Washington is on its way to making history after the legislature approved the “millionaires’ tax,” a 9.9 percent tax on income over $1 million. The bill, which is expected to raise more than $3 billion a year, making significant investments in public education and childcare, will also expand the Working Families Tax Credit – the state’s EITC – to reach an additional 460,000 households, among other changes. As our just-published analysis shows, these tax changes make important strides in improving the equity of Washington’s state and local tax system.
Elsewhere, lawmakers in Missouri, Georgia, and South Carolina are taking their states in the opposite direction, advancing measures to cut personal income taxes. And facing a significant deficit, New Jersey’s Gov Sherrill’s biggest fix thus far is a proposal to dramatically roll back the state’s property tax rebate for high-income seniors.
Major State Tax Proposals and Developments
- Major tax legislation passed the House and Senate in WASHINGTON, where lawmakers sent a bill to Gov. Bob Ferguson. The legislation, which the governor has said he will sign, would implement an income tax on income over $1 million, expand eligibility to the Working Families Tax Credit, and create a range of sales tax exemptions and Business & Occupation Tax changes. – MARCO GUZMAN
- House lawmakers in GEORGIA passed a major personal income tax cut to bring the state’s flat rate from 5.19 to 3.99 percent. Legislation taking the rate to 4.99 percent retroactively, for 2026, already cleared both chambers. The new House-passed bill would also increase the standard deduction (currently at $12,000 per filer) by $600 annually until it reaches $18,000. The 3.99 percent flat rate mirrors tax cut legislation previously passed by the Senate, although the Senate’s version brings the standard deduction to $50,000 per filer. – NEVA BUTKUS
- Gov. Mike Braun of INDIANA signed a bill temporarily coupling the state tax code to the new federal tipped and overtime income deductions for 2026 and permanently decoupling the state from bonus depreciation for certain qualified production property. The tipped and overtime income changes will cost the state $251 million in 2026, while the permanent decoupling from bonus depreciation will bring in $65.9 million. – NEVA BUTKUS
- The DISTRICT OF COLUMBIA‘s Chief Financial Officer Glen Lee said that the city will continue with tax season uninterrupted, despite Congress voting to overturn a tax bill that decoupled the city’s tax code from costly provisions in last year’s federal tax law. The CFO will, however, maintain $180 million in revenue until litigation on the topic is completed. – MARCO GUZMAN
- UTAH lawmakers once again cut the state income tax. This time they cut the flat rate from 4.5 percent to 4.45 percent, which is expected to cost the state roughly $123 million in fiscal year 2027. The bill is currently with Gov. Spencer Cox. – MARCO GUZMAN
- Gov. Jeff Landry of LOUISIANA gave his State of the State address where he again pushed lawmakers to double the amount allocated to the state’s private school voucher program (to $88 million), despite a bipartisan group of lawmakers rejecting this proposal last year. He also encouraged lawmakers to phase out personal income taxes despite the state projecting a shortfall approaching $300 million by fiscal year 2027. – NEVA BUTKUS
- NEW JERSEY Gov. Mikie Sherrill released her budget proposal as the state faces a significant deficit. She proposed a reduction to the Stay NJ property tax rebate program by capping income eligibility at $250,000 and the total benefit at $4,000. She also proposed capping corporate Net Operating Losses, and a controversial policy that would charge a fee to companies who do not offer health insurance and have at least 50 employees who use the state’s Medicaid program. The proposal does not include changes to family tax credits or expansion of affordable health insurance. – ELI BYERLY-DUKE
- House members in SOUTH CAROLINA approved Senate changes to their personal income tax cut legislation which consolidates the state’s income tax brackets to 1.99 percent on the first $30,000 and drops the top rate from 6 to 5.21 percent beginning in 2026. This initial cut is expected to cost $309 million in its first year. The legislation also enacts triggers capable of fully eliminating the state’s personal income tax over time. Additional property tax cut legislation for seniors is still being reconciled between the chambers. – NEVA BUTKUS
- The SOUTH DAKOTA legislature passed two bills that would allow local governments to levy new sales taxes to offset county property taxes. Both now head to the governor’s desk. The first bill, which was initially proposed by the governor, allows counties to levy up to a half-percent sales tax to offset property taxes for owner-occupied homes. The second bill would allow cities to implement a 1 percent sales tax. – MILES TRINIDAD
- The MISSOURI House advanced a proposal to automatically cut the state’s individual income tax until it is eliminated, authorize an expansion of the state’s sales tax, and permanently cap state revenue growth at inflation. Replacing the state’s personal income tax with sales tax hikes would cost the middle 20 percent of households more than $500 annually, while saving tens of thousands of dollars a year for the top 1 percent. – ELI BYERLY-DUKE
State Roundup
- COLORADO lawmakers are considering a trio of bills that would decouple the state from costly business tax breaks included in the 2025 federal tax law and use the remaining revenue to fund a credit that mirrors the Family Affordability Tax Credit. The state could be on its way to issuing $306 million in TABOR refunds that it may not actually owe because of how changes caused by the federal tax law are accounted for using standard budgeting practices.
