State lawmakers are grappling with a range of challenges as their fiscal outlooks deteriorate, federal tax enforcement wanes (after the Trump administration cut the IRS workforce by 25 percent), and a rewritten federal tax code sends states scrambling to decide what changes they might want to make in their own codes. Against this backdrop, ITEP research director Carl Davis is out with a new piece advising states to link up to the new federal law’s Net Controlled-Foreign-Corporation Tested Income (NCTI, or “necktie”) provision as a way to curb the revenue losses states face from offshore profit shifting by multinational corporations. Meanwhile, ITEP Senior Analyst Sarah Austin explains that states can crack down on tax avoidance on the personal income tax side as well by tightening their rules around the taxation of incomplete non-grantor (ING) trusts, which are commonly used by very wealthy people to avoid state income taxes.
Governors’ Annual Addresses and State of State Speeches
- Gov. JB Pritzker of ILLINOIS discussed the affordability crisis made worse by tariffs and cuts to federal programs in his State of the State address. He also touted balancing the state budget, a strong Illinois economy, and proposed a two-year pause on the state’s data center tax credit program. Absent from his address was the push for higher personal income and wealth taxes on Illinois’ wealthiest residents.
Major State Tax Proposals and Developments
- IDAHO lawmakers have declined to adopt some of the largest business tax cuts found in last year’s One Big Beautiful Bill Act (OBBBA), under legislation signed by Gov. Brad Little last week. Idaho will not follow the federal government’s lead in offering bonus depreciation for equipment or structures, and most of the retroactive federal tax cuts for research and experimentation expenditures (those incurred from 2022 through 2024) will not be mirrored in Idaho’s code either. Most of OBBBA’s other provisions, however, are now incorporated into Idaho tax law at an estimated cost to the state of $155 million this fiscal year. – MARCO GUZMAN
- In WASHINGTON, the state Senate passed a new tax on millionaires. Gov. Bob Ferguson detailed his conditions for support, which include $1 billion in small business tax relief, an expansion of the Working Families Tax Credit, and two sales tax holidays funded by the tax. – MARCO GUZMAN
- Major bill packages that drastically cut income taxes in GEORGIA have cleared the Senate. The first – Senate Bill 476 – would lower the state’s flat personal income tax rate from 5.19 to 4.99 percent while increasing the standard deduction from $24,000 to $100,000 for joint filers and $12,000 $50,000 for other filers. The legislation also eliminates certain corporate tax credits for data centers, insurance companies, banks, and more. The second bill – Senate Bill 477 – would lower the personal income tax rate to 3.99 percent by 2028 and increase the standard deduction to $32,000 and $16,000. – NEVA BUTKUS
- MICHIGAN Gov. Gretchen Whitmer’s budget includes $800 million in new tax revenue aimed at stabilizing the state’s Medicaid program. The new tax increases include gambling and cigarette taxes, as well as a new digital advertising revenue tax, which is expected to generate $282 million. – MILES TRINIDAD
- The OREGON Senate passed legislation that would decouple the state from some federal tax changes and protect $300 million in tax revenue. The bill decouples the state from three tax breaks in the federal bill: auto loan interest deductions, business equipment depreciation, and qualified small business stock exclusions. The bill would also increase the state’s EITC from 9 percent for individual filers and 12 percent for filers with a child under 3 to 14 percent and 17 percent, respectively. The bill now moves to the House. – MILES TRINIDAD
State Roundup
- ALABAMA House members will consider legislation to create a sales tax holiday for firearms.
- The ALASKA Senate reworked Gov. Mike Dunleavy’s tax bill and replaced the governor’s proposed statewide sales tax and plan to eliminate the corporate income tax with tax changes to oil and gas companies and out-of-state corporations that operate primarily online. Another important change includes the removal of provisions that would have tied revenue with arbitrary limits on spending.
- ARIZONA Gov. Katie Hobbs vetoed a second tax conformity bill supported by Republicans in the Legislature. In her veto letter, the governor once again called on lawmakers to send her the “Middle Class Tax Package,” which she views as a plan that conforms the state to a more limited set of provisions of the federal law.
- COLORADO lawmakers introduced legislation that would decouple the state from several business provisions included in the federal tax bill, like the expansion of write-offs for certain companies, the new deduction for bonus depreciation, and R&E expenditure changes, among others. Lawmakers intend to use the revenue saved from decoupling to help fund the state’s Family Affordability Tax Credit (FATC) for 2026.
