January 28, 2025

State Tax Watch 2025

Updated May 1, 2025

In 2025, many state lawmakers face substantial gaps between revenue and spending that will undoubtedly lead to some combination of tax increases or spending reductions. In states without forecasted deficits, state revenues are slowing; and that reduction will be even more dramatic in states that have deeply cut taxes in recent years.

Meanwhile, states are facing immense uncertainty around federal tax and budget decisions, many of which could threaten state budgets. Lawmakers have a choice: advance tax policy that improves equity and helps communities thrive, or push tax policies that disproportionately benefit the wealthy, drain funding for critical public services, and make it harder for working-class families to get ahead.

ITEP tracks tax discussions in legislatures across the country and uses our unique data capacity to analyze the revenue, distributional, and racial and ethnic impacts of many of these proposals. This page is updated with the latest news and movement from each state.

You can also get weekly updates by signing up for our State Rundown newsletter.

To learn more about state taxes across the country, read our latest edition of Who Pays?

Below are summaries of tax legislation discussed or approved in each state. Click on your state to jump to the summary.

•	Alabama
•	Alaska
•	Arizona
•	Arkansas
•	California
•	Colorado
•	Connecticut
•	Delaware
•	District of Columbia
•	Florida
•	Georgia
•	Hawaiʻi
•	Idaho

•	Illinois
•	Indiana
•	Iowa
•	Kansas
•	Kentucky
•	Louisiana
•	Maine
•	Maryland
•	Massachusetts
•	Michigan
•	Minnesota
•	Mississippi
•	Missouri

•	Montana
•	Nebraska
•	Nevada
•	New Hampshire
•	New Jersey
•	New Mexico
•	New York
•	North Carolina
•	North Dakota
•	Ohio
•	Oklahoma
•	Oregon
•	Pennsylvania

•	Rhode Island
•	South Carolina
•	South Dakota
•	Tennessee
•	Texas
•	Utah
•	Vermont
•	Virginia
•	Washington
•	West Virginia
•	Wisconsin
•	Wyoming

Alabama

Lawmakers exempted overtime pay from state income tax in 2023, but the exemption expires in June of this year unless renewed. The policy has become increasingly expensive, blowing past its initial projected annual cost of $34 million and costing the state $230 million between January and September of 2024.

Alaska

Faced with a $1.7 billion budget deficit, lawmakers have introduced tax increases on the oil industry that include reducing the value of certain tax credits and applying corporate income taxes to privately held oil companies. A separate bill would levy a corporate income tax on some out-of-state businesses that operate as online retailers. Without sufficient new revenue, lawmakers may consider filling the gap by either cutting the Permanent Fund Dividend or forgoing the temporary boost in education spending that the legislature authorized last year.

Arizona

In her executive budget proposal, Gov. Katie Hobbs called for $10 million per year for six years to expand the State Low Income Housing Tax Credit.

Arkansas

Gov. Sarah Sanders signed legislation to eliminate the state’s 0.125% state sales tax on groceries. The change is expected to cost the state $10.6 million a year.

California

After two years of budget deficits, Gov. Gavin Newsom proposed a balanced budget. However, his plan would further pull from rainy day funds to finance new priorities. The state’s fiscal outlook has stabilized due to rising tax collections.

Colorado

Faced with a $700 million shortfall, lawmakers are weighing spending cuts. Property tax cuts are also being discussed as a high-priority issue.
Some legislative leaders are pursuing solutions to the “TABOR” policy that has stifled the state’s ability to fund shared priorities or improve tax fairness for over 30 years. Their strategy involves exempting some infrastructure funding from the spending cap, moving to a graduated income tax structure, and challenging TABOR itself in court.

