State Rundown 5/18: Tax Debate Heat Wave Hitting States

This week saw tax debates heat up in many states. Late-session discovered revenue shortfalls, for example, are creating friction in Delaware, New Jersey, and Oklahoma, while special sessions featuring tax debates continue in Louisiana, New Mexico, and West Virginia. Meanwhile the effort to revive Alaska‘s personal income tax has cooled off.

— Meg Wiehe, ITEP State Policy Director, @megwiehe

• With only a couple days left of regular session, Oklahoma lawmakers continue to search for ways to fill a nearly $900 million shortfall. A revenue package to increase the cigarette tax, gas tax, and production of oil and gas failed to pass the House.
• Delaware could raise its income tax rates and increase the corporate franchise tax for the largest businesses operating in the state as lawmakers and Gov. John Carney work to close a $400 million budget gap.
• New Jersey got unpleasant “April surprise” this week, learning that underperforming April revenues have created a $527 million budget shortfall that must be addressed before the end of June. To do so, Gov. Chris Christie’s administration will delay paying out money owed to local jurisdictions for homestead property tax credits and raid the state’s Clean Energy Fund. The administration has not proposed reversing the harmful tax cuts passed last year, which will cost the state more than $1 billion annually.
• Meanwhile, some New Jersey lawmakers are looking for ways to modernize Garden State’s revenue system. The state could become the latest to legalize and tax recreational marijuana, via a bill that would legalize sales and possession of small amounts and add a tax on those sales that grows from 7 percent to 25 percent over five years. Another bill that has been approved by the Assembly Budget Committee would subject Airbnb stays to the same taxes that apply to hotel visits.
• West Virginia’s special session continues to highlight a disconnect between the goals of the Senate and the House. Paring back the state income tax remains a sticking point.
• New Mexico will go into special session starting May 24th where Gov. Martinez wants to resurrect a major tax reform package from this past legislative session. HB 412 proposed significantly expanding the Gross Receipts Tax by eliminating existing exemptions (including taxing food) while also changing the personal income tax rates to a flat 5 percent.
• Prospects of significant tax reform this legislative session are dimming as lawmakers on the House Ways and Mean Committee have rejected all major tax reform proposals recommended by Louisiana‘s Task Force on Structural Changes in Budget & Tax Policy. However, a proposal to raise the gas tax has passed out of committee and will go to the full House for consideration.
• A Nevada bill to exempt feminine hygiene products from sales tax appears poised to pass, having cleared the Senate with unanimous approval. Businesses in the state could also see a payroll tax cut due to an automatic trigger put in place in 2015.
• Over the weekend, the Alaska Senate took up the House’s proposal to bring back a state personal income tax. The bill was defeated largely along party lines, leaving the state to deal with a multi-billion revenue deficit.
• Minnesota Gov. Mark Dayton vetoed multiple budget bills this week—sending lawmakers back to the drawing board with only six days left in the session. Key sticking points include disagreements over allocation of the state surplus, with Republican legislatures wanting significant tax cuts and the governor preferring increased spending investments.
• Arizona lawmakers passed a $9.8 billion budget which included deep service cuts and a handful of tax breaks. In other news, former Gov. Jan Brewer admitted that the size of previous tax cuts to corporations were a mistake, leaving Arizonans short for services.
• Maryland has become the first state to allow a tax credit for residential and commercial energy storage systems.
• Having already declined to raise Alabama‘s state gas tax earlier in the session, lawmakers this week also killed a bill that would have allowed counties to raise their own gas taxes if approved by a local vote. Until elections are behind them or unless a federal infrastructure plan requires state matching funds, lawmakers say, a gas tax update in Alabama is unlikely.

What We’re Reading…  

• In this New York Times piece, ITEP’s Carl Davis explains how in some states donors to private schools can actually turn a profit.
• Bloomberg predicts a rise in state gross receipts taxes if the U.S. Supreme Court rules against South Dakota‘s bid to collect sales taxes from online retailers.
• USC professor Edward Kleinbard proposes a new model for taxing capital income in an age of growing inequality.
• What happens when small government, anti-tax fervor plays out to the extreme? The New York Times reports on the experience of several southwest Oregon communities dealing with the ramifications of service cuts and closures.

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.