With a little over a week left, some states are solidifying their spots on the tax policy “naughty or nice” list. Delaware, along with a growing number of states, is on the nice list for having decoupled from costly tax provisions included in the new federal tax law. The First State will forgo tying itself to corporate tax provisions and will save over $325 million over the next few years. Meanwhile, Alaska’s governor is looking to secure a spot on the naughty list, provided his plan to offer a 30-year property tax cut to a natural gas developer is approved. And while Idaho finds itself on the naughty list for successive cuts to the state income tax and enactment of a tax credit for private school tuition, some lawmakers are at the very least trying to ensure accurate data is collected on the tuition program to track who’s using it.
Major State Tax Proposals and Developments
- DELAWARE is estimated to save $328 million through 2028 after decoupling the state from the corporate tax provisions in the new federal tax law. The state had originally been forecasted to lose about $400 million from corporate income tax revenue if the state did not make any changes. – MILES TRINIDAD
- The FLORIDA League of Cities released a report analyzing homestead property taxes as lawmakers consider a range of tax cut proposals, including eliminating non-school homestead property taxes. The report found that major reforms being proposed to Florida’s homestead property taxes, including full elimination, large exemptions, or percentage-based discounts, would significantly disrupt state and local services. The report goes on to explain that rural communities would be disproportionately harmed since they do not have other tax bases to tap into, but all local governments would face fiscal instability, and the state’s economic activity would likely take a hit. – NEVA BUTKUS
- Gov. JB Pritzker of ILLINOIS signed a $1.5 billion plan to fund public transportation into law. The plan was the result of much debate in the legislature as lawmakers worked to fill a funding gap for public transit options – mostly in the Chicagoland area – that was expected to grow to $937 million by 2028. The bulk of the new funding comes from redirected sales tax revenue from motor fuel which currently funds transportation infrastructure. – NEVA BUTKUS
State Roundup
- ALASKA Gov. Mike Dunleavy plans to introduce a bill in the upcoming session that would provide a natural gas provider with a 30-year property tax cut to “help” with project development. The specifics include reducing the mill rate from 20 to 2 on the assessed value of the project.
- IDAHO‘s private school education tax credit requires little data collection regarding the program’s efficacy. Lawmakers hope to change that with a proposed bill that will collect information on things like the number of credits provided, the geographic area of parents applying, and a list of categories of qualifying expenses claimed for reimbursement.
- Chicago, ILLINOIS’ City Council Finance Committee passed an alternative budget plan that does not include Mayor Brandon Johnson’s proposed head tax. The plan does increase the city’s plastic shopping bag tax from 10 cents to 15 cents.
- Rural lawmakers in ILLINOIS are once again looking at raising the state’s estate tax threshold above $4 million. While many lawmakers have expressed concern over the issue, any preferential treatment of the state’s estate tax should ensure it does not further benefit corporations or wealthy landowners.
- Property taxes in Minneapolis, MINNESOTA are set to increase for homeowners as downtown properties lose value. Some leaders are urging the legislature to consider other revenue options besides increasing property taxes to raise revenue.
- OREGON petitions are poised to attempt to block transportation-related tax increases that were passed in a special session to avoid drastic layoffs and service cuts until it is put to a vote next November. However, some tax increases were excluded from the petition and will still take effect. This includes the additional surcharge for electric vehicles and fuel-efficient cars, a per-mile fee for EVs and hybrids, and vehicle weight-mile and diesel fuel tax adjustments.
- TEXAS Gov. Greg Abbott and Lt. Gov. Dan Patrick are at odds over their property tax cut proposals. While Abbott proposed a full elimination of school taxes on homesteads and a 3 percent assessment cap, Patrick has proposed an additional increase to the state’s homestead exemption from $140,000 to $180,000 with a $240,000 exemption for seniors and disabled homeowners. Patrick has also proposed lowering the age of the senior exemption and senior property tax freeze from 65 to 55 years. Patrick has come out against Abbott’s plan, citing concerns that it would skyrocket sales taxes. While Patrick’s plan would likely be less of a hit to local government, it would still significantly lower revenue collections at a time when many Texas municipalities are struggling.
- VERMONT Gov. Phil Scott proposed using $75 million in surplus funds to reduce a projected 12 percent property tax increase in the state next year, bringing the increase down to about 7 percent. However, opponents reasonably argue that relying on one-time money for short-term tax cuts is unsustainable and diverts from education cost reforms.
What We’re Reading
- New York state budget director Blake Washington sat down for a wide-ranging interview covering federal funding cuts, corporate taxation, taxes on the wealthy, childcare investments, Zohran Mamdani’s proposals, and more. The full interview will be available to view or listen to this Friday.
- An opinion piece in the Green Bay Press Gazette breaks down the consequences of reduced funding for public education from the state of Wisconsin—higher property taxes to make up the distance. Although the state has historically funded two-thirds of public education, they provided no increased funding over the last two years (an inflation adjusted decline).
- The Iowa Farmers Union lays out the impact of the end of federal health care tax credits. Iowa has a substantial agricultural economy, and many farmers rely on the credits and the Affordable Care Act exchanges. When the credits expire, many families will need to look elsewhere for healthcare, potentially ending or limiting their farming career.
- ITEP Senior Fellow Nick Johnson responds to Treasury Secretary Scott Bessent’s comments criticizing states for decoupling from certain changes made in the new federal tax law. Bottom line: this is a decision state lawmakers should make based on what’s best for their state—not the federal government.
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