequality is at its highest level in more than 50 years.
  • Stateline reports on multiple states taking up the debate over slavery reparations.
  • The WASHINGTON STATE Budget & Policy Center has released a helpful and groundbreaking brief on how the state’s tax system contributes to racial inequities and how it can be used to advance racial justice.
  • Route Fifty reports on recent research from the Tax Policy Center confirming that “sin taxes” like those on tobacco, alcohol, and gambling have dual effects of increasing revenue and decreasing usage, which offsets some of the potential revenue gain.
  • Stateline notes that credit rating agencies like Moody’s are paying attention to climate-change-related risks to states and localities’ finances, and that borrowing for infrastructure and other needs could become more expensive in some locales over time as a result.
  • The Center on Budget and Policy Priorities writes about how states can use “mansion taxes” on very expensive homes to raise revenues and improve on their upside-down tax codes.
  • The Institute for Policy Studies has new data on CEO-to-worker pay gaps in American corporations, and Inequality.org argues in a blog post that taxing or penalizing companies based on extremely large gaps can help reduce inequality by incentivizing greater pre-tax pay equality.
  • Inequality.org also introduces the concept of “limitarianism,” a new name for the idea that runaway wealth and power in the hands of a few is destructive and should be reined in.

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 Meg Wiehe at [email protected]. Click here to sign up to receive the Rundown via email.