Connecticut

Lawmakers are gearing up to debate varying tax proposals as budget deadlines approach. Some legislators, bracing for potential cuts in federal spending, have proposed ideas like increasing the capital gains tax by one percentage point, creating a $600 per child refundable Child Tax Credit, and increasing the top two marginal personal income tax rates. Meanwhile, lawmakers are considering a plan that would levy a 2-cent tax on each fluid ounce of sweetened beverages sold.
In his budget, Gov. Ned Lamont included an increase to the state’s property tax credit (from $300 to $350), a restructuring of hospital taxes, an increase to the biotech R&D credit, and elimination of the capital stock tax. His budget also aims to reform corporate taxes in a number of ways, including the removal of a harmful cap that allows companies to avoid taxes by shifting their profits into low-tax states.
Meanwhile, Democratic lawmakers have proposed phasing out the car tax over 5 years and a separate bill would create a 1.5% payroll tax paid by employers to ensure families pay no more than 7% of their household income on childcare. Republicans in the Senate released a tax plan that would cut the bottom two marginal income tax rates and cap municipalities' ability to increase annual property tax at 2%. Another proposal to create a $600 per-child refundable Child Tax Credit has garnered support of roughly 42% of the state’s legislators.

D.C.

The District is facing a more than $1 billion budget shortfall over the next three and a half years due to tax revenue reductions due to the ongoing layoffs of federal workers. The D.C. council’s chairman noted that raising taxes is not an option for him, but the mayor says nothing is off the table.

Delaware

Gov. Matt Meyer proposed a budget that includes three new tax brackets. The proposal, which would create brackets at $125,000, $250,000, and $500,000 with a new top rate of 6.95%, would ask more of the state’s wealthiest taxpayers and is estimated to raise $35.2 million in 2027.
The governor’s budget also includes fees on state parks and roads and tax increases on cigarettes and other tobacco products.
Meanwhile, after companies such as Meta and Tesla threatened to leave the state and incorporate elsewhere, lawmakers quickly passed legislation to overhaul the state’s corporate law, favoring controlling shareholders of large companies. The legislation, signed into law by the governor, will alter how companies can use independent directors to ensure the deals they’ve made will not be subject to court scrutiny and limit the records that shareholders can obtain from companies when investigating possible breaches of fiduciary duty.

Florida

Lawmakers may extend their legislative session as the House and Senate disagree over final budget and tax plans. The centerpiece of the House plan focuses on reducing the state’s general sales tax rate from 6% to 5.25% and would reduce other sales tax rates by 0.75% as well. The legislation also redirects some tourism development taxes to local government coffers. Senate leaders have proposed exempting clothing items and shoes that cost $75 or less from sales tax, reducing the business rent tax, and enacting more sales tax holidays. Additionally, Gov. Ron DeSantis is pushing for a $1,000 property tax rebate.
Meanwhile, House lawmakers have created a committee to craft a constitutional amendment addressing property taxes for the 2026 legislative session. Policies for consideration include requiring municipalities to hold referendums on property taxes, creating new homestead exemptions of $500,000 for homeowners and $1 million for seniors, and capping assessment increases, among other policies. The House also passed $5 billion in cuts to sales and other taxes, but that bill’s fate is highly uncertain and it is opposed by Gov. DeSantis.

Georgia

Gov. Brian Kemp signed legislation to fast track the state’s phased-in personal income tax rate reductions and legislation to provide individual tax rebates. The first bill lowers the state’s flat rate from 5.39% to 5.19% starting July 1, at the cost of roughly $880 million a year. The state’s income tax rate is expected to hit 4.99% in 2027. The second would provide a rebate of $250 to individuals and $500 to married couples for Georgians filing income taxes. Additional legislation that would expand the state’s Child and Dependent Care Credit and create a nonrefundable Child Tax Credit await the governor’s signature.
Last year voters opted to create a property tax valuation cap that limits annual growth in assessments to the rate of inflation. It included an opt-out provision for municipalities, which many taxing districts – including two-thirds of school districts – across the state used to opt out of the cap fearing that the caps could lead to funding shortages. The legislature is now trying to force municipalities to abide by the cap by requiring them to hold another round of local referendums in 2027 to either opt out or be placed under the cap by state law.

Hawaiʻi

In his State of the State address, Gov. Josh Green touted recent income tax cuts that are estimated to cost the state $5.6 billion in lost revenue over seven years.