- Several lawmakers in CONNECTICUT have introduced legislation that would create a fully refundable $600 Child Tax Credit for up to three children per family. It would be available to families that earn up to $100,000 for single filers and $200,000 for those who file jointly.
- President Trump indicated that he plans to sign the resolution forcing the DISTRICT OF COLUMBIA to conform to tax provisions included in the federal tax bill that passed last year. The District expects to lose more than $650 million over the next few years due to the change. Staff for DC Council Chair Phil Mendelson, however, posted a notice stating that Congress missed the 30-day window to overturn the city’s decoupling bill. But the Senate parliamentarian disagrees.
- In GEORGIA, a bill has been proposed as an alternative to the deep income tax cuts passed by the Senate majority. It avoids windfalls to the wealthiest Georgians by instead focusing on returning to progressive income tax brackets and increasing the state’s corporate income tax rate, phasing out the standard deduction for high earners, boosting the state’s Child Tax Credit, and creating a refundable state EITC.
- Lawmakers in INDIANA expressed frustration over some colleagues’ willingness to “open the budget” in a non-budget year to couple to the flawed federal tipped and overtime income deductions while refusing to consider childcare funding, phasing out sales taxes on utility bills, or other priorities.
- KANSAS lawmakers are seeking to pass a petition-option that would allow voters to contest property tax growth over a cap of 3 percent. The bill requires 10 percent of voters who voted in the last presidential election to sign the petition in order to contest the property tax increase.
- The MISSOURI House returned a property tax bill to committee with members expressing concerns over the bill’s substance and clarity.
- A report from the NEBRASKA state auditor found that two tax incentive programs aimed at attracting business to the state resulted in $1.2 billion in lost revenue over the last four fiscal years while those businesses either closed operations or eliminated jobs.
- Gov. Mikie Sherrill of NEW JERSEY expressed openness to cuts to the state’s Stay NJ property tax credit in order to help balance the state’s budget. Gov. Sherrill indicated she views the program like spending and might make it less generous.
- NEW YORK City Mayor Zohran Mamdani is exploring revenue options within the context of the state government. He’s asked the state to raise income and corporate taxes in NYC to close a $5.4 billion budget deficit over the next two years. He also said property tax increases would be a “last resort” due to their effects on middle-class residents.
- OHIO lawmakers from both parties are discussing a renewed effort to repeal tax breaks for data centers after Gov. Mike DeWine vetoed the proposal last year. The tax breaks are estimated to cost the state $141 million in lost revenue this year.
- OKLAHOMA Senators advanced a measure to increase the state’s homestead property tax exemption from $1,000 to $5,000 despite having no estimate of the cost of the measure.
- In OREGON, the Senate is poised to vote on legislation to move up a ballot referendum on a transportation funding package as the state faces $288 million revenue shortfall. The shortfall opened after an effort blocked the package from taking effect until after voters cast their ballots on the issue. The legislation would move the statewide vote from the November election to the May primary election. Gov. Tina Kotek must sign the bill by Feb. 25 to get the measure on the May ballot.
- Senators in SOUTH CAROLINA have approved a bill to cut property taxes on boats.
- A UTAH bill moving through the Senate would levy a tax on entities that deliver targeted advertising using personal data to target specific audiences or individuals. The tax would apply only to companies that earn more than $1 million from targeted advertising in Utah or more than $100 million in total from targeted advertising.
- The WEST VIRGINIA Senate proposed a larger tax increase than the governor in their version of the state’s budget. However, the state faces significant spending needs and will incur over $100 million in increased costs for their school voucher program.
- WISCONSIN lawmakers and Gov. Tony Evers continue to negotiate over proposed tax cuts and education spending increases.
- While WYOMING lawmakers are no longer considering proposals to eliminate the property tax, they are still considering bills to repeal or revise the long-term homeowner tax exemption and codify into law the practice of distributing a portion of sales and use tax revenue to cities, towns, and counties (to make up for lost funding from property tax cuts made in recent years).
What We’re Reading
- Check out ITEP’s new brief on Michigan’s high-earner surcharge ballot initiative. In the piece, authors Miles Trinidad and Matthew Gardner discuss the revenue and tax equity benefits of the proposal and push back against exaggerated claims by anti-tax opponents.
- A new report highlights the different family dynamics that result in families being unable to claim the Child Tax Credit or Earned Income Tax Credit. This could include nontraditional caregivers, families with mixed immigration statuses, gig workers, and more.
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