As more legislative sessions come to an end, states are making final decisions on tax and budget policies.
In California, Gov. Gavin Newsom proposed close to $3 billion in new annual revenue from corporations and the sale of software. In the final days of the session, Minnesota increased their homestead credit and passed a conformity bill. Meanwhile, a compromise proposal in Wisconsin failed to secure enough votes to make it over the finish line, setting the state up for tax and revenue debates in the years to come. And, following rushed votes from the North Carolina General Assembly, the state is set for a ballot campaign over constitutional limits to its income and property taxes.
Major State Tax Proposals and Developments
- CALIFORNIA Gov. Gavin Newsom proposed several tax provisions in his final budget proposal, including limiting annual corporate tax credits to the greater of $5 million or half of the firm’s liability. Many profitable California firms pay little or no state corporate income tax because of their many credits—especially for research and development. If implemented, this change would raise about $1.8 billion a year. Gov. Newsom also proposed including the sale of software in the sales tax base, which would raise about $900 million for the state and $1.1 billion for local governments a year. – ELI BYERLY-DUKE
- IOWA Governor Kim Reynolds signed a measure cutting property taxes by about $700 million a year. The measure limits the growth of some property taxes, restructures the state’s property tax credits, and raises property taxes on multifamily homes. – ELI BYERLY-DUKE
- The WISCONSIN Senate rejected a deal struck by Gov. Tony Evers and legislative leadership that would have spent down the state’s cash surplus through a mix of temporary education spending, property tax cuts, a one-time tax rebate, and a permanent exemption of tips and overtime from the state’s income tax. – ELI BYERLY-DUKE
- MINNESOTA lawmakers wrapped their legislative session with an increase to the state’s homestead credit and a conformity bill, amongst other changes. The conformity changes include conforming to Section 179 expensing, limiting business interest, and allowing for full expensing of the enhanced research and experimental expense deduction. The legislation also extends the state’s SALT cap workaround. – NEVA BUTKUS
- The NORTH CAROLINA General Assembly passed constitutional amendments that would lower the state’s cap on the tax rate for individuals from 7 percent to 3.5 percent and regulate how quickly local governments are able to increase property tax rates. However, the latter proposal does not include a specific cap as the bill sponsors say the amendment has to be passed before writing the amendment into law. The amendments were included as part of a budget deal reached by Republican lawmakers in both chambers. The proposals could force cuts to schools, police, and other government services, and would limit the state’s ability to react to revenue shortfalls and federal cost shifts in the coming years. The amendments will be decided by voters in the upcoming November election. – MILES TRINIDAD
State Roundup
- ALASKA Gov. Mike Dunleavy called a special session to address a property tax cut proposal for a natural gas pipeline after negotiations fell apart earlier in the week. Lawmakers criticized the plan for lacking detail and giving up too many of the state’s resources.
- State Representative Josh Elliott, a gubernatorial primary challenger to CONNECTICUT Gov. Ned Lamont, wants to implement a “millionaires’ tax” akin to the one in Massachusetts.
- DELAWARE lawmakers sent legislation to increases business fees to Gov. Matt Meyer for his signature. The proposal would increase taxes and fees for limited liability companies and other entities, excluding corporations. It is estimated to raise $140 million a year.
- FLORIDA Gov. Ron DeSantis continues to push the legislature to pass legislation to eliminate homestead property taxes, despite former Florida Gov. and now-Senator Rick Scott echoing far-reaching opposition concerns about the feasibility of such a plan.
- Gov. Brian Kemp of GEORGIA suspended the state’s 33 cent gas tax for two additional weeks as gas prices remain high due to the war in Iran.
- A MISSOURI measure to reform the state’s property tax appears to have died over disagreements about total collections and the distribution of taxes between residential, commercial, and agricultural real estate.
- Shortly after ending a tense legislative session in which they closed a $646 million shortfall mostly through fund sweeps and other short-term fixes, NEBRASKA lawmakers have already watched the shortfall return and widen to about $129 million after tax revenues came in below expectations in both March and April.
- A newly released tax expenditure assessment out of NEW MEXICO found a negative return in revenue for the $520 million spent on 24 economic development tax breaks in fiscal year 2025.
- Details of NEW YORK’s new pied-à-terre tax on high-value second homes are coming out as leaders work to implement their recent handshake budget agreement. For the first two years, the tax will be based on a measure of property value that is readily available but, most agree, consistently undervalues condos and co-ops. During those years, the state will develop a more accurate valuation method to be used starting in year three. The budget deal also reportedly includes a new tax of about 1 percent on all-cash home purchases over $1 million in New York City, which would mirror how similar purchases using mortgages are already taxed and is estimated to raise $160 million.
- OHIO Republican gubernatorial candidate Vivek Ramaswamy shared a plan to gradually eliminate the state’s income tax over an eight- to 10-year period. Ohio’s income tax generates about $10 billion each year. Eliminating the income tax would likely result in dramatic cuts to public services or increases in other taxes that fall more heavily on low-income and working-class families, like sales or property taxes, which Ramaswamy also proposed cutting.
- OREGON voters rejected the proposal passed by the legislature in 2025 to address the state’s $300 million transportation-funding budget deficit with new taxes and fees. If upheld, the proposal would have increased the state’s gas tax by 6 cents per gallon, increased vehicle title and registration fees, and temporarily increased the state’s payroll tax to cover the budget deficit. While lawmakers have shifted money during the 2026 legislative session to avert immediate cuts to services, transportation officials expect significant funding gaps in the future if lawmakers cannot secure additional revenue.
- With RHODE ISLAND estimated to receive a $233 million budget windfall over the next fiscal year, Gov. Dan McKee proposed using that revenue to double the proposed Child Tax Credit (to $650 per child) that’s included in his original plan, eliminate the state tax on Social Security faster than originally proposed, eliminate the state energy tax on electric bills, and eliminate a health insurance fee for families.
- TEXAS Attorney General and Senate candidate Ken Paxton is blocking property tax increases in more than 130 cities, citing a failure to comply with state law that now requires cities to produce an annual financial audit and statement before taking in additional property taxes. Smaller cities have criticized the new law, saying they lack the resources to produce audits in the timeframe required.
What We’re Reading
- ITEP and Local Progress released a new toolkit that pushes localities to adopt progressive taxes. The report makes the case for localities to lead the charge in adopting progressive taxes to fund essential services and has progressive tax options for all kinds of local governments.
- In a recent research paper, Robert Platner, Michael Mazerov, and Darien Shanske released model legislative language of how a state could tax the collection of consumer data by commercial data collectors.
- A new ITEP resource tracks how much more Americans are spending for gas and diesel fuel due to the Iran War and estimates how much more we will spend as the war continues. The tracker includes regional and select state-level data. Americans have already spent $39 billion more for motor fuel because of the Iran War – and the number grows by the day.
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