Idaho

Gov. Brad Little signed over $400 million in tax cuts into law. The bills cut the state’s personal and corporate income tax rates from 5.695% to 5.3%, remove capital gains tax from sales of gold bullion, expand the income tax exemption to military pension benefits, increase the state’s grocery tax credit, and reduce property tax revenue by $100 million a year.
The governor also signed into law a $50 million school voucher program that will direct state funds to residents choosing to send their children to private schools or homeschool. It will provide up to $5,000 per student for eligible expenses, including private school tuition. However, lawmakers have since rejected the Idaho Tax Commission budget because they’ve identified that the previously approved $50 million for private schools would cost $675,000 to implement.
Meanwhile, the state’s Child Tax Credit, which provides families with a $205 nonrefundable credit for children under 17, is set to expire at the start of 2026 after lawmakers ended the 2025 legislative session without taking action on reauthorizing the policy.

Illinois

Gov. JB Pritzker laid out his plan to close Illinois’ impending $3.2 billion deficit in his address to the state. The plan would raise $469 million in new revenue through adjusting tax rates on certain types of gambling, pausing a sales tax transfer to the road fund, and offering temporary amnesty for taxpayers making delinquent tax payments.
Meanwhile, following the state's nonbinding ballot initiative on whether the state should consider creating a 3% surtax on income over $1 million to fund property tax cuts, lawmakers are weighing what form those property tax cuts could potentially take.
Advocates in the state released a bold set of progressive tax proposals that could raise billions for shared priorities in the state. The options include cracking down on corporate tax avoidance through Worldwide Combined Reporting and other means, raising existing progressive taxes such as the corporate income tax and estate tax, and creating new taxes such as a “mark-to-market” wealth tax on billionaires and a Capital Gains Excise Tax modeled after the highly successful version in Washington.

Indiana

The state has wrapped its legislative session. Among the agreed upon changes was a $2 increase to cigarette and tobacco excise taxes and a higher business personal property tax exemption which was set to increase from $80,000 to $1 million in 2025 but is now delayed until 2026 and will increase to $2 million. Indiana also passed a massive property and local 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% (down from 3.75%) and allows locals to levy a tax of up to 1.2%, 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.
Meanwhile, the state's income tax rate continues to be lowered over time per a legislative trigger. And, notably, the Senate unanimously passed a new tax credit --the $500 refundable tax credit for newborns that parents can claim the first year of an infant’s life would be available to families making under 720% of the federal poverty line. The credit did not make it into the final budget agreement.

Iowa

Gov. Kim Reynolds identified property tax cuts as a focus for the state’s 2025 legislative session. This raised concerns from some lawmakers already worried about the budget due to an expected $1 billion reduction in revenue over a 24-month-period from previous deep personal income tax cuts. Lawmakers are now debating a proposal to cap state property taxes used to fund schools. Although the measure initially backfills the revenue for local governments, the state has cut revenue enough that it may not be able to afford the continued expense.
Meanwhile, the Senate advanced a $1 billion cut to the state’s unemployment tax. And lawmakers are working to enshrine the state’s flat tax into the state constitution.

Kansas

In a showdown between the Gov. Laura Kelly and Republican lawmakers, Gov. Kelly vetoed Senate Bill 269 and the legislature overrode her veto. 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. The legislation will ultimately, through legislative triggers, bring the state’s graduated individual and corporate income taxes to flat rates of 4%. Per the governor, the income tax cuts could cost the state up to $1.3 billion a year.
Lawmakers also passed changes to the state’s low-income housing tax credit after initial legislation sought to eliminate the program. The program subsidizes the building of affordable housing through $25 million in tax credits a year. The compromise legislation will keep the credits until 2028 but lower the yearly maximum from $25 million to $8.8 million.
Also, as of this year, the state's sales tax on groceries has been eliminated.

Kentucky

Gov. Andy Beshear signed legislation to cut the state’s income tax rate from 4% to 3.5%, effective in 2026. The measure, which will reduce annual revenue by roughly $700 million, was a top legislative priority for lawmakers this session and is part of a push to ultimately eliminate the state’s income tax.

