State Tax News & Views: NJ AI tax incentives, Proposed NE Property Tax Reform, "Window Tax", and more.

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We continue our bi-weekly summer schedule for State Tax News & Views. Our next state post will appear August 16th.

Sales Tax Holidays by State, 2024 - Joseph Johns and Benjamin Patrick, Tax Foundation:

Overall, sales tax holidays are an inefficient vehicle for providing tax relief or generating additional economic activity. They often end up hurting the taxpayers they intend to help. They inject unnecessary instability into government and business revenue streams; create administrative and compliance costs for businesses, governments, and consumers; and do not promote long-term economic growth. Several states realized these downfalls and accordingly abandoned their sales tax holidays in recent years. However, their electoral utility remains an incentive for policymakers, and with 19 states offering sales tax holidays in 2024—an increase over recent years—it doesn’t look like they’re going away any time soon.

08022024 Tax foundation

New disaster relief announced:

Texas; for those in 67 counties affected by Hurricane Beryl that began on July 5, 2024.

Missouri; for those affected by severe storms, straight-line winds, tornadoes, and flooding that began on May 19, 2024.

Kentucky; for those affected by severe storms, straight-line winds, tornadoes, landslides, and mudslides that began on May 21, 2024.

IRS Direct File:

New Jersey, Pennsylvania, and New Mexico announced they will join IRS direct file, and the IRS announces the program will remain. The other states now participating include Arizona, California, Florida, Massachusetts, New Hampshire, New York, Nevada, Oregon, South Dakota, Tennessee, Texas, Washington, and Wyoming.

U.S. Department of the Treasury Announces New Jersey to Join IRS Direct File for Filing Season 2025 - U.S. Department of the Treasury:

New Jersey becomes the next new state to offer Direct File to its residents after Oregon announced its participation last month. More than 1 million New Jerseyans will be eligible to use the free online filing tool next Filing Season.

U.S. Department of the Treasury Announces Pennsylvania to Join IRS Direct File for Filing Season 2025 - U.S. Department of the Treasury:

Following a successful pilot program in 12 states that saw 140,000 taxpayers claim more than $90 million in refunds and save an estimated $5.6 million in filing fees using the free online filing tool, Treasury and the IRS announced Direct File would be made permanent and opened to all states. Pennsylvania becomes the next new state to offer Direct File to its residents following Oregon and New Jersey. At least 1.5 million Pennsylvanians will be eligible to use the free online filing tool next Filing Season.

U.S. Department of the Treasury Announces New Mexico Will Join IRS Direct File for Filing Season 2025 - U.S. Department of the Treasury:

“This collaboration with the IRS will simplify the tax filing process for New Mexicans. The Direct File program empowers taxpayers with a free, reliable, and efficient way to manage their federal and state tax filings,” said Governor Michelle Lujan Grisham.

State-By-State Roundup

Alaska

Alaska Creates Tax Credits for Cos.' Child Care Expenses - Zak Kostro, Law360 Tax Authority ($). "S.B. 189, which became law Monday without the signature of Republican Gov. Mike Dunleavy, allows an eligible person or business to claim a tax credit for expenditures made to operate a child care facility in the state for children of a business' employees, according to the bill's text."

Illinois

Illinois DOR Issues Guidance on Estimated Tax Payments - Tyrah Burris, TaxNotes ($):

In a bulletin issued July 23, the DOR notes that the net operating loss limit that was scheduled to expire at the end of tax year 2024 was extended through tax year 2027 under legislation (H.B. 4951) signed into law last month. The bill also increased the NOL limit from $100,000 to $500,000 for tax years 2025 through 2027.

Ill. Imposes 20-Year Time Limit On Property Tax Refund Claims - Jaqueline McCool, Law360 Tax Authority ($):

H.B. 2232, which Pritzker, a Democrat, signed Friday, will install a 20-year time limit from the date of a right to refund if the refund claim comes from a property tax board's final order. Refund claims filed more than seven years after the right-to-refund date can't exceed $5 million, the bill said.

Ill. Rule Clarifies Investment Partnership Tax Liability - Jaqueline McCool, Law360 Tax Authority ($):

In a rule adopted Friday, the department explained the calculation of withholding tax for investment partnerships for 2024. The withholding tax can be calculated by taking the sum of the investment partnerships' share of income from other partnerships apportioned to Illinois and the share of income from other partnerships that would be allocated to Illinois, multiplied by the partner's applicable tax rate, the rule said. The rule also provides examples.

Illinois to Repeal Statewide Grocery Tax in 2026 - Tyrah Burris, Tax Notes ($):

Illinois's 1 percent state grocery tax is scheduled to be eliminated by 2026.

