Just Taxes Blog by ITEP

State Rundown 5/10: Momentum on State Tax Credits Continues to Build

May 10, 2023

This week, in states across the country the momentum to center improvements to family economic security remains strong. Bills in Hawaii and Colorado that would increase state Earned Income Tax Credits and improve credits for children are heading to the governor’s desk and are ready to be signed. Meanwhile, in Maine, the governor released a spending plan that would doubling the state’s refundable childcare tax credit, and in Arizona, the governor negotiated with Senate Republicans—who currently hold a majority—to include a one-time child credit of up to $750, limited to families with income tax liability. These policies are in stark contrast to those in other states like Indiana, which will accelerate cuts to their personal income tax by removing phase in triggers, and Florida, which continues to chip away at its main source of revenue by expanding ineffective sales tax exemptions and holidays.

Meanwhile, Minnesota’s push for worldwide combined reporting has ruffled the feathers of corporate lobbyists. Read more from ITEP’s Matt Gardner, and a slew of other experts, on why this sensible reform is common sense and good tax policy.

Major State Tax Proposals and Developments

  • A nearly $18 billion spending plan was approved by the ARIZONA Senate following negotiations with Gov. Katie Hobbs on a compromise plan. While the bill would provide a one-time $250 child credit (up to $750), it would only go to those who have paid some income taxes in the past three years and cannot be used by families that have no state income tax liability but have paid substantial amounts of sales, excise, and property taxes. The plan also leaves in place universal school vouchers, which could cost the state almost $500 million annually within three years. – MARCO GUZMAN
  • A COLORADO bill that would increase the state Earned Income Tax Credit from 25 percent of the federal credit to 38 percent and moves the state Child Tax Credit from a percentage of the federal to a fixed amount is on the governor’s desk awaiting his signature. Meanwhile, this November, voters will get a chance to decide whether to adopt a 10-year plan to reduce residential and commercial property taxes after lawmakers approved the plan before the end of the 120-day session. – MARCO GUZMAN
  • MAINE’s Gov. Janet Mills released an almost $900 million spending plan that leaves out many of tax cuts and revenue raisers that have been promoted this session. The plan, however, does include $4 million to double the refundable childcare tax credit. – MARCO GUZMAN
  • In HAWAII, the state legislature passed a bill (HB954) that includes tax credits for low-income families. These policies, if signed into law, would double the federal match rate for the EITC (from 20 to 40 percent), increase both the value and the income eligibility levels of the state’s Food/Excise Tax Credit, and boost the maximum value of the state’s Child and Dependent Care Credit. BRAKEYSHIA SAMMS
  • The FLORIDA legislature adjourned after sending a budget bill with $2.7 billion in tax cuts to Gov. DeSantis’ desk. Numerous sales tax holidays were approved for school supplies, disaster preparedness, and for summer recreational activities. Permanent tax cuts include exempting baby products, firearm safety devices, agricultural fencing, and other items from sales tax. – NEVA BUTKUS
  •  IOWA Gov. Kim Reynolds signed a $100 million property tax cut that will require municipalities to use revenue growth over 3 percent to reduce its levy on property taxes. Municipalities can vote to increase the levy beyond the cap. – NEVA BUTKUS
  • Gov. Eric Holcomb of INDIANA signed the state’s two-year budget which accelerates a cut to the state personal income tax and removes the previous triggers needed to lower the rate. The bill also expands the state voucher program to households making around $220,000 for a family of four. The budget will also recouple the state Earned Income Tax Credit to the current federal credit as opposed to a prior version of the federal credit that penalized households with more than three dependents. – NEVA BUTKUS

State Roundup

  • The Republican minority in the CONNECTICUT Senate unveiled a $1.5 billion tax cut plan, which includes income tax cuts that mirror Gov. Ned Lamont’s plan, with the exception that they go into effect in 2023—a year earlier that the governor’s 2024 timeline. Lamont has stated that a budget deal is close.
  • The MARYLAND Supreme Court reversed the ruling by a lower court that the state’s first-in-the-nation digital advertising tax was unconstitutional. The Maryland Supreme Court said the lower court lacked jurisdiction over the case and sent the case back to the lower court with directions to dismiss, but it did not make any ruling on the constitutionality of the law.
  • MISSOURI lawmakers have passed, and the governor will most likely sign, a bill to exempt from taxation the Social Security and public pension benefits of high-income seniors. Meanwhile, lawmakers have authorized a film tax credit similar to a previous credit which expired in 2013. Capped at $13 million per year, the credit will flow exclusively to corporations, and hopes to attract more film sets to the state.
  • Gov. Kevin Stitt in OKLAHOMA reaffirmed his commitment to enacting tax cut and school voucher legislation. While the House has passed multiple tax cut bills, the Senate has prioritized working groups. The governor plans to meet with House and Senate leaders to discuss and negotiate a plan.
  • The PENNSYLVANIA Senate Finance Committee advanced legislation to accelerate the reduction of the state’s corporate income tax. The legislation, which passed with bipartisan support, would reduce the tax to 4.99 percent in 2026 while the current schedule for the tax cut would reach the same rate in 2031.
  • The TEXAS House passed a bill that would allow school districts to offer limited, temporary property tax discounts to eligible companies for projects that bring jobs and investment into the district. The state would pay the school districts the difference, and the district would collect extra money from the company as part of any tax-discount deal they strike. The program has seen some controversy because of its similarity to a now-defunct corporate property tax break (also known as Chapter 313) that expired last December.

What We’re Reading

  • Governing sheds light on how big-box retailers have been using the ‘dark store’ legal theory to cut their property taxes and what some state legislatures are doing about it.
  • Pew Charitable Trusts provides a list of considerations states need to make as they move away from federal COVID-19 aid.

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