Key Takeaways
- Arkansas, Minnesota ponder mobile workforce safe-harbors.
- The state tax deduction - the Congressional dilemma.
- Minnesota's historic legislature standoff.
- News from AZ, CT, IN, KS, KYU, MI, MD, MO, NE, OH, TX.
- Tax policy and tips.
- 86 years of Internal Revenue Codes.
Welcome to this edition of our roundup of state tax developments. Consider the Eide Bailly State & Local Tax team for your state tax planning, compliance, and incentive needs.
Arkansas, Minnesota Eye Easing Mobile Workforce Tax Rules - Michael Bologna, Bloomberg ($):
Lawmakers in Arkansas and Minnesota are tackling the complex tax compliance questions that have emerged in an increasingly mobile work environment, where workers frequently cross state lines to meet with clients, sell products, and attend trade shows. Kansas and Nebraska could act, too, after failing to enact mobile workforce modernization bills last year.
State Individual Income Taxes on Nonresidents: A Primer - Katherine Loughead, Tax Foundation:
While all state income tax codes are structured to accommodate basic scenarios in which an individual lives in one state and works in another, most state tax statutes and regulations governing nonresident individual income taxation are outdated, exceedingly complex, and impose steep compliance burdens on individuals and employers. Since 2020, a handful of states have made meaningful progress in this area, but until most states follow suit, the state nonresident income tax landscape will remain unnecessarily complex.
What Is SALT, the Tax Deduction Dividing Congress? - Zach Cohen, Bloomberg:
At the outset of Trump’s second presidency, raising the cap is a key priority for Republican lawmakers who represent districts in high-tax states. Members of Congress are negotiating an extension of Trump’s 2017 tax law, which is set to expire in December, and some Republicans have threatened to withhold their votes unless the cap on the SALT deduction gets a major boost. Winning their support will be necessary for House Speaker Mike Johnson if he hopes to extend the cuts by the year-end deadline and avoid a multi-trillion-dollar tax hike on people and businesses across the country.
Related: Working Around the SALT Deduction Cap
State-By-State Roundup
Arizona
Ariz. House Panel OKs Ending Business Equipment Tax - Sanjay Talwani, Law360 Tax Authority ($). "The House Ways and Means Committee voted 5-4 to approve H.B. 2389 as amended, sending it to the House Rules Committee. The bill would exempt business personal property from taxation by local governments."
Arizona House Advances Bill to End State Income Tax on Tips - Laura Mahoney, Bloomberg ($). "The bill (H.B. 2081) passed 37-21 and now moves to the state Senate for consideration. It is one of the priorities on the Arizona House Republicans’ agenda for 2025 and is inspired by President Donald Trump’s proposal to end income tax on tips at the federal level."
Ariz. Panel OKs Plan For Vote To End Grocery Tax - Sanjay Talwani, Law360 Tax Authority ($). "Under H.C.R. 2021, which the House Ways and Means Committee passed Wednesday by a 5-4 vote, voters would be asked in November 2026 whether to amend the state constitution to forbid local jurisdictions to impose sales taxes on food items for home consumption. Mayors of more than a dozen Arizona cities said the change would significantly affect their local budgets."
Connecticut
Connecticut Plan Would Nix Combined-Reporting 'Sweetener' - Danielle Muoio Dunn, Bloomberg ($). "Maryland Gov. Wes Moore said in his Jan. 15 spending plan that he wants to require multistate corporations to file a single, combined tax return. An attempt to institute the filing strategy in 2023 didn’t move out of the Legislature. The state’s fiscal 2026 budget is due on the April 7 scheduled end of the legislative session."
Indiana
Indiana Senate OKs Bill on Sourcing Rules for Investment Partnerships - Emily Hollingsworth, Tax Notes ($):
The bill clarifies that any qualifying investment partnership income that is distributed to a nonresident partner would be sourced to the nonresident partner’s state of residence and commercial domicile, rather than to Indiana.
Kansas
Kansas Policymakers Should Consider a Levy Limit to Ease Property Tax Burdens - Katherine Loughead, Tax Foundation. "Assessment limits, while well intentioned, are not an ideal solution for property tax relief because they create gaps between a property’s taxable appraised value and market value and distort economic decision making."
Kentucky
Kentucky To Cut Flat Income Tax Rate - Michael Nunes, Law360 Tax Authority ($). "H.B. 1, which Democratic Gov. Andy Beshear signed Feb. 6, will cut the rate to 3.5% from 4% starting Jan. 1. The legislation was passed by the state House in a 90-7 vote Jan. 9 and by the state Senate in a 34-3 vote Feb. 4."
Michigan
Michigan Governor Floats Tax Hikes to Fund Road-Building Plan - Michael Bologna, Bloomberg ($). "Whitmer’s Monday proposal was thin on details, but she blamed large corporations and technology companies—'such as Amazon, X (formerly known as Twitter), Facebook, and TikTok'—for failing to pay their fair share to operate in Michigan and use the state’s roads."