The $53.1 billion fiscal 2025 budget signed on June 5 permanently eliminates the statewide tax on groceries as of January 1, 2026, one of Democratic Gov. J.B. Pritzker's budget priorities. The tax was suspended from July 2022 through June 2023.

Missouri

Mo. Hits Revenue Triggers For Continued Income Tax Cuts - Jaqueline McCool, Law 360 Tax Authority ($):

Republican Gov. Mike Parson announced in a news release that the state had hit revenue markers outlined in S.B. 3 and S.B. 5, which he signed in 2022, and would reduce income tax rates by an additional 0.1 percentage point in 2025. According to the release, the state's top income tax rate will now be 4.7%.

Nebraska

Neb. To Raise Interest Rate On Late Tax Payments in 2025 - Zak Kostro, Law360 Tax Authority ($). "Nebraska will raise the interest rate assessed on delinquent payments of taxes to 8%, an increase of 3 percentage points, starting next year, the state Department of Revenue said."

Nebraska Governor Testifies Before Committee on Property Tax Reform Bill - Tax Analysts, Tax Notes ($):

Nebraska Gov. Jim Pillen (R) testified before the Legislature's revenue committee regarding the property tax reform bill (L.B. 1) which would cut property taxes by an average of 50 percent as part of the governor's plan for property tax reform.

A key aspect of the governor's plan is the broadening of the state's sales tax base by eliminating over 100 sales tax exemptions.

New Hampshire

New Hampshire Bill Extends Business Tax Credits Carryforward Period - Tax Analysts, TaxNotes ($):

New Hampshire H.B. 1525, signed into law July 19 as Chapter 245, extends the carryforward period for overpayments of the business profits tax and the business enterprise tax credits.

For the tax periods ending on or after December 31, 2029, the threshold for automatic refunds of the tax credits will be set at 250 percent of the taxpayer’s total tax liability and then reduced to 100 percent of the taxpayer’s total tax liability for the tax periods ending on or after December 31, 2031.

New Jersey

Gov. Murphy signs AI tax incentives into law - Nikita Biryuknov, New Jersey Monitor:

Gov. Phil Murphy signed into law Thursday a voluminous new tax incentive program intended to draw artificial intelligence development to the state.

The $500 million program would extend tax incentive awards of up to $250 million to firms that draw more than half their revenue or devote more than half their staff to AI development.

New Mexico

NM Extends Filing Deadlines For Wildfire Affected Areas - Michael Nunes, Law360 Tax Authority ($). "New Mexico taxpayers affected by the South Fork and Salt wildfires will have until Nov. 1 to file taxes, matching the federal extension by the Internal Revenue Service , according to the state Taxation and Revenue Department."

Pennsylvania

Pennsylvania Replaces Alternative Fuel Tax on EVs With Flat Fee - Tyrah Burris, Tax Notes ($):

Under S.B. 656, which was signed by Gov. Josh Shapiro (D) on July 17, EV owners will be required to pay an annual road user charge of $200 instead of the alternative fuel tax in 2025. The annual EV fee, which will be paid concurrently with the vehicle registration fee, will increase to $250 in 2026. The charge for plug-in hybrid cars will be 25 percent of the EV fee. Further increases to the road user charge will be tied to the consumer price index beginning in January 2027.

Tax Policy Corner

State & Local Tax Policy To Watch in The 2nd Half of 2024 - Paul Williams, Law360 Tax Authority ($):

From a pending ballot measure in Oregon to raise taxes on large businesses to a special session in Nebraska focusing on sales and property taxes, some states could experience significant shifts to their tax systems in the second half of 2024.

...

Louisiana lawmakers may return to Baton Rouge for a special session later this summer to set the table for sweeping changes to the state constitution's tax rules.

Recent Apportionment Changes for Financial Institutions Could Be Unconstitutional - Paul Jones and Emily Hollingsworth, Tax Notes ($):

While the measures are intended to simplify how banks calculate their trading and investment income, and might even reduce their taxes, some worry that its mechanisms raise constitutionality concerns and disproportionately affect out-of-state banks.

Leonore Heavey with the Council On State Taxation, in June 29 comments provided to Tax Notes, expressed concern that the apportionment requirements in Illinois and Massachusetts wouldn’t adequately reflect the location where the activity is taking place, and that they would fail the external consistency test.

Tax History Corner

The Window Tax

Did you know...

The window tax, based on the number of windows in a house, was first introduced in 1696 by William III to cover revenue lost by the clipping of coinage. It was a banded tax according to the number of windows in the house. For example, for a house in 1747 with ten to 14 windows, the tax was 6d per window; it increased to 9d with more windows. Not long after its introduction, people bricked up their windows to avoid paying the tax.

State Tax News & Views: NJ AI tax incentives, Proposed NE Property Tax Reform, "Window Tax", and more.

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