Louisiana

Louisiana voters overwhelmingly rejected four constitutional amendments, some of which would have rewritten large parts of the state's budget and tax laws. Amendment 2 would have lowered the state’s constitutional cap on income taxes from 4.75% to 3.75% while also limiting state budget growth. Despite voter rejection of the measure, state lawmakers are already discussing how to repackage and revive the amendment this legislative session. Session is now underway and lawmakers are also considering more than doubling the state’s tax rate on sports betting from 15% to 32.5%.
During a special session in late 2024, the legislature approved Gov. Jeff Landry’s regressive tax package that replaced the state’s tiered personal income tax structure with a flat 3% rate and cut business taxes. The plan used sales tax increases to make up for a portion of the lost revenue.
Additional triggered tax cuts are underway and could potentially go into effect in 2026.

Maine

Looking to fill a $450 million revenue shortfall over the next two years, Gov. Janet Mills announced plans for a "lean" budget with targeted tax changes in the form of cigarette excise tax, cannabis tax, and casino tax increases in the coming year.
Lawmakers, meanwhile, have proposed bills that would implement a local option sales tax on short-term property rentals, increase capital gains tax rates, double the state’s real estate transfer tax for properties sold for over $1 million, and reform income tax rates and brackets to promote greater equity. Lawmakers are also considering bills to increase the state's Homestead Property Tax Exemption and expand the state’s Dependent Exemption Tax Credit, their state Child Tax Credit, by allowing families with kids younger than 6 to receive an additional $300 per child.

Maryland

Lawmakers finalized a budget that includes $1.6 billion in tax and fee increases to help close the state’s $3.3 billion deficit. The overall progressive tax package includes two new brackets for high-income residents earning over $500,000 and $1 million a year, a 2% tax on capital gains for those earning over $350,000, a phaseout of the itemized deduction for those earning over $200,000, and tax increases on cannabis, sports wagering, and digital services.
Gov. Wes Moore’s budget plan initially included increasing income taxes on households earning over $500,000 and $1 million, levying a 1% capital gains tax surcharge, eliminating itemized deductions, doubling the standard deduction, improving to the state's Child Tax Credit, eliminating the state inheritance tax, reducing the corporate tax rate, and enacting water’s-edge combined reporting for corporate income. His full proposal was estimated to raise $819 million. Moore also proposed $2 billion in budget cuts.

Massachusetts

Gov. Maura Healey's newly released budget makes use of revenue from the state's new surcharge on high earners and includes a handful of revenue raising provisions that would cap the state charitable deduction, close a variety of tax loopholes, and extend existing sales and excise taxes to some products not currently subject to these taxes.

Michigan

In her budget proposal, Gov. Gretchen Whitmer included $208 million in additional taxes. The largest revenue raiser is an increase to landfill tipping fees for environmental initiatives. She also included a new tax on vape and nontobacco nicotine products.
The state is expected to have a roughly $850 million surplus and see growth in tax revenue over the next three years. The Republican-controlled House passed legislation that would reduce the state’s income tax rate from 4.25% to 4.05%.

Minnesota

Amidst a forecasted deficit, Gov. Tim Walz proposed sales tax changes. His proposal would reduce the state sales tax rate from 6.875% to 6.8% (a $95 million revenue loss) and couple that with an expansion to the sales tax base on previously exempt services, like tax preparation (raising $203 million annually). On net, the tax change would increase revenue by $108 million. Gov. Walz has also proposed increasing a surcharge on health maintenance organizations (HMOs) which would raise an additional $90 million.
Meanwhile, House members have unveiled the “Protect Medicaid, Not Millionaires” Act, which would create a personal income tax bracket on single filers with incomes over $1 million and married filers over $1.66 million that would adjust based on the revenue needed to compensate for lost federal funding for Medicaid.

