State Rundown 5/10: Spring Tax Debates at Different Stages in Different States

This week saw a springtime mix of state tax debates in all stages of life. In West Virginia and Louisiana, debates over income tax reductions and comprehensive tax reform are full of vigor. Other debates that bloomed earlier are now settled, such as Florida‘s now-complete budget debate and the more florid debates over gas taxes in South Carolina and Tennessee. Still others are just now beginning to sprout, as Oregon begins to debate its gas tax and a new gross receipts tax, a tax study starts up in Arkansas, another round of tax cuts are on the table in North Carolina, and a special session has been announced in New Mexico.

— Meg Wiehe, ITEP Deputy Director, @megwiehe

Active tax debates continue in several states:

• In West Virginia, the House and Senate remain at odds over any potential tax plans. Concern remains regarding the fairness of proposed income tax reductions (and ultimate elimination).
• Revenue bills are having various success this week in Louisiana. On Monday, a House Committee advanced a plan to make permanent the current temporary expansion of the sales tax based to previously exempt items and a lawmaker’s plan that would impose flat personal and corporate income tax rates, eliminate the deduction for federal income tax paid, and expand the EITC and standard deduction. On Tuesday, lawmakers failed to advance a bill to restructure business taxes and another bill supported by the governor that would lower personal and corporate income tax rates conditioned on the removal of the deduction for federal personal income taxes from the state constitution.
• Lawmakers in Michigan are sending legislation to Gov. Rick Snyder that would provide a significant tax break for developers building on “brownfields” or blighted lands. The tax breaks would exempt developers (including those investing up to $500 million in capital assets) from sales and use taxes and allow them to keep 50% of the income taxes from workers at the development site.
• A Nevada Senate committee has advanced a bill that would determine how the state will tax retail marijuana sales and use the resulting revenue, the first such bill to advance but not the only one being considered. Rates considered in various bills range from 10 to 15 percent, with the money going primarily to public education or local governments.

As others wrap up for the year:

• South Carolina lawmakers passed a gas tax update this week and then overrode Gov. McMaster’s veto of the bill. The bill raises the gas tax by 12 cents over six years but does not index the tax for inflation. It also increases the vehicle sales tax cap and raises vehicle registration fees. Lawmakers added some odd provisions to secure additional supporters: a state Earned Income Tax Credit set at 125 percent of the federal credit — which is not refundable, rendering it meaningless to most low-income families — and a tax credit that requires drivers to itemize every dollar spent on gas and vehicle maintenance.
• Florida‘s legislature passed a budget this week that “virtually ignored” Gov. Rick Scott’s agenda. The final version included only $75 million of the governor’s requested $618 million in tax cuts. Tax measures include cutting the business rent tax, renewing the state’s back-to-school sales tax holiday, and exempting diapers and feminine hygiene products from the sales tax.
• Now that the state has finally updated its gas tax, Tennessee officials have released the state’s plan for road and transportation improvements throughout the state.

While still others are just beginning:

• North Carolina’s budget debate is about to heat up.  The North Carolina Senate dropped its two year budget this week and included a close to $1 billion tax cut previously approved by the chamber, but failed to include funding for their mandated classroom size reduction initiative nor adequately support communities in disrepair from last year’s Hurricane Matthew.  From a NC Budget and Tax Center brief: “[the Senate budget] reflects an aggressive pursuit of tax cuts for the wealthy and profitable corporations in spite of increased uncertainty around federal funding to North Carolina and growing unmet needs in communities across the state.”
• New Mexico’s Gov. Susana Martinez has called a special session to begin May 24 to address the state’s ongoing budget crisis. Although the governor has suggested the session should be about a tax overhaul, the context heading into the session suggests a less rosy picture for reform: the governor already vetoed tax increases included in the legislative budget; the session is strictly focused on her budgetary priorities; and after cutting all funding for the legislature in the coming fiscal year (a move being challenged in court), the two branches of government aren’t particularly on the best terms.
• A draft transportation funding plan in Oregon is under consideration by the Joint Committee on Transportation and Modernization. The plan includes a gas tax increase, increased title and registration fees, a tax on new cars and bikes, and a 0.1 percent payroll tax in order to invest in needed infrastructure improvements. The committee hopes to have the bill to the House floor by early June.
• Members of the Arkansas Tax Reform and Relief Legislative Task Force have been appointed and are scheduled to begin their monthly meetings starting the week of May 21. The task force was created this past legislative session to placate lawmakers who wanted bigger tax cuts than the one advanced by Gov. Hutchinson.

What We’re Reading…  

• Governing reports that gas tax increases have become more acceptable in states where they were once considered taboo. ITEP’s Research Director Carl Davis is interviewed about the trend, driven largely by broad business support for investing additional gas tax revenue in improved roads and infrastructure to spur state economies.
• Pew has released a comprehensive report as part of its industry-leading work to help states track and evaluate the true costs and benefits of business tax incentives.
  
• Matthew Desmond writes a compelling piece for the New York Times Magazine about U.S. housing policy and the role of housing tax breaks in widening income inequality.

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 meg@itep.org. Click here to sign up to receive the Rundown via email.