- CONNECTICUT Gov. Ned Lamont raised the possibility of a short-term gas tax holiday to mitigate recent price increases triggered by the war in Iran. The state currently has a levy of 25 cents on gasoline and 48.9 cents on diesel.
- The FLORIDA House passed a new sales tax holiday on firearms, camping equipment, and fishing/hunting equipment. The bill would also reduce taxes on American-made beer.
- After a proposal to eliminate all homestead property taxes failed, a pared back property tax cut bill made it out of the GEORGIA House before the crossover day deadline. The new proposal caps property tax growth at 3 percent a year. The bill author is claiming no constitutional amendment is needed to get the cap on the books. The bill also would mandate that revenue from data centers will be used to reduce homestead property taxes beginning in 2029 when the current tax break for data centers expires.
- GEORGIA Gov. Brian Kemp, like Connecticut’s Gov. Lamont, is considering pausing the state’s gas tax in response to higher prices.
- IDAHO collections through February have come in almost $90 million below forecast and the state is projected to end the current fiscal year with a state budget deficit of over $44 million if no additional budget actions are taken.
- LOUISIANA’s sales tax exemption for data centers could soon cost the state nearly $3.6 billion, with that tax break only being given to three companies. This is in addition to the PILOTs or “payments in lieu of taxes” that will provide significant property tax breaks for Meta and Amazon if they hit their hiring goals of 300 and 150 jobs, respectively.
- MARYLAND’s new 3 percent data and IT services tax has fallen short of revenue projections after its implementation to help close a $1.6 billion budget gap last year. The tax was estimated to generate $500 million a year but has only generated about $35 million, according to the Board of Revenue Estimates.
- Budget bills are beginning to advance in NEBRASKA but the state’s revenue shortfall – $646 million, potentially whittled to $140 million if Appropriations Committee changes are approved – remains an obstacle, and tensions are already rising between lawmakers as a March 25 deadline to balance the budget rapidly approaches.
- OHIO Republican leaders are planning to override Gov. Mike DeWine’s veto in last year’s budget that would have eliminated a sales tax break on construction materials for data centers.
- OREGON lawmakers passed legislation that increases the state’s lodging tax to fund wildlife conservation. The legislation would increase the tax from 1.5 percent to 2.75 percent and raise about $37 million per year. The legislation now heads to Gov. Tina Kotek’s desk for her signature.
- The NEW HAMPSHIRE Senate is pushing the House to support a constitutional amendment that would require a supermajority vote of the legislature to enact any broad-based income tax in the state. The move comes as many have called for a new income tax to fund education there.
- While RHODE ISLAND Gov. Dan McKee and the legislature push for a millionaires’ tax, the Republican Senate Minority Leader introduced legislation to reduce the personal income tax by 8 percent over five years. The bill would cost the state an estimated $213 million a year once fully phased in.
- Lawmakers in SOUTH CAROLINA reduced the effective tax rate on boats from 10.5 to 6 percent by exempting the first 43% of the boat and motor’s combined value.
- In SOUTH DAKOTA, two other property tax bills were defeated in the legislature. One would have made it easier for citizens to refer local government decisions that could increase property taxes to a public vote, and the second would have limited growth in home valuations to 5 percent per year with a reset to market values every five years.
- VIRGINIA Gov. Abigail Spanberger floated the possibility of a consumption tax on data centers for energy consumption as the General Assembly continues to debate energy costs and the state’s $2 billion tax exemption for data centers.
What We’re Reading
- Several members of the Patriotic Millionaires have come out in support of New York City Mayor Zohran Mamdani’s proposals to tax wealthy residents
- As technological advances in AI and robotics threaten jobs, Girard Miller at Governing makes the case for states and municipalities to tax tech businesses to avoid revenue losses from traditional income, sales, property, and business franchise taxes.
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