State Rundown 2/12: State Tax Policy Heats Up as Winter Storms Sweep Much of the Country

Tax policy proposals are a hot topic of conversation across the country. Both North and South Dakota are considering property taxes cuts, while proposed cuts in Florida, Mississippi, and Texas are percolating. Meanwhile, fiscal conditions are tight in states like Alaska, Tennessee, Oklahoma, and West Virginia. None are on the cusp of passing new revenue, but years of recent tax cuts and inflation have caught up to states and many lawmakers have revenue gaps to close. 

For some light-hearted fun, if you’re unsure of what to give your Valentine this year consider sharing a Tax Valentine! 

Major State Tax Proposals and Developments

• KENTUCKY Gov. Andy Beshear signed legislation to cut the state’s income tax rate from 4.0 to 3.5 percent, effective in 2026. The measure was a top legislative priority for lawmakers this session and is part of a push to ultimately eliminate the state’s income tax. – ELI BYERLY-DUKE 

• MISSISSIPPI Senate leaders unveiled their tax plan in response to the House and Governor-backed “Build Up Mississippi Act” which would, among other things, phase out personal income taxes over 10 years. The Senate plan would bring the state’s flat income tax rate from 4.4 to 2.99 percent by 2030 while dropping the sales tax on groceries from 7 to 5 percent immediately. The House plan would levy a new fuel tax and divert sales tax revenue from municipalities to infrastructure projects, whereas the Senate proposes a phased-in 9 cent gas tax increase. Senate Finance Chairman Josh Harkins anticipates the plan will cost upwards of $300 million a year. – NEVA BUTKUS  
• Voters in Seattle, WASHINGTON are likely poised to create a new payroll tax. Though votes are still being counted, voters have approved funding the city’s social housing developer and favor a 5 percent payroll tax on incomes over $1 million. This tax would raise an estimated $53 million a year to build social housing in the city. – RITA JEFFERSON 

State Roundup

• 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.  

• As ALASKA faces a worsening budget outlook, lawmakers have made it clear that new taxes are not being seriously considered, which could lead to deep budget cuts or a reduction in the state’s Permanent Fund dividend. 

• CONNECTICUT Gov. Ned Lamont unveiled his $55.2 billion biennial budget, which includes 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. Additionally, the governor included a proposal to reform combined reporting rules to eliminate a provision that caps the amount a company’s taxes can be raised at $2.5 million.  

• Gov. Ron DeSantis of FLORIDA is again pushing for property tax cuts, floating the idea of dramatically increasing the state’s homestead deduction which currently exempts the first $25,000 of a home’s value from all property taxes and the second $25,000 from non-school taxes.  

• NORTH DAKOTA lawmakers advanced a bill out of committee that would cap property tax increases for local governments at 3 percent each year and increase the primary residence tax credit from $500 to $1,450. The bill would also eliminate income taxes for single filers earning up to $54,000 per year and joint filers earning up to $90,000 per year.  

• OKLAHOMA legislators are skeptical of Gov. Kevin Stitt’s proposed 0.5 percent personal income tax cut. Although the governor continues to insist it would only cost about $200 million a year, it would actually cost about $600 million a year, according to legislative leaders and our analysis. 

• SOUTH DAKOTA lawmakers will reconsider efforts to cut property taxes and make up the revenue with a sales tax rate increase. Gov. Larry Rhoden said that the proposal to eliminate property taxes on single-family homes and offset the cost by increasing the sales tax rate from 4.2 to 5 percent is no longer the leading solution as the legislature has shifted its focus and will seek to reduce spending rather than increase taxes.  

• TEXAS Gov. Greg Abbott wants to make it harder for local governments to raise property taxes by requiring a two-thirds majority vote. 

• WEST VIRGINIA lawmakers face an operating deficit of up to $400 million, according to Gov. Patrick Morrisey. Previous Gov. Jim Justice oversaw numerous tax cuts while promising that the state’s budget would remain balanced. 

What We’re Reading

• The Economic Policy Institute lays out the risks in exempting tips from state income taxes. Tipped workers don’t need a tax cut any more than similarly paid workers in non-tipped occupations. They warn that if exemptions pass into law, the system is likely to be gamed and pressure to tip is sure to expand.

• The editorial board for Jackson Hole News & Guide in Wyoming outlines why Senate File 69—a property tax cut bill—is misguided, noting how drastic cuts in revenue would affect local funding for critical services. 

 

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