As lawmakers return to statehouses across the country, tax cuts look like they are once again high on their priorities list

Governors are ready to talk tax in 2023, and as lawmakers return to statehouses across the country, tax
cuts look like they are once again high on their priorities list.

As of 2/3/2022:

• With most state legislatures now in session, many lawmakers are considering tax cuts. We’re counting 25 states that are currently considering proposals to cut, flatten, or eliminate their personal income tax.
• Tax bills across the U.S. are winding their way through state legislatures and governors continue to set the tone for this year’s legislative sessions.
• Governors across the U.S. have laid out their visions for 2023, and so far, taxes look like they will play a major role in debates throughout state legislative sessions. Proposals range from big to small. In New Mexico, the governor wants to provide residents with another round of tax rebates and cut income tax rates and the gross receipts tax. To the west, the governor of Utah sounds a bit more cautious of larger income tax cuts.

 

• In his 2023 State of the State address, Mississippi Tate Reeves, called for eliminating the state’s income tax.

 

• In Ohio, Governor DeWine proposed the creation of a low-Income housing tax credit and single-family housing tax credit to incentive housing construction.

 

• Kentucky Governor Andy Beshear is navigating House Bill 1, a proposal to further reduce the state’s income tax and increase its sales tax. Although Beshear has expressed skepticism, Republican lawmakers could potentially override a veto of the proposal. The Kentucky House is moving forward with their plan to cut the state’s income tax from 4.5 percent to 4 percent. Following directly on the heels of a first round of income tax cuts, the plan uses a temporary surplus to enact permanent tax cuts.

 

• New York Governor Kathy Hochul’s budget proposal includes a payroll tax on part of the state to bolster funding for the New York City subway system and an extension of an existing tax on large corporations, which was otherwise scheduled to expire at the end of 2023.

 

• South Dakota – The House Appropriations Committee passed a reduction of the state’s sales tax from 4.5 percent to 4 percent. As lawmakers continue to focus on tax cuts, the legislation follows proposals to repeal the state’s grocery tax and reduce the property tax.

 

• Texas lawmakers are considering various proposals to cut the state’s property tax levels, although have not settled on an amount. The state has a substantial—although likely temporary—surplus and constitutional spending limits. Legislators are considering whether to tax owners of Electric Vehicles and the policy design. The bill introduced said it would either charge EV owners a $200 yearly flat fee or a per-mile-driven tax.

 

• Nebraska Governor Jim Pillen used his first State of the State address to call for tax changes – including a cut to the top income tax rate to 3.99 percent. Advocates of a proposal to replace the state’s tax system with a consumption tax are doubling down on their efforts this year, introducing a slightly modified version of the legislation and launching a parallel effort to gather signatures for a ballot initiative. There will also be an attempt this year to fully eliminate the state’s inheritance tax.

 

• Nevada Governor Joe Lombardo called for corporate tax cuts and using federal pandemic aid to fund a one-year gas tax suspension and state employee pay raises, among other items, in his first State of the State address.

 

• Kansas Governor Laura Kelly delivered her 2023 State of the State address and made a point to stand against “irresponsible tax proposals,” which presumably refers to a move to a flat income tax. Instead, the governor committed to eliminating sales tax on feminine hygiene products and diapers, creating a back-to-school sales tax holiday, and increasing the exemption threshold for Social Security benefits from $75,000 to $100,000.

 

• As Republican leaders in Wisconsin push for moving the state to a flat income tax structure, Governor Tony Evers pushed back in his annual state address, saying, “splurging $3.5 billion to hand out big breaks to the wealthiest 20 percent of earners isn’t responsible, folks; it’s reckless.” Also, he further added, “Spending billions on a flat tax isn’t a workforce plan or an economic development plan.”

 

• Minnesota Governor Tim Walz included rebate checks, $219 million for reductions to taxes on Social Security benefits, and cannabis legalization in his two-year budget proposal. The direct payments would provide families earning less than $150,000 with an income tax credit equal to $2,000 and single filers earning less than $75,000 with $1,000. An additional $200 bonus per child (up to three) would also be available. These policies come in addition to the already announced $1,000 refundable Child Tax Credit and expansion of the state child and dependent care credit, among other things. Lawmakers in the House recently passed a tax conformity bill by a 132-0 vote. Lawmakers in the Senate are also planning on debating a bill that would eliminate taxes on Social Security income.

