Even as most major headlines have been about the ever-changing landscape of federal tax policy, the latest “ideas of the week,” and now the House tax bill, state tax policy continues to be a priority for lawmakers.

Alabama residents will see their sales tax rate on groceries reduced to 2 percent, while Alaska may see new revenues if the governor approves a bill modernizing the treatment of out-of-state sales into the state. Some Minnesota senators have shown interest in further increasing the state’s tax rate on investment income along with a first-of-its-kind tax on social media companies that collect data on North Star State residents. Meanwhile, the Oklahoma legislature continues to debate an income tax cut and Rhode Island legislators consider a 3 percent surcharge on high earners.

Major State Tax Proposals and Developments

• ALABAMA Gov. Kay Ivey signed into law a measure cutting the state’s sales tax on groceries from 3 to 2 percent. The cut speeds up a reduction in effect under current law. The measure will cost the state about $122 million per year. – NEVA BUTKUS

State Roundup

• The ALASKA legislature approved Senate Bill 113, which clarifies that businesses with at least 50 percent of online sales of goods or services in or to the state must pay state tax.
• The LOUISIANA House Civil Law Committee advanced a constitutional amendment that would allow local parishes to increase the homestead exemption from $75,000 to up to $125,000. If approved by the legislature, the proposal would then need to be approved by a statewide vote.
• A majority of MASSACHUSETTS lawmakers in both the House and Senate have put their support behind a bill that would build off federal Global Intangible Low-Tax Income or GILTI provisions and increase the share of excess foreign profits that the state taxes. The proposal would raise roughly $400 million in annual revenue.
• The MINNESOTA Senate tax proposal has advanced from committee. It includes a new tax on social media corporations collecting data on Minnesotans that would be the first of its kind and would raise around $100 million per year. Also in the proposal is an increase to the state’s groundbreaking tax on investment income exceeding $1 million, from 1 to 1.5 percent, raising around $74 million from the state’s wealthiest residents.
• The MISSOURI Supreme Court heard arguments Tuesday about local cannabis taxes. The constitutional amendment authorizing the sale of marijuana was not clear whether counties and cities had overlapping authority to levy their own taxes on sales.
• Details of the final budget deal worked out in recent weeks by NEW YORK lawmakers and Gov. Kathy Hochul are now available. The deal mostly conforms to Gov. Hochul’s original proposals on tax policy, including 0.2 percentage-point reductions to the first few income tax brackets (those affecting married couples with taxable income up to $323,000), and a simplification and increase to the state’s Child Tax Credit.
• The OKLAHOMA Department of Revenue has released data on the state’s private school voucher tax credit. Initially capped at $150 million a year, it is set to increase to $250 million a year. However, about 34,000 of the roughly 37,000 students whose tuition the credits benefited were already enrolled in private school. Only 9 percent of students came from low-income families qualifying for public assistance and about 75 percent came from families earning more than $75,000.
• Meanwhile, the OKLAHOMA legislature continues to debate various income tax cut proposals but has not yet landed on a final measure. Gov. Kevin Stitt has expressed support for nearly any tax cut and has called for the legislature to pass a measure using a series of simian puns.
• Despite federal cost-shifting and investment needs in the state, RHODE ISLAND Gov. Dan McKee said that he is opposed to higher taxes on wealthy Rhode Islanders, such as a proposal to create a 3-percentage point surcharge on those earning over $625,000, which received a committee hearing last week. The state is expected to see an additional $80 million in tax revenue for both the current and next fiscal year according to new projections.
• SOUTH CAROLINA lawmakers wrapped up their legislative session without major movement on taxes, but the House sent an income tax cut bill to the Senate in the waning days of the session to ensure that fight will continue early next year.
• WASHINGTON lawmakers may find themselves in a special session later this year, particularly if Gov. Bob Ferguson vetoes a key piece of the revenue package passed by the legislature as he’s being urged to do.
• WYOMING Gov. Mark Gordon expressed concern over how the legislature will satisfy the need to fund education given an expanded private school education savings program. The state’s education system was recently found to have been constitutionally underfunded.

What We’re Reading

• The New York Times digs into the potentially disastrous effects of impending and proposed federal policies on state budgets and how some states are attempting to prepare.
• A new Bloomberg feature explores the rural communities reliant on ICE detention centers for local revenues. One county featured relies on 20 percent of its revenues from the detention center run by a private prison.
• The Washington Post described the impacts of severe federal funding cuts on the economy and government revenues in the DC area – a preview of what could come for communities across the country.
• Joe Schultz at Wisconsin Public Radio breaks down the costs of the state’s sales tax exemption for large data centers. The centers can receive millions of dollars in tax breaks but generate few permanent jobs once construction has completed.

 

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