Mississippi

Gov. Tate Reeves signed into law a tax cut bill that will, over time, fully eliminate the state’s individual income tax. The bill phases down the state’s personal income tax rate from 4% to 3% in 2030 and then further reduces the rate, ultimately to zero, using triggered reductions. The bill also reduces the state’s sales tax on groceries from 7% to 5% and increases the gas tax from 18.4 to 27.4 cents over three years. An ITEP analysis of the fully implemented legislation shows an annual revenue loss of nearly $2.7 billion (if in effect today), with the top 1% of Mississippians receiving an average tax cut of $41,420.
Separate legislation would increase the amount of tax credits that can be allocated toward private school vouchers from $9 million to $40 million annually by 2027.

Missouri

The House again passed legislation that would fully exempt capital gains from the state’s income tax (a measure that has also passed the Senate), despite significant concerns over the measure’s cost. The capital gains exemption, which makes up most of the bill, would alone direct 80% of the tax cuts to the richest 5% and two-thirds of its tax cuts to the top 1%. The tax package would also expand the state’s senior property tax circuit breaker. This plan is similar to the latest passed by the Senate, but with a few tweaks: no sales tax exemptions for diapers or period products, and a slightly more generous circuit breaker proposal.
The House continues to debate a proposal to shift to a flat personal income tax and reduce the top rate over several years. When fully implemented, the state estimates the measure will reduce revenue by $1.7 billion.
In his state address, Gov. Mike Kehoe called for the elimination of the state's personal income tax.

Montana

Gov. Greg Gianforte signed into law a multi-year tax cut (HB 337) that goes into effect over the next two years. The changes include cutting the top marginal income tax rate from 5.9% to 5.4% (5.65% in the first year), bracket changes for capital gains and the personal income tax, and doubling the state Earned Income Tax Credit from 10% to 20%.
Lawmakers continue to discuss property tax cuts. Both parties have received bipartisan support for their respective proposals. The governor’s bill would cut property taxes for resident homeowners and landlords by increasing them on second homes and short-term rentals. Competing bills would create a property tax credit for low- and middle-income residents (including renters) and modify the governor’s plan to specify a progressive rate structure for residential properties.

Nebraska

Lawmakers, already facing a difficult reckoning from previous tax cuts, saw the state’s shortfall grow last week as forecasters took the ailing national economy and tariffs into account. Reversing income tax cuts or pulling back on state-funded property tax offsets seem politically improbable, so legislators are chipping away at the shortfall through smaller changes. These include: sales tax expansions to more services and pop and candy, reducing state contributions to the teacher retirement system, raiding cash funds intended for other purposes, reducing business tax subsidies, and various budget cuts. Meanwhile a bill is advancing to further reduce the state’s progressive inheritance tax and replace the revenue with regressive fee increases on things like vehicle inspections and marriage licenses.
Previously, Gov. Jim Pillen proposed raising taxes on cigarettes, spirits and fantasy sports, and adding new taxes on candy and soft drinks. He's also expressed interest in directing that revenue to property tax cuts through school aid changes and has proposed cutting millions from higher education.
Citing current budget troubles, lawmakers have shelved a bill designed to restore the “missing year” of property tax reductions created last summer when they revamped those policies and accidentally raised property taxes on most Nebraskans for one year.

Nevada

Lawmakers are working to identify ways to erase a $85 million deficit after Gov. Joe Lombardo recommended a two-year budget that did not include any offsetting revenue. The state has since revised their revenue projections downward, due to lower tourism and sales tax revenues.

New Hampshire

Details to come.

New Jersey

In his budget proposal, Gov. Phil Murphy has proposed new tax provisions that would raise about $1 billion. Included is a roughly $320 million increase in taxes on the sale of mansions in the state. Most of the proposals are related to sales and excise taxes: expanding what is subject to the sales tax base; increasing rates on alcohol, cannabis, gambling, tobacco, and firearms; and creating a tax on warehouse truck traffic.

