State Rundown 6/14: Some States Wrapping Up Tax Debates, Others Looking Ahead to Next Round

This week lawmakers in California and Nevada resolved significant tax debates, while budget and tax wrangling continued in West Virginia, and structural revenue shortfalls were revealed in Iowa and Pennsylvania. Airbnb increased the number of states in which it collects state-level taxes to 21. We also share interesting reads on state fiscal uncertainty, the tax experiences of Alaska and Wyoming, the future of taxing robots, and more!

— Meg Wiehe, ITEP Deputy Director, @megwiehe

• California lawmakers and Gov. Jerry Brown have agreed to a budget that includes expanding the state’s Earned Income Tax Credit. Now families with incomes under $22,000 (up from around $14,000) can qualify for the credit, including those whose incomes are from self-employment.
• Nevada‘s legislative session wrapped up last week with significant news on several fronts. Legislators settled on a 10 percent retail and 15 percent wholesale tax for recreational marijuana that will be sold legally starting July 1^st, with the revenue going into the state’s Rainy Day Fund. The state will also continue levying an existing 17-cent property tax and devote the revenue to bonds and public works, including a new veterans’ home and multiple other facilities improvements. Residents will vote on exempting feminine hygiene products from sales tax in 2018. Nevada will now be the first state to prohibit local taxation of “blockchain” transactions using digital currencies like Bitcoin. And Gov. Brian Sandoval still has a few days to decide whether to approve or veto a “Medicaid-for-all” public healthcare option that both houses approved.
• West Virginia‘s conference committee closed yesterday in a stalemate after Republican senators refused to sign the committee report because it did not include their preferred reduction to the state’s personal income tax. Lawmakers in each chamber are now moving forward with separate budget plans. The Senate passed a budget on Tuesday with no tax changes. The House is expected to pass its own version at some point today.
• Airbnb reached an agreement with Michigan to begin collecting and remitting the state’s 6 percent use tax for short-term rentals. The company also agreed to collect Wisconsin’s state sales tax and county sales and use tax. Airbnb now collects state-level taxes in 21 states. For more on this issue, see our report from March discussing tax issues pertaining to both Airbnb and Uber.
• Kentucky Matt Bevin announced that a special session focused on an overhaul of the state’s tax code and public pension system will not happen until after August 15. The governor has encouraged lawmakers to share their ideas with budget staff before July 15, particularly those pertaining to tax exemptions that could be eliminated.
• Faced with a revenue shortfall of more than $130 million, Rhode Island‘s Gov. Gina Raimondo weighs budget cuts and tax increases needed to fill the gap. She has expressed her desire to avoid raising the state’s sales and personal income taxes.
• Details on a proposal to tax personal income in Seattle, Washington were released earlier this week. Under the proposal, single households with income over $250,000 and married couples with more than $500,000 in income would pay a 2 percent tax.
• Pennsylvania lawmakers have been warned that the state may need to borrow up to $3 billion to run state government in 2017-18 unless structural budget problems are addressed. The state budget is currently awaiting action from the Senate.
• Missouri lawmakers’ decision to fully fund K-12 education this year is welcome news to the state’s schools and even unlocks additional funding that can now be used for pre-K programs. But due to recent corporate tax cuts and ongoing legislative interest in slashing taxes even further, school officials are reportedly afraid to start investing in pre-K knowing the funding stream is under threat. Gov. Eric Greitens’s tax study committee should take schools’ concerns about sustainable funding under consideration as it wraps its study this month.
• Several troubling indicators are coming out of Iowa lately, as manufacturing jobs are declining despite a costly sales tax break purported to help the industry, and Gov. Kim Reynolds continues to tout debunked supply-side tax-cutting myths while having to pull at least $100 million from the state’s emergency fund to cover a shortfall in tax revenues.
• Mississippi legislators resolved their differences over the state’s transportation budget and a few other items in a one-day special session last week. Unfortunately, the fix is temporary, as no sustainable gas tax or other revenue solution was part of the package. They did increase the maximum amount that can be held in their Rainy Day Fund from 7.5 percent of general fund revenue to 10 percent, but after multiple years of tax cuts it is unlikely they’ll be able to approach that limit.

What We’re Reading…

• A new report from the SUNY Rockefeller Institute of Government details revenue difficulties ahead for state and local governments given factors such as economic troubles in oil-producing states and uncertainty about major federal reforms.
• The Kentucky Center for Economic Policy previews the potential contours of a tax reform plan that Gov. Matt Bevin expressed interest in pursuing this year in a special session. His misguided hope is that Kentucky can become “more competitive with surrounding states like Indiana and Tennessee by lowering or eliminating certain taxes.”
• Check out this astute comparison of Wyoming and Alaska‘s fiscal situations, and the reform options that both states have available to them.
• A new working paper out of Ohio State University proposes “Deferred Tax Accounting” to address decades-old problems of how to tax capital gains.
• A forthcoming article in the Harvard Law and Policy Review explores the relationship between tax policy and automation and the trouble with existing tax systems that disincentivize hiring human workers even when they may be more efficient.

If you like what you are seeing in the Rundown (or even if you don’t) please send any feedback or tips for future posts to Meg Wiehe at [email protected]. Click here to sign up to receive the Rundown via email.

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