State Rundown 4/16: No Vacation from Spring Tax Breaks as Bills Advance
April 16, 2025
.ITEP Staff
April 16, 2025
While students and families are enjoying spring break vacations, legislative sessions are still in full swing. And some are poised for a spring tax break season as proposals advance with major implications for the sustainability of state budgets.
In Indiana, Gov. Mike Braun signed a major property tax cut bill into law that will result in $1.5 billion in lost local revenue over three years. The Kansas legislature overturned Gov. Laura Kelly’s veto of a bill that creates triggers to reduce the state’s personal and corporate income taxes to a flat rate over time, at the cost of $1.3 billion annually. Iowa is a step closer to placing a constitutional amendment on the 2026 ballot that would require a two-thirds vote from the legislature to approve future tax increases. And lawmakers in North Carolina and Oklahoma, ignoring under-investment and revenue slowdowns, are moving legislation to steeply cut income tax rates.
Major State Tax Proposals and Developments
- INDIANA Gov. Mike Braun signed a massive property and income tax bill into law. Among other things, it creates a credit of up to $300 for homeowners and will result in $1.5 billion in lost local revenue over three years. The bill caps local income tax rates for all counties at 2.9 percent (down from 3.75 percent) and allows locals to levy a tax of up to 1.2 percent, within that county total, without the approval of county officials. Numerous Republicans, including the state’s lieutenant governor, disapproved of the bill’s complexity and called for a veto as many proposals – including a proposal to make traditional schools share property taxes with charters – were crammed into the bill. Others expressed concern over the clear cost shift to locals and the lack of assistance for Indiana’s more than half a million renters. – NEVA BUTKUS
- The IOWA state senate has initially approved a constitutional referendum to require a two-thirds vote from the legislature for future income tax increases. Iowa constitutional referendums must be approved by the legislature in two consecutive sessions. As the measure was approved in 2024, all that remains for the initiative to appear on the 2026 ballot is approval by the Iowa State House. – NEVA BUTKUS
- The KANSAS legislature overrode Gov. Laura Kelly’s veto of a bill that will use growth triggers to reduce the state’s personal and corporate income taxes to a 4 percent flat tax over time. Upon vetoing, Gov. Kelly stated that the triggers could be hit regardless of the economy or budget considerations which leaves Kansas in a vulnerable position similar to that under Gov. Sam Brownback. She also raised alarms that the bill could cost the state $1.3 billion annually. This veto override comes after the legislature failed to override similar vetoes by Gov. Kelly in both 2023 and 2024. – NEVA BUTKUS
- While NORTH CAROLINA’s personal income tax is scheduled to be reduced from today’s rate of 4.25 percent to 2.49 percent in 2029, the Senate introduced a budget that could further reduce it to 1.99 percent through revenue triggers between 2029 and 2036. The rate reductions are estimated to reduce state revenues by $13 billion annually. – MILES TRINIDAD
- The OKLAHOMA Senate approved a House measure to automatically cut the state’s income tax rate in increments of 0.25 percent until the tax is eventually eliminated. Each cut will reduce revenue by about $300 million annually. The measure now moves back to the House for consideration. – ELI BYERLY-DUKE
State Roundup
- A new bill out of COLORADO would allow counties to raise the lodging tax cap up to 6 percent and provide more discretion on how to spend the revenue.
- CONNECTICUT state leaders are preparing for the potential decline in state revenues due to reduced federal funding. To make up for lost revenue, higher taxes on wealthier households are being considered. Lawmakers are also weighing a state-level Child Tax Credit. Meanwhile, lawmakers recently heard testimony on a plan that would levy a 2-cent tax on each fluid ounce of sweetened beverages sold.
- HAWAII legislators passed several tax bills ahead of the late-conference committee process. One proposal would increase the state hotel room tax to provide $180 million per year to address the impacts of climate change. Senate lawmakers also passed a new cruise ship tax of $20 per passenger per port entry. A House bill would increase the current state vehicle weight tax, and another would allow gambling in the state and tax sports betting companies at 10 percent, which is estimated to raise between $10 and $15 million annually. However, Senate leadership tabled a bill that would have increased the maximum tax rate for the state capital gains tax from 7.25 percent to 9 percent.
- A bill in MINNESOTA would create an excise tax on social media companies that mine data on Minnesotans. The tax would only apply to companies that have over 1 million users. The legislation could raise up to $100 million annually.
- Due to a revenue shortfall created largely by regressive income tax cuts for upper-income households, NEBRASKA lawmakers have given up on fixing the “missing year” of property tax rebates they created in their haste to pass something during last summer’s special session. Their focus instead will be closing the shortfall by cutting funding for shared priorities and possibly raising some new revenue through business subsidy reform, as suggested by the state auditor.
- NEW MEXICO Gov. Michelle Lujan Grisham vetoed a tax package that would have, among other things, replaced the state’s Working Families Tax Credit with an Earned Income Tax Credit more closely tied to the federal version and increase the liquor excise tax by 20 percent. The governor cited an insufficient source of revenue to pay for the reforms as a reason to forgo signing the bill.
- The OHIO House budget proposal includes a provision that would force public school districts to return money to taxpayers if they maintain reserves exceeding 30 percent of their annual budgets starting in January 2027. This would redistribute an estimated $4.2 billion in reserves from public school districts to taxpayers in the first year and require county commissioners to reduce their tax rates until public school district reserves dropped to 30 percent or less of their budgets.
- OREGON Democrats introduced a transportation budget framework that would raise $1.9 billion every two years through new taxes and fees to address transportation funding needs. The framework would increase the state’s 40-cent gas tax by 20 cents over six years and increase the weight-mile tax by 16.9 percent. In addition, vehicle registration fees would increase across the board by $66, vehicle title fees would increase by $90, and a 3 percent tax would be levied on tire sales.
- The VERMONT House passed legislation that would reform the state’s education financing system and is an alternative to the plan unveiled earlier this year by Gov. Phil Scott. While the bill borrows from some of Scott’s proposal, it shifts the state to a new education funding formula in 2029, two years later than proposed by Scott, and takes a different funding approach by using a foundation formula, the most common type used by other states.
- WASHINGTON state legislators are shifting strategies after Gov. Bob Ferguson’s tepid response to their initial budget-balancing proposals. Lawmakers appear likely to relax an arbitrary and overly restrictive cap on property tax growth, but both legislative chambers have backed off a proposed tax on financial assets held by the state’s richest residents. In further bad news for tax justice, a proposal to tax high-income households through a state payroll tax on employees with earnings over the $176,100 Social Security threshold has seemingly been scrapped, while increases to the harshly regressive Business & Occupations Tax has instead gained traction. Some expansion of the sales tax to services (a best practice but not an improvement to tax equity) is also being discussed, as is adding a second tier to the state’s Capital Gains Excise Tax (a progressive but likely small change).
What We’re Reading
- The Minnesota Star Tribune reports on a group of moms in rural Minnesota who, after a series of failed school levy proposals, are organizing and educating their community on the financial needs of their school district.
- An op-ed in the Columbus Dispatch questions why Ohio legislators are seeking to change the funding formula for the state’s libraries, which rank among the best in the nation.
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