New Mexico

In a compromise agreement, the legislature agreed to replace the state's Working Families Tax Credit with a state Earned Income Tax Credit, which will expand eligibility and increase the rate from 25% to 34% of the federal credit. The package will also raise liquor taxes for a tribal alcohol alleviation fund, create a credit for foster parents and guardians, and remove medical services from the gross receipts tax. A new tax on oil that would have paid for these changes on an ongoing basis at a very low rate (0.28%) was scuttled late in the negotiations, so lawmakers will draw $113 million from reserves to fund the first-year cuts instead.
Earlier this year, an assessment of poverty in the state found that it has declined by more than a third since recent tax changes were implemented. Lawmakers worked to build on that progress with a bill to double the state Child Tax Credit for children under the age of six from roughly $600 to $1,200.

New York

Lawmakers reached a budget agreement. Full details are not yet publicly available but the package reportedly includes: an increased Child Tax Credit amounting to $500 for older children and $1,000 for young children, income tax rate cuts on the lowest few tax brackets (which are targeted to low- and middle-income families thanks to New York’s “rate recapture” provision), cuts to a payroll tax for transportation needs, and $2 billion in one-time rebates of up to $400 per family.
The legislation largely aligns with the tax proposals in Gov. Kathy Hochul’s state address.
Lawmakers are also considering a bill, called the “RECOURSE Act,” that would allow the state to withhold money from the federal government in response to the Trump administration unlawfully withholding federal dollars.

North Carolina

Despite the state having announced slowing revenues and a projected budget deficit, the Senate passed a budget that speeds up existing cuts and would further reduce the state’s individual income tax rate to 1.99% through revenue triggers between 2029 and 2036.
In contrast, Gov. Josh Stein’s budget proposal included a freeze to the state's personal income and corporate income tax rate cuts at current amounts, rather than allowing further scheduled reductions to occur. His plan would also scale back private school vouchers, replace the child deduction with a refundable Child Tax Credit and create a refundable Earned Income Tax Credit set at 20% of the federal credit.
The income tax rate recently dropped one quarter of a percent, from 4.5% to 4.25% -- resulting in an estimated $1.25 billion annual revenue loss. An additional cut is scheduled for tax year 2026, bringing the state's flat income tax rate to 3.99%. The legislature's fiscal research division projects a structural budget deficit by 2027 driven by the cumulative effect of ongoing tax cuts.

North Dakota

The Senate unanimously passed a property tax bill - which includes significant provisions such as a primary residence credit, renters rebate, and disabled veterans property tax credit - totaling over $511 million in cuts over two years. This bill serves as an alternative to a property tax bill supported by Gov. Kelly Armstrong that is currently in a conference committee with major points of contention.
Meanwhile, the House passed legislation that would raise the state gas tax for the first time in 20 years, increasing the tax by 5 cents to 28 cents per gallon. The change is expected to generate approximately $70 million over the next two years to fund road repairs and construction. The House added the increase as an amendment to the Senate’s transportation funding bill after the Senate narrowly rejected a separate effort to increase the tax by 3 cents.
Both legislative branches agreed to legislation that would establish an Education Savings Account for private school students. The bill, which is estimated to reduce revenue by $20 million in the first year, would provide private school vouchers of up to $4,000 per year (amounts would vary depending on household income). The bill now moves to Gov. Armstrong for his signature.

Ohio

Gov. Mike DeWine’s proposed budget would create a new young Child Tax Credit for children of working families. The refundable credit of up to $1,000, depending on earnings, would provide a boost to children under seven. The maximum credit is available to eligible children if their parents are employed on a full-time basis before it begins phasing out. His budget would also expand eligibility for publicly funded child care programs and raise taxes on tobacco, marijuana, and sports betting.
Meanwhile, conversations around property taxes cuts continue, following a committee report on property tax reforms.

Oklahoma

Gov. Kevin Stitt has repeatedly called for a individual income tax cut of 0.5% and eventual elimination of the tax. Legislators have expressed skepticism. While the governor insists the rate cut would cost about $200 million a year, it would actually result in roughly $600 million a year in forgone revenue.
The governor has also made the case for a business income tax cut. And lawmakers are debating a bill that would immediately cut personal income taxes and reduce the rate per a triggered reduction until the tax is ultimately eliminated. The state recently eliminated its sales tax on groceries and faces a tighter fiscal picture this year.

Oregon