Despite wintry conditions across much of the country, that hasn’t stopped state lawmakers from debating major tax policy changes. Governors on their way out in Oklahoma and South Carolina have called for huge tax cuts — with fallout left to their eventual successors. Meanwhile, Indiana and Idaho are both moving forward on conforming decisions. Elsewhere, states are weighing tax changes of all sorts, with especially impactful proposals to preempt decisions made by lawmakers in the District of Columbia, the governor’s aim to close corporate loopholes in Pennsylvania, and lawmakers’ push to cap sales tax rates in South Dakota.
Governors’ Annual Addresses and State of State Speeches
- OKLAHOMA Gov. Kevin Stitt called for multiple new ballot measures in his final State of the State. Along with unspecified changes to the state’s Medicaid expansion, eliminating legalized medical cannabis, and a cap to state spending, the governor called for a cap on state property tax growth. He did not lay out specifics.
- Gov. Henry McMaster of SOUTH CAROLINA gave his final State of the State address in which he called upon the legislature to further reduce personal income taxes as much as possible while simultaneously calling for an additional $1.1 billion in new infrastructure spending to keep up with the state’s population growth.
Major State Tax Proposals and Developments
- Republicans in Congress introduced a resolution to repeal a DISTRICT OF COLUMBIA tax bill that decoupled from tax provisions included in the federal tax and spending bill. If passed into law, the resolution — which would upend D.C.’s ability to govern itself, plan its budget, and administer a working tax system — could cost the city $700 million in revenue and eliminate changes to the Child Tax Credit and Earned Income Tax Credit that benefit low- and middle-income families. It now moves to the full Senate for a vote. – MARCO GUZMAN
- OREGON lawmakers introduced legislation that would decouple the state from federal tax changes that are estimated to reduce state revenue by $900 million. The legislation would decouple the state from federal tax breaks from qualified small business stock sales, the deduction on interest paid on personal vehicle loans from state taxes, and require businesses to spread tax write-offs for equipment purchase over several years rather than an immediate deduction. Together, these changes would preserve about $291 million in funding over the next two years. The bill would also increase the Oregon Earned Income Tax Credit by 5 percentage points and create a $25 million Oregon Jobs Tax credit for businesses adding new in-state jobs. – MILES TRINIDAD
- PENNSYLVANIA Gov. Josh Shapiro released his proposed budget that calls on lawmakers to enact combined reporting for corporate income to close a tax loophole that allows multi-state corporations to shift profits to other states to avoid taxes. Gov. Shapiro also called on lawmakers to tax and regulate slot-like skill games and legalize marijuana. – MILES TRINIDAD
State Roundup
- The tax forms for this year’s filing season in ARIZONA do not currently match the state’s tax system. While the forms available from the Department of Revenue conform to the changes made by the Trump tax bill, those changes have yet to be formally adopted by the state. Gov. Katie Hobbs and Republicans are at odds right now, stuck in debate on how much the state should piggyback on federal changes—the governor only wants to tie the state to select tax provisions, while Republicans want to adopt all of them. Some are raising concerns that those filing now will have to file amended returns.
- In his 2027 budget proposal, DELAWARE Gov. Matt Meyer includes an increase to cigarette taxes by $1.50 to raise an additional $18.9 million and an increase to business formation fees that would raise $81 million.
- GEORGIA lawmakers are debating competing property tax proposals. The Senate is pushing a bill that would prevent local governments and school districts from opting out of a statewide homestead tax exemption that caps annual property tax increases to inflation. The statewide homestead exemption was passed in 2024 but allowed municipalities to opt out, and many chose to do so citing their need for the revenue to fund public services. Meanwhile, the House is pursuing an even more extreme proposal to phaseout all homestead property taxes by 2032.
- An IDAHO bill that would tie the state to nearly all of the tax changes under the federal tax and spending law passed through the House of Representatives. The bill is expected to cost the state $155 million this fiscal year.
- The INDIANA Senate passed a conformity bill to address the state’s tax code in the context of the Trump tax law. The legislation would temporarily couple to the federal tips and overtime exemption for 2026 and reduce state revenue by $250 million. The bill would also permanently couple to the adoption tax credit expansion, amongst other changes.
- MAINE Republicans are opposed to Gov. Janet Mills’s proposal to distribute $300 payments to many residents. Instead, they want the state to conform to four tax provisions from the federal tax bill that include eliminating tax on some tip and overtime income, reducing tax on pension income, and matching the federal standard deduction.
- Senators in MISSISSIPPI strongly struck down a voucher expansion bill in committee despite support from the House and Gov. Tate Reeves.
- The hearing for NEBRASKA Gov. Jim Pillen’s budget bills, which aim to close the state’s $471 million revenue shortfall purely through funding cuts and shifting balances from other funds, drew no supporting testifiers except from the governor’s own staff. This compares to the 25 Nebraskans who testified in person to oppose the plan and more than 600 others who submitted written comments in opposition.
- Legislative leaders in SOUTH DAKOTA introduced legislation that would permanently keep the state’s sales tax rate at 4.2 percent. The previous rate of 4.5 percent and was reduced to 4.2 percent in 2023 with a planned expiration date of June 30, 2027. The permanent sales tax reduction would cost the state an estimated $111 million annually. The Republican Senate leader said the bill is intended to ensure that any additional revenue, if the reduced rate were to expire, would not be used to fund property tax cuts. The sales tax legislation comes as the state continues to debate property tax cuts, including a proposal from Gov. Larry Rhoden to allow counties to enact a half-percent sales tax to use to fund property tax cuts.
- Some TENNESSEE lawmakers have proposed exempting groceries from the state sales tax. Lawmakers have filed several bills, one of which would fund grocery exemption by closing corporate loopholes and another by cutting spending on private school vouchers.
- WYOMING increased their fuel tax rates on gasoline and diesel from 14 cents to 24 cents, effective July 1, 2026. The tax is expected to raise nearly $72 million a year for highways and roads.
What We’re Reading
- In a recent piece, Sam Waxman of the Center on Budget and Policy Priorities makes the case for why Congress must allow D.C. to spend its own local tax dollars.
- Iowa Public Radio weighs the tradeoffs between cutting property taxes and cutting local services with local policy leaders and an advocate for cutting taxes. Local governments rely heavily on property taxes and would need to dramatically cut services like education and public safety if property taxes are further reduced.
- The Nevada Independent describes the fiscal pressures Immigration and Customs Enforcement has put Henderson under, which spends more money on immigration detention at their jail than ICE pays to the city.
- Kelly Allen of the West Virginia Center on Budget and Policy lays out the dire economic situation for West Virginian families. From 1970 to 2023, the real median household income has increased in every state but West Virginia. Overall, the states with the lowest taxes also had lower income growth, which confirms decades of evidence that public investments in education and infrastructure are critical factors in increasing residents’ earnings.
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