Maryland
Maryland Governor Calls for a Simpler, Pro-Growth Tax System - Kennedy Wahrmund, Tax Notes ($):
In his February 5 State of the State speech, Moore echoed the tax measures introduced in his $67.3 billion fiscal 2026 budget proposal. He said he won't increase sales or property taxes and will close corporate loopholes and reduce the corporate income tax.
To accomplish those goals, Moore’s budget calls for water’s-edge combined reporting, which requires corporations to report income from U.S.-based entities but allows them to exclude most income received from foreign subsidiaries and affiliates. Other Maryland lawmakers have proposed combined reporting in recent years but without success.
Missouri
Missouri House votes on party lines to eliminate income tax on capital gains - Rudi Keller, Missouri Independent. "The bill, projected to cost the state treasury $341 million in the first year and $237 million in subsequent years, exempts money known as long-term capital gains, money earned on stocks, land or other assets held for a full year or longer. House Speaker Pro Tem Chad Perkins, the sponsor of the bill, said it is intended to help small business owners and others who sell assets as they approach retirement."
Minnesota
Minn. House Panel Advances 10-Year Phaseout Of Estate Tax - Sanjay Talwani, Law360 Tax Authority ($):
H.F. 170, a measure to reduce the state's estate tax by 1.6 percentage points annually until it's gone, was laid over by the committee for possible inclusion in an omnibus tax package. Minnesota's estate tax rate now ranges from 13% to 16%, with a $3 million general exclusion and another $2 million exclusion for qualifying farms and businesses.
Minnesota Senate Tax Panel Tables Private Letter Ruling Bill - Emily Hollingsworth, Tax Notes ($):
...
Minnesota and Alaska are currently the only states that don't have some form of a letter ruling program. Private letter rulings can be known by a different term in some states, such as revenue rulings, revenue legal opinions, and declaratory rulings.
Minnesota’s Dysfunctional Legislative Session - Billy Hamilton, Tax Notes ($). "Minnesota’s situation, though, has achieved the historical distinction of making it the first state to ever begin a session without clear partisan majorities in either legislative house."
Nebraska
Nebraska Audit Flags Issues With DOR’s Financial Reporting Procedures - Emily Hollingsworth, Tax Notes ($). "The errors, which resulted in more than $1.2 billion in adjustments or reclassifications of activity, related to the DOR's recording of locally assessed taxes and related receivables and payables, as well as accounting errors."
Link: Management letter
Ohio
Ohio Governor Calls for Sports Betting Tax Hike, Child Tax Credit - Kennedy Wahrmund, Tax Notes ($):
DeWine’s $218 billion budget plan, released February 3, seeks to give parents who work full-time minimum wage jobs a refundable credit of up to $1,000 for each child under 7 years old.
...
To pay for the child tax credit, DeWine's budget would raise the taxes on cigarettes and other tobacco products. The cigarette tax would increase from $1.60 per pack to $3.10 per pack, while other tobacco products would be taxed at 42 percent of the wholesale price, instead of the current 17 percent.
Texas
Texas Senate OKs Increase In Homestead Tax Exemption - Michael Nunes, Law360 Tax Authority ($). "The Senate unanimously passed S.B. 4, which would increase the state's homestead exemption to $140,000, from $100,000. The Senate also unanimously passed S.J.R. 2, which would have voters decide Nov. 4 whether to amend the constitution to increase the exemption."
Tax Policy Corner
Stop With the Tips - David Brunori, Law360 Tax Authority ($, free here via LinkedIn).
I am not sure what a service-providing industry occupation is. I suspect that the governor does not know, either. Anyway, as I said about Youngkin's proposal, exempting tips from income is a bad idea. Indiana would be better off lowering the rates for everybody. There is no rational reason for exempting tips and taxing wages. None.
I note that exempting retirement income is not such a great idea, either. I get the politics. Old people vote. Some may be poor. But many retirees have good incomes. Once again, everyone would be better off with lower rates. And if you are going to exempt retirement income, at least tie it to income levels.
Tax History Corner
They grow up so fast. The first Internal Revenue Code was enacted 86 years ago this week. The Internal Revenue Code of 1939 was enacted to collect all of the federal tax laws in one place. Prior to the enactment of the Code, taxpayers had to work their way through the various revenue acts dating from the original 1913 income tax to figure out just what the tax law was at any given time.
The 1939 Code was revised and updated a mere 15 years later by the Internal Revenue Code of 1954. In an act of hubris, Congress replaced the 1954 code with the Internal Revenue Code of 1986 when they enacted the 1986 tax reforms. While they added some important sections, there was nothing like the comprehensive 1954 reorganization of the code and renumbering of code sections. We have been living with that Code, with many amendments, for over 38 years, making it the longest-lasting Internal Revenue Code, so far.
When enacted, the Government Printing Office version of the code was one 504-page volume. A recent edition of the 1986 Code comes in with two volumes totaling 4,968 pages. A real page-turner. Happy reading!
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