Just Taxes Blog by ITEP

State Rundown 9/26: Shady State Business Tax Subsidies Coming to Light

State Rundown 9/26: Shady State Business Tax Subsidies Coming to Light

September 26, 2019

Meg Wiehe
Meg Wiehe
Deputy Director

Lawmakers in Michigan and New Hampshire made progress toward enacting their state budgets, though Michigan may yet end up in a government shutdown. Leaders in Wyoming advanced a proposal to create a limited tax on large corporations to raise some revenue and add a progressive element to their state’s tax code. Georgia agencies are forced to recommend their own funding cuts amid state income tax cuts. And business tax subsidies are looking particularly bad in Maryland, where subsidy money has been handed out without verification that companies were creating jobs, and New Jersey, where a false threat to leave the state was all it took for companies to bilk the state out of hundreds of millions in subsidies.

— MEG WIEHE, ITEP Deputy Director, @megwiehe

Major State Tax Proposals and Developments

  • GEORGIA Gov. Brian Kemp has asked state agencies for advice on how to slash their budgets to make room for the costly income tax cuts enacted by Kemp and lawmakers in 2018. They’ve been asked to recommend funding cuts of 4 percent this fiscal year and 6 percent next year, totaling more than $500 million. To comply, agencies have had to include cuts to child and adolescent mental health services, school nutrition, investigations of senior abuse, and testing of rape kits. Hopefully lawmakers will remember this when they consider even deeper income tax cuts in 2020.
  • Lawmakers in MICHIGAN have sent Gov. Gretchen Whitmer a budget that fails to include a long-term solution to the state’s ongoing infrastructure deficits, instead relying on transferring even more general fund money to cover some road and bridge repair rather than investing those funds in other priorities such as education. The conservative legislature did not include a gas tax increase in the package and assembled the budgets with little negotiation with the governor’s office. The governor has until October 1 to sign, veto, or partially veto the bill, with delays resulting in possible government shutdowns.
  • NEW HAMPSHIRE leaders have reached a compromise on the state budget, which Gov. Chris Sununu had initially vetoed over his insistence on business tax cuts. The business tax cuts are now included in the budget compromise, but will only take effect if revenues exceed projections by 6 percent. Taxation of GILTI (global intangible low-taxed income) will raise about $15 million from large corporations and help offset those cuts. The budget also includes full funding for schools and a special education funding increase, but a smaller than requested Medicaid provider rate increase.
  • A joint revenue committee in WYOMING has advanced a bill that would enact a 7 percent corporate income tax on businesses with more than 100 shareholders. (The bill is expected to have some further development in advance of the 2020 legislative session.) Based on its current formulation, the tax would raise an estimated $23 million annually, which isn’t a lot of revenue, but does help diversify the state’s tax base as it strives to become less dependent on a more volatile energy sector.

State Roundup

  • A new labor law in CALIFORNIA is raising questions about the tax implications for gig workers. The law makes it harder for firms who connect workers to customers via online platforms as independent contractors vs employees, which likely means these employers will need to start withholding and remitting income and payroll taxes.
  • Also in CALIFORNIA, it is likely the state supreme court will need to clarify whether supermajority requirements apply to local special tax initiatives, including those proposed by the ballot, as trial courts have reached two different determinations on the matter.
  • After a recent increase in CONNECTICUT’s sales tax on prepared meals was interpreted as an expansion to many items generally considered groceries, like bagged lettuce and bagels, Gov. Ned Lamont ordered a review and the Department of Revenue Services has revised its guidance to narrow the scope of the tax.
  • Candidates for LOUISIANA governor have different takes on tax topics such as local control over the Industrial Tax Exemption Program, the deduction for federal taxes paid, and tax increases enacted to resolve an ongoing budget crisis. On the latter topic, the Advocate provides a fitting reminder of the state’s rocky history with tax cuts in times of surplus, warning against similar impulses as the state’s budget numbers now show a $500 million surplus.
  • Seventy percent of MARYLANDers polled said the state doesn’t invest enough in education, and 74 percent said they would personally pay more taxes to support those investments, but only 22 percent were aware of a major study conducted by the state (the Kirwan Commission) that has recommended just such increases but has met reluctance from state legislators.
  • In other MARYLAND news, an audit of the state’s corporate subsidies found that the Department of Commerce could not verify that the companies awarded subsidies had actually created any jobs.
  • MINNESOTA’s transportation commissioner is calling for a gas tax increase and debt service fee in order to generate badly needed funding for the state’s infrastructure projects. In WISCONSIN, lawmakers are trying to divert more general revenue funding into transportation projects while the governor is calling for cooperation towards a long-term solution.
  • An effort to put an income tax credit for 35 percent of property taxes paid on the ballot in NEBRASKA is again gaining attention with an uptick in contributions and volunteers to gather signatures.
  • NEVADA lawmakers voted earlier this year to remove a sunset date from a previously approved increase to the state’s Modified Business Tax, but that bill is now being challenged in court. Opponents are arguing that removing the sunset is tantamount to increasing a tax, which requires a two-thirds supermajority vote in Nevada.
  • A close look at business tax subsidies in NEW JERSEY is revealing major issues with these policies in the Garden State and shedding light on how problematic they can be in general. The latest development is a New York Times investigation uncovering that 12 New Jersey businesses made a coordinated but disingenuous threat to move to New York in order to get more than $200 million in corporate subsidies. Meanwhile lawmakers are proposing to re-define beachfront boardwalks as “roads” so they can use gas tax dollars to invest in their communities in ways that actually grow economies.
  • NORTH DAKOTA lawmakers are beginning to study cannabis legalization and taxation.
  • The most recent effort to reform education finance in PENNSYLVANIA appears to be at an impasse, as a coalition of lawmakers can’t reach agreement as to whether the goal is to eliminate property taxes or reduce reliance on them.
  • Many localities in TEXAS are acting to increase property taxes before a new state law goes into effect in 2020 that caps the ability of local governments to increase revenues above 3.5% without a vote of the people.
  • UTAH lawmakers also have transportation funding on the top of mind, evident in the focus of a recent legislative summit, policy debates exploring raising the gas tax vs implementing toll roads, and a participation in a pilot program exploring road usage fees as a longer-term alternate funding source.
  • WEST VIRGINIA lawmakers are prepping for the possibility of across the board budget cuts if tax collections continue to come in under projections, due to a “soft” energy economy.

What We’re Reading

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.