 

• Maryland – The Supreme Court will review a lower court ruling that struck down the state’s first-of-its-kind digital advertising tax, which was intended to fund the state’s public schools.
• Montana – Montana Governor Greg Gianforte gave his second State of the State Address, and laid out his priorities for the 2023 legislative session. In addition to areas such as education, economic development, and infrastructure, the Governor also called for tax reform including a $1,200 child tax credit for children under the age of 6; an adoption credit of $5,000 ($7,500 if the child is in the foster care system); a permanent cut to the tax rate paid by most residents; an expansion of the earned income tax credit; an increase in funding to programs providing property tax relief to low-income homeowners, including disabled veterans and seniors ;and a raise of the business equipment tax exemption threshold.

 

• North Dakota – Lawmakers are continuing to push for both income and property tax reductions, totaling between $300 million and $600 million.

 

• Virginia -The Republican-controlled House of Delegates passed Governor Glenn Youngkin’s $1 billion tax relief program, which includes cuts to the individual income tax and corporate tax, as well as a deduction for small businesses. Now the legislation awaits action from the Democratic-controlled Senate.

 

• West Virginia – Senate President Craig Blair expressed skepticism about Governor Justice’s proposed income tax cuts and indicated that the Senate is composing a counterproposal that would be less fiscally damaging.

 

• Governor Sarah Huckabee Sanders in Arkansas continues to pledge her intent to phase out the state income tax.

 

• While Utah lawmakers are pushing for a larger cut to the state’s flat income tax rate—from 4.85 percent to 4.5 percent—Gov. Spencer Cox has stated recently that, “it’s not something I can get comfortable with right now,” and referenced the economic woes Kansas faced several years ago as an example of “what happens when you cut too deep.” Legislators have begun to discuss their 2023 priorities and among them are cutting the state income tax. Members of the Democratic caucus, however, want to take a more targeted approach, like ending the sales tax on food.

 

• New Mexico Governor Michelle Lujan Grisham released her 2023 budget recommendations and in it, called for $1 billion in tax rebates that could provide residents with up to $1,500 per household and $500 million in income and gross receipts tax cuts.

 

• California Governor Gavin Newsom presented his FY24 budget proposal, which proposed several relatively minor tax changes alongside its effort to close the state’s modest projected deficit. Specifically, Newsom proposes to exempt student loan forgiveness from taxation; ensure that income from incomplete non-grantor trusts is taxed; and extend the states Film and Television Tax Credit.

 

• Colorado – To combat rising property tax bills, Governor Jared Polis called on lawmakers to approve an additional $200 million in property tax cuts over the next two years.

 

• Indiana – Legislators, led by Sen. Baldwin, have proposed adding a state workaround to let passthrough businesses deduct all their state taxes on federal returns. Some legislative leaders are considering how to eliminate their already low personal and corporate income taxes. They also discussed restructuring Indiana’s system of property taxes.

 

• Maine – Governor Janet Mills, in a recent statement on her recently unveiled budget, said it included no tax increases.

 

• New Hampshire – The Chairman of the Senate Ways and Means Committee is considering a major reduction in property taxes and providing additional funding to municipalities as a way to redirect that state’s budget surplus.

 

• Pennsylvania – Lawmakers passed legislation in the Republican-led Senate Transportation Committee to stop the state’s automatic gas tax increase in 2023 and permanently end the automatic increase by setting the wholesale price of gas at $2.99 per gallon. The Committee Chairman said that the bill is aimed to alleviate rising cost-of-living expenses. However, the bill could impact infrastructure funding as gas tax revenue contributes to road and bridge projects throughout the state.

 

• Washington – One key topic for state lawmakers this session is revisiting the first-of-its-kind long-term care program and payroll tax to fund it, which were approved and then postponed for 18 months to work out some remaining questions.

 

• Connecticut – Governor Ned Lamont proposes to restore the state’s pass-through entity tax credit, a workaround for businesses to avoid the federal “SALT Cap” on state and local tax deductions, to its original level.

 

• South Carolina – Governor Henry McMaster urged lawmakers to drop the state’s income tax rates faster than intended (from 6.5 percent to 6.4 percent). Senate leaders seem amenable, but the House Chairman says he would rather wait to see how the economy performs. The House Minority Leader argued lawmakers should prepare for an economic downturn rather than focus on more tax cuts.

 

• Alabama – In some form of tax rebates will be up for discussion this session. Legislators may also consider cutting or eliminating the grocery tax or reducing municipal occupational taxes that boost funding for local services. State legislators have already limited local officials’ ability to raise occupational taxes.

 

• Iowa – Legislative leaders are gearing up to debate property tax cuts and major changes to education school vouchers this session.

 

 

Looking for more direction? Reach out to Ashmore Consulting for help navigating the direction of your business.

 

 

The information contained herein is general in nature and is not intended and should not be construed as legal, accounting, or tax advice or opinion provided by Ashmore Consulting LLC to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact Ashmore Consulting LLC or another tax professional prior to taking any action based upon this information. Ashmore Consulting LLC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.