State Rundown 7/7: The New Fiscal Year Starts off With a Bang, And Not Just Fireworks

States were busy over the past week despite the Fourth of July holiday. Many are gearing up for upcoming tax and budget clashes that could shape their futures for some time. Organizers in Arizona burst into action with a campaign to force a referendum vote after the governor signed off on tax provisions in an incredibly regressive budget that could cost the state $1.9 billion. Meanwhile, Missouri will no longer celebrate its independence as the only state to have not enacted a remote sales tax law after the governor offered his stamp of approval. And lastly, we at ITEP covered how states are blowing an opportunity to utilize federal relief dollars and better-than-expected revenue projections to invest in underfunded services and how Congress should look to the states on how to truly have an inclusive economic recovery.    

Major State Tax Proposals and Developments 

• Organizers and supporters of the Proposition 208 surcharge in ARIZONA are attempting to gather signatures to force a referendum vote on the legislature’s recent tax bills that will phase in a 2.5 percent flat tax, cap the top rate at 4.5 percent, and allow an alternative filing method for small businesses. — MARCO GUZMAN 
• After a challenge from the OHIO attorney general, a federal judge ruled that the Treasury Department cannot enforce a rule that prohibits coronavirus relief funding for tax cuts in the state. — AIDAN DAVIS 
• Experts at the WASHINGTON State Budget & Policy Center look back on tremendous victories won in the state this year to help make the nation’s most upside-down tax code more equitable and invest in children and communities to ensure a strong recovery. The state passed a first-of-its-kind highly progressive excise tax on capital gains-generating transactions made by wealthy households, an improved and fully funded Working Families Tax Credit for middle- and low-income families, and the Fair Start for Kids Act, which will invest hundreds of millions annually in communities through childcare and preschool programs. — DYLAN GRUNDMAN O’NEILL 

State Roundup 

• ALABAMA will hold its annual school supplies sales tax holiday next week from July 16-18th; unfortunately, a 3-day sales tax holiday won’t change the fact that the state’s lowest earners have nearly double the effective tax rate as that of the state’s top earners. 
• After passing a placeholder budget in June, CALIFORNIA lawmakers approved a more substantive budget plan last week that included agreements on items such as hazardous waste funding and direct payments of up to $1,100 to families, but some details have yet to be settled in negotiations with Gov. Gavin Newsom, including child care provider pay. 
• HAWAII lawmakers overrode Gov. David Ige’s veto of a bill that will cut state hotel taxes and tourism funding by $100 million, replacing them with an optional county-level tax. 
• MAINE Gov. Janet Mills vetoed progressive legislation that would have established a graduated real estate transfer tax (RETT) rate on properties valued over $1 million. The additional revenue would have been used for low-income affordable housing. 
• A MINNESOTA tax bill that primarily includes relief for individuals and businesses affected by the COVID-19 pandemic is heading to the governor’s desk awaiting his approval. The bill, notably, does not include the governor’s proposed creation of a fifth income tax bracket that would have raised revenue from wealthy taxpayers. 
• With Gov. Mike Parson’s signature, MISSOURI will finally become the last state with a sales tax to apply its tax to online sales. 
• Looking back on NEVADA’s legislative session shows a compromise on mining taxes but little other progress on addressing the state’s inadequate and inequitable tax code. 
• NEW JERSEY state senators unanimously advanced a bill banning differential pricing by gender, known as the “pink tax.” 
• As budget deliberations continue in NORTH CAROLINA, harmful income tax cuts remain central to the plans under consideration. 
• An interim study on eliminating the tax on groceries could be in the works in OKLAHOMA as lawmakers on both sides of the aisle have expressed interest in exploring the option and ways to make up the lost revenue. 
• OREGON legislators attempted to raise taxes on the state’s powerful timber industry, but ended up cutting its taxes instead. 
• RHODE ISLAND lawmakers approved a $13.1 billion state budget last week; the final budget does not include an income tax rate increase for the state’s top earners, but it does increase the state’s conveyance tax on homes sales over $800,000 with the revenue going towards expanding affordable housing. 
• WEST VIRGINIA will not only provide tax credits to firearms and ammunition manufacturers, the state has also eliminated the 6 percent sales tax on guns and ammunition. 

What We’re Reading 

• Route Fifty offers a 5-step guide for how states and localities can use federal fiscal relief money effectively, and an example of how one state (Montana) plans to use it to improve childcare options for its residents. 
• ProPublica’s groundbreaking exposure of the growing fortunes of the super-rich and the tax schemes they employ to grow them further continues to inspire calls to action, including an effort to reform Roth IRAs. 
• Sadaf Knight of the Florida Policy Institute writes how new revenue from online sales tax collection could have been used for key investments but will instead be used for business tax cuts. 
• Grassroots programs have introduced the idea of the voluntary land tax, a tax that non-Native residents and businesses can pay to support Native communities regain access to stolen land. 
• Californians are singing the praises of their progressive income tax for helping get the state through the pandemic-induced recession better than most. 

ITEP is partnering with Economic Security Project to bring anti-poverty experts together ahead of next week’s first distribution of the Child Tax Credit in monthly advance payments to eligible taxpayers. Join us for a discussion on why Congress should extend CTC expansions enacted under the American Rescue Plan beyond 2021 and what we can learn from an initiative providing low-income mothers in Jackson, Miss., $1,000 cash on a monthly basis, no strings attached. From theory to practice and what it means for American families, this CTC webinar will provide a unique angle through which to view this transformative policy. 

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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