State Rundown 3/2: State Tax News When You Need It

ITEP is happy to announce the launch of our new State Tax Watch page, where you can find out about the most up-to-date tax proposals and permanent legislative changes happening across the country. Highlights from this week include Georgia’s proposal to move to a 5.25 percent flat tax; a plan out of Idaho picking up speed that would eliminate all property taxes except for bonds and school levies and make up the lost revenue with an increase to the sales tax; a Nebraska bill that would be a boon for the wealthy and would cut both the personal and corporate income tax rates; and most importantly, Iowa enacting a flat 3.9 percent income tax…just in time for the governor to tout it in her response to the State of the Union address. See what ITEP’s Aidan Davis and Jenice R. Robinson had to say about that here.

Major State Tax Proposals and Developments

• IOWA Gov. Kim Reynolds signed a 3.9 percent flat income tax into law. The bill also exempts retirement income from taxes, lowers the corporate income tax rate and reduces certain corporate tax credits. In total, the bill will reduce revenue by $2 billion annually – almost a quarter of the state general fund. – NEVA BUTKUS
• Legislators in GEORGIA proposed a massive, disastrous tax cut that would cost at least $1 billion and would shift the state’s graduated income tax rate structure to a flat tax rate of 5.25 percent. The plan would also eliminate a number of deductions for people who itemize their taxes. – KAMOLIKA DAS
• Republicans in IDAHO are pushing for legislation that would eliminate all property taxes for owner-occupied residential properties except for bonds and school levies. The revenue would be replaced by a 1.95 percentage point increase to the sales tax (from 6 percent to 7.95 percent) and an increase to the grocery tax credit aims to help offset the sales tax increase. – MARCO GUZMAN
• NEBRASKA lawmakers pushing for costly and regressive tax cuts overcame a filibuster attempt last week and advanced the bill one step closer to enactment. Ill-advised personal and corporate income tax cuts for high-income households remain at the core of the bill, and an improved revenue forecast makes passage more likely, but lawmakers have one more round of debate in which to resist or mitigate its damage to tax fairness and the state budget. – DYLAN GRUNDMAN O’NEILL

Governors’ Annual Addresses and State of State Speeches

• NEVADA Gov. Steve Sisolak said in his State of the State speech last week that he’ll use federal aid and the state’s rebounding tourism economy as an opportunity to invest in things like affordable housing and child care…but also to avoid addressing the state’s upside-down tax code.

State Roundup

• ALABAMA Gov. Kay Ivey signed the Small Business Relief and Revitalization Act which includes corporate and income tax relief provisions, as well as sales tax and business personal property tax cuts for small businesses.
• Republican lawmakers in FLORIDA unsurprisingly rejected a plan to require combined reporting on corporate income taxes, even though it has been shown to lessen corporate tax avoidance.
• With the signing of the Digital Token Act, Gov. Jared Polis has made COLORADO the first state to accept cryptocurrency for tax payments.
• Republicans in KENTUCKY have released their plan to phase out the state’s current 5 percent flat individual income tax. The plan would lower the income tax rate to 4 percent next year. State general fund growth would trigger additional cuts.
• MICHIGAN Republicans have advanced a bill through the House that would lower the state’s flat income tax from 4.25 to 3.9 percent, expand retirement income exemptions and would create a $500 per-child tax credit. The bill is expected to cost $2.5 billion annually.
• Lawmakers in MISSOURI and MINNESOTA have proposed gas tax holidays in response to the crisis in Ukraine.
• A report from the MISSOURI State Auditor shows that taxpayers benefited from $2.9 billion in state tax credits between 2017 and 2021.
• NEW JERSEY lawmakers introduced a bill that would require the state to annually adjust its tax brackets to account for inflation.
• Republican lawmakers in OHIO have proposed a reduction to the state’s motor fuel tax (28-cents/gallon, down from 47-cents for diesel and 38.5-cents for gasoline). The bill would also eliminate special registration fees paid by owners of hybrid and electric vehicles for the next five years.
• A new PENNSYLVANIA bill would eliminate school property taxes and make it illegal to impose one. To offset the revenue loss, the plan would increase taxes on retirement income and sales taxes.
• Lawmakers in RHODE ISLAND’s House and Senate have introduced identical legislation to regulate the industry for the recreational use of marijuana. The bill establishes a 10 percent state cannabis excise tax on top of the existing 7 percent sales tax, plus a 3 percent local tax for the community hosting a retail center. The Ocean State could well be the next state to legalize cannabis.
• Revenue discussions in RHODE ISLAND have been a mixed bag. Republicans in the state are pushing to cut the state’s tax gas. Many Democrats continue to support legislation to raise the top income tax rate on earners with $500,000 or more from 5.99 percent to 8.99 percent but are also pushing to simultaneously cuts taxes for those at the top by raising the estate tax threshold. Proposals have also been brought forth to gradually exempt some, or all, of the state’s military retirement pay.
• Lawmakers on SOUTH DAKOTA‘s Senate State Affairs committee rejected a House proposal to cut the sales tax from 4.5 percent to 4 percent over two years. The plan would have cost the state $150 million annually and failed to gain the support of Gov. Kristi Noem.
• Advocates in VERMONT continue to lift up a crucial finding from the Vermont Tax Structure Commission Report that would have all residents of the state pay school taxes based on their income, recognizing that the value of a primary residence is not an accurate indicator of someone’s ability to pay. The reasons lifted up to make the shift are plentiful, but primary among them is fairness.
• WASHINGTON’s innovative excise tax on extraordinary profits suffered a setback this week when a judge ruled against the new law, but its fate will likely be ultimately determined in the state Supreme Court.
• WYOMING politicians in the House approved a tax break that will set the state back $10 million annually, after setting the tax rate on coal to the same rate on oil and gas.

What We’re Reading

• ITEP’s Aidan Davis and Jenice R. Robinson explained today why the tax cuts touted in Iowa Gov. Kim Reynolds’s State of The Union response last night are nothing to be proud of, part of a shortsighted trend states should seek to avoid.
• Experts at Connecticut Voices for Children summarize the top findings and policy upshots of the state’s Tax Incidence Study, which was recently updated. Their thoughtful policy recommendations to improve tax fairness in the Constitution State include establishing a state child tax credit, adjusting the tax code for annual inflation, and increasing income tax rates for very-high-income households.
• Stateline reports on the 23 states that offer tax credits to developers of low-income housing and the debates in several others considering creating such credits.

 

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