March 8, 2018
March 8, 2018
This week was very active for state tax debates. Georgia, Idaho, and Oregon passed bills reacting to the federal tax cut, as Maryland and other states made headway on their own responses. Florida lawmakers sent a harmful “supermajority” constitutional amendment to voters. New Jersey now has two progressive revenue raising proposals on the table (and a need for both). Louisiana ended one special session with talks of yet another. And online sales taxes continued to make news nationally and in Kansas, Nebraska, and Pennsylvania.
— Meg Wiehe, ITEP Deputy Director, @megwiehe
Some States Respond to Federal Tax-Cut Bill:
- The Idaho Senate passed a bill conforming to federal tax changes while cutting income tax rates and enacting a nonrefundable child tax credit. The bill which falls short of holding larger low- and middle-income families harmless from federal tax changes awaits the governor’s signature.
- A spat between Georgia lawmakers and Delta Airlines last week kept the state from adding a sales tax exemption for jet fuel, and distracted from what should have been much bigger news: a destructive tax cut in response to the federal tax-cut bill that will undermine the state’s ability to fund its priorities for years to come.
- Oregon‘s legislative session ended with the passage of two bills that decoupled from federal tax breaks for pass-through income and overseas money. The bills now wait the governor’s signature and perhaps a constitutional challenge.
- Maryland lawmakers this week rejected Gov. Larry Hogan’s proposed response to the federal tax-cut bill, choosing instead to advance a bill increasing the state standard deduction while also raising some modest revenue for Maryland schools.
- The Congressional delegation from Illinois is urging Gov. Rauner to come up with a plan for how to mitigate tax increases on Illinois residents from the State and Local Tax deduction (“SALT”) cap enacted by Congress in December.
- Iowa Kim Reynolds and Senate leaders have each proposed major tax-cut legislation with the federal tax changes serving as cover for the cuts. The Reynolds plan, currently in a House committee, includes some positive reforms but fails to improve the tax code and reduces funding available for public services by $132 to $299 million per year. The Senate plan does even more harm, ultimately reducing revenues by more than $1 billion per year. Reynolds and lawmakers are trying to settle differences between their two bills regardless.
Major State Tax Proposals and Developments:
- A New Jersey senator is proposing a smart step toward addressing the state’s fiscal woes by adding a 3 percent surcharge on the state’s most profitable corporations, which are about to see a massive federal tax cut anyway. Some see this as a replacement for Gov. Phil Murphy’s proposed millionaire’s tax, but the state’s fiscal hole is deep and the governor is not backing down suggesting the state should enact his millionaire’s tax and the proposed surcharge.
- Florida legislators are buying into two tax policies that sound nice but actually harm state budgets: supermajority requirements and sales tax holidays. Lawmakers have advanced a misguided constitutional amendment that will now go before voters in the fall, following through on Gov. Rick Scott’s proposal to create obstacles to raising adequate revenue by requiring a higher vote threshold to raise taxes or close loopholes. Meanwhile, the House added to this by expanding the state’s use of sales tax holidays.
- The Louisiana Special Session ended early and with no tax deal Plans for a second Special Session are already under discussion, as lawmakers are unlikely to present and pass a budget with over $700 million in cuts.
- In Utah, a bill to remove the sales tax on food met its end, the House approved a tax credit for employers offering paid family and medical leave, and lawmakers and the Our Schools Now coalition are negotiating alternatives to the coalition’s proposed ballot proposal to raise funding for education via increases in the personal income and sales tax rates.
- The carbon tax in Washington state failed to get the needed votes to pass out of the Senate. Check out some commentary on why even in its failure, it’s a big deal. And don’t be surprised if you see it make a comeback as a ballot measure
- A South Carolina House committee scaled back its ambitions for comprehensive tax reform but chose to focus its efforts on a regressive proposal to do away with the state’s progressive income tax brackets and replace them with a single flat rate.
States Taking the Lead on Taxing Online Retailers
- Pennsylvania has become the second state, after Washington, where Amazon will institute “Marketplace Tax Collection” and start collecting taxes from their third-party sellers. Legislators in the Keystone State set this into motion by passing a law last year that requires online retailers to collect sales tax.
- Kansas lawmakers are considering legislation that would give them authority to collect sales tax for online sales. With the Quill case appearing before the U.S. Supreme Court next month, such legislation may be unnecessary if the court reverses its earlier decision regarding physical presence as a necessary component for establishing nexus.
- Nebraska legislators have also advanced a bill that would encourage companies to collect sales taxes on online sales by placing heavy requirements on companies that do not comply. At the same time, lawmakers are still trying to craft a tax bill to avoid having a $1 billion property tax credit foisted on them through a ballot initiative that backers will push if legislators do not reduce property taxes themselves.
Other State Tax News
- The Alaska House is moving forward with a budget proposal that would draw heavily from the state’s Constitutional Budget Reserve while restructuring the Permanent Fund. It is expected that the Senate will also propose large withdrawals from the state’s reserves and restructuring of the Permanent Fund, in addition to deep spending cuts.
- The Hawaii House passed legislation that would increase the state’s income tax credit for low-income household renters and make the state earned income tax credit refundable. HB 2703 now heads to the Senate.
- The Indiana legislature passed a bill exempting software sold as a service from the state sales tax. Lawmakers are also considering additional bills that would decrease their sales tax base, such as exempting food sold in vending machines.
- Striking teachers in West Virginia called for raising taxes on coal and gas to support education.
- After passing the Senate, the Wyoming House put a stop to severance tax exemptions for oil and gas companies.
- A Johns Hopkins University study found positive public health effects from the Maryland‘s tax increases on cigarettes and alcohol.
What We’re Reading…
- The Huffington Post reports on how the state-level tax cuts led to West Virginia’s massive teacher strike.
- In the New York Times, workers discuss their modest payoff from the Trump-GOP tax cut and raise concerns about how they plan to pay for it.
- On property taxes in California, check out Governing‘s “As Prop 13 Turns 40, Californians rethinking its Future” and this report from the California Housing Partnership comparing property tax subsidies received by homeowners versus renters.
- What states are looking at fuel and sales tax increases to fund infrastructure projects? Check it out here.
- The TaxProf Blog is following an Amicus Brief filed by 60 tax professors encouraging the U.S. Surpreme Court to reverse its Quill decision and allow states to collect sales tax from online sellers.
- NCSL has a new podcast out focusing on state regulation and taxation of sports gambling and fantasy sports.
- Route Fifty updates us on state efforts to regulate (and understand) cryptocurrencies like Bitcoin.
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