State Rundown 2/28: February a Long Month for State Tax Debates

February may be the shortest month but it has been a long one for state lawmakers. This week saw Arizona, Idaho, Oregon, and Utah seemingly approaching final decisions on how to respond to the federal tax-cut bill, while a bill that appeared cleared for take-off in Georgia hit some unexpected turbulence. Other states are still studying what the federal bill means for them, and many more continue to debate tax and budget proposals independently of the federal changes. And be sure to check our “What We’re Reading” section for news on corporate tax credits from multiple states.

— Meg Wiehe, ITEP Deputy Director, @megwiehe

Some State Responses to Federal Tax-Cut Bill Are Coming into Focus:

• There were lots of tax happenings in Idaho this past week, with a House committee introducing a bill to remove the sales tax on groceries, the full House passing an online sales tax bill, and a Senate Committee advancing a bill already passed by the House to conform to federal income tax changes, cut personal income tax rates, and enact a $130 nonrefundable child credit. Given the impact of federal tax reforms has on families with more than two dependents, this opinion piece is quite appropos.
• It’s also a busy time for tax legislation in Utah where a revised revenue forecast shows $563 million in new revenues not even accounting for the expected increase from federal conformity. This past week lawmakers have introduced alternatives to a tax increase for boosting public education funding, as well as alternatives to raising sales taxes to fund transportation initiatives.
• The Oregon Senate passed a bill that would decouple the state’s income tax code from a deduction for pass-through businesses at the federal level. The controversial bill is likely to get caught up in a fight over constitutional questions related to whether this kind of bill can rightly originate in the Senate.
• In response to federal changes, the Arizona House approved a $250 child/dependent tax credit. The proposal, which would cost $96 million, aims to give back to Arizona families. The legislation needs a roll-call vote before advancing to the Senate.

Others Remain Uncertain:

• A tax cut bill in Georgia that includes a $50 million tax exemption for jet fuel has suddenly become controversial after appearing primed for quick passage. Perhaps this will give lawmakers a chance to reconsider the much more harmful components of the bill, which also includes major income tax cuts that will undermine funding for state priorities like schools and police protection.
• Iowa lawmakers continue to consider two separate dangerous tax cut proposals, including a Senate bill that would drain $1 billion annually from the state budget and Kim Reynolds’s plan that awaits lawmakers as well.
• The New Jersey Senate passed a bill to circumvent the new federal limit on state and local tax deductions by allowing residents to make a “charitable contribution” in lieu of their property taxes. They also approved a bill to make their tax reciprocity agreement with Pennsylvania a legislative decision rather than leaving it up to the governor. Next up will be more substantial tax and budget debates as new Gov. Phil Murphy unveils his budget proposal in March.
• Federal tax reform is expected to boost state revenues in Colorado, but lawmakers are still trying to figure out by how much.

States Continue Working Through Their Own Fiscal Issues:

• Watch out for whiplash if following Louisiana Special Session—in the first week, there were stalled efforts, reports of progress towards compromise, a return to temporary tax solutions, delayed votes, more talking, and more stalling.
• Lawmakers in the Washington state House are proposing cuts to state property taxes over the next three years while making up for revenue losses with a tax on capital gains income. And over in the Senate, a proposed carbon tax bill cleared a key fiscal committee.
• The New Hampshire Senate advanced a bill to eliminate the state’s tax on interest and dividends. The proposal would reduce the tax, beginning in 2020, by a percentage point until it is eliminated in 2024, costing the state up to $100 million in lost revenue.
• In Oklahoma a Senate subcommittee voted to end the state’s capital gains deduction, bringing in over $120 million next year. The deduction benefits a small number of Oklahomans, mostly those at the top of the income scale.
• While proposals for tax increases seem dead upon arrival in Wyoming, proposals to cut the state’s severance tax and exempt virtual currencies from property taxation gain momentum.
• Staying up to the minute on political hot topics, Rhode Island lawmakers have proposed a tax on violent video games in an effort to curb potential school violence.
• A proposal in Maine to implement a new payroll tax on income above $127,200 (the cutoff for social security employment taxes) will head to the ballot. The new tax would fund a home health care system to provide in-home services for residents over 65 and those with disabilities, regardless of income.
• The California Board of Equalization passed on an opportunity to raise the state’s excise tax on motor vehicle fuel.
• Health groups in Montana are proposing a ballot measure to increase tobacco taxes to fund extending the state’s Medicaid expansion. A tobacco tax increase is still hoped for this year by some advocates in Mississippi as well.
• Nevada‘s legalization of recreational cannabis is already bringing in more revenue than expected.

What We’re Reading…

• The Orange County Register Editorial Board weighs-in on the problems with California’s corporate tax credit program.
• Kansas gives up a billion dollars a year in revenue that could be used to fund schools, roads, and other priorities through tax credits and exemptions that aren’t very well tracked or measured.
• This article about Caddo Parish in Louisiana highlights the toll corporate tax incentive programs can have on local governments.
• Finally, what reading list on corporate tax breaks is complete without a mention of Amazon? Despite record profits and being owned by the now richest man in the world, the company paid no federal taxes in 2017. Perhaps in light of this, opposition is mounting to cities offering tax breaks to win the company’s choice of where to build its second headquarters.

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.

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