Key Takeaways
- Corporation state tax deductions eyed as revenue raiser.
- Income tax cuts advance in GA, KS, MI, MS.
- Property taxes in play in multiple states.
- ACA 15th anniversary.
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.
Capping C‑SALT Is Worth the Tradeoff for Pro-Growth Tax Cuts - Scott Hodge, Arnold Ventures:
Tradeoffs can have unintended consequences. The original SALT cap impacted the individual owners of pass-through businesses such as S-corporations and LLCs who were accustomed to deducting the full measure of the state and local taxes paid by their firms on their individual 1040 forms. Naturally, they thought it was unfair that Fortune 500 companies could continue to deduct their state and local taxes while pass-throughs could only deduct $10,000 worth.
As a remedy, they lobbied state lawmakers to craft workarounds that allowed them to deduct state and local taxes at the firm level, much like traditional C-corporations are allowed to do. While this may seem fair on the one hand, these workarounds greatly complicated state tax codes and created another disparity in how individual taxpayers are treated. Business owners benefited greatly from the workarounds, but their employees could not.
Capping the SALT deduction for C-corporations would effectively eliminate these workarounds and level the playing field between pass-through businesses, traditional corporations, and individual taxpayers.
Growth Should Be a Key Consideration if Corporate SALT Is Limited - Garrett Watson, Daniel Bunn, Tax Policy Blog:
For example, eliminating the deduction for entity-level pass-through business taxes (workarounds) would raise over $226 billion over 10 years. Our forthcoming work will examine the tax treatment of pass-through workarounds in more detail.
Related: IRS Blesses Entity-level Tax Deduction used as SALT Cap Workaround
State-By-State Roundup
Alabama
Alabama House Passes Grocery Tax Cut, Increased Standard Deduction - Matthew Pertz, Tax Notes ($):
...
H.B. 388 would double the amount of retirement income that is exempt from income tax to $12,000 for single filers and $24,000 for couples. The bill would reduce receipts by an estimated $44.8 million from fiscal 2027 onward, according to the bill’s fiscal note. It was approved 103 to 0.
Colorado
Colorado Enacts Confidentiality Standards for Tax Audits - Emily Hollingsworth, Tax Notes ($). "S.B. 25-046 prohibits auditors from disclosing or divulging any information from the sales tax investigation, with exceptions for disclosure to local tax jurisdiction officials who are authorized to receive the information, and to the IRS or state Department of Revenue under certain circumstances. Unauthorized disclosure of tax information would be a misdemeanor punishable by a $1,000 fine."
Georgia
Georgia Set to Cut Income Taxes, Issue Latest Round of Rebates - David Hood, Bloomberg ($). "The full state legislature signed both measures on Thursday and Kemp is expected to sign them. The first would cut the state’s income tax rate of 5.29% to 5.19% retroactive to the start of this year. It would then decrease rates by 10 basis points, or 0.1%, annually starting in 2026 until the rate reaches 4.99%."
Georgia has the same rates for individual and corporation income taxes.
Idaho
$100 Million Property Tax Relief Bill Clears Idaho Legislature - Emily Hollingsworth, Tax Notes ($). "H. 304 would allocate $50 million every year to the Homeowner Property Tax Relief Account and $50 million to the School District Facilities Fund. H. 304 was delivered to Gov. Brad Little (R) on March 20 after passing the Senate on a unanimous 35–0 vote on March 17 and the House on a 68–0 vote on March 4."
Illinois
Illinois Court Mostly Upholds Chicago Lease Tax on Ally Financial - Andrea Muse, Tax Notes ($). "A company offering lease financing services owes Chicago lease transaction tax on down payments collected by automobile dealers at the time of leasing, an Illinois appellate court has held."
Indiana
Indiana Mulls Local Income and Property Tax Reforms - Andrey Yushkov, Tax Policy Blog. "While each proposal has its own merits and drawbacks, Indiana policymakers should prioritize incremental changes over abrupt tax reductions, as the state’s property tax system is already among the most competitive in the nation."
Iowa
Securing Property Tax Relief in Iowa - Abir Mandel and Jared Walczak, Tax Foundation:
Nevertheless, taxes are virtually no one’s idea of a popular tax—unless you manage to only survey economists. It’s worth asking why public finance experts appreciate the property tax when so many taxpayers viscerally dislike it, as it can help inform options for property tax relief.
Kansas
Kansas House passes bill to trigger income tax cuts as long as state has surplus funds - Anna Kaminski, Kansas Reflector. "Senate Bill 269, also known as “the income tax trigger bill,” would reduce the individual and corporate income tax rates to as low as 4%. Bank rates could drop as low as 2.6%. However, the cuts are contingent on maintaining the state’s budget stabilization fund, also known as the rainy day fund."
Kentucky
Ky. Bars Added Taxes On Digital Assets Used For Payments - Zak Kostro, Law360 Tax Authority ($). "H.B. 701, which Beshear, a Democrat, signed Monday, stipulates that digital assets used as a method of payment may not be subject to additional taxes, withholdings, assessments or charges based solely on the use of the assets as a payment method, according to the bill text."
Federal tax law required taxpayers to recognize gain or loss when digital currency is used to pay for something.
Maryland
Maryland Budget Deal Drops Proposed Tax on Delivery Orders - David Hood, Bloomberg ($). "To raise additional revenue, the budget framework would create a new bracket for wealthy Maryland taxpayers. As an example, Marylanders earning $750,000 or more would need to pay about $1,800 more in income taxes, Moore said"
Maryland Shouldn’t Mandate Worldwide Combined Reporting Through the Backdoor - Jared Walczak, Tax Policy Blog. "While the legislation purports to provide an election that would make worldwide combined reporting voluntary, it would give the Comptroller carte blanche authority to restrict that election by regulation or to deny it to any company for any (or no) reason. And even for companies permitted to use what’s called the waters’ edge method, the Maryland proposal would require the inclusion of any unitary foreign affiliate with US source income, which definitionally reaches beyond American shores to activity taking place—and taxed—abroad."
Michigan
Michigan Income Tax Cut Passes House, Heads to State Senate - David Hood, Bloomberg ($). "The upper chamber, controlled by Democrats, will take up a Republican-authored bill that would lower the state’s income tax rate to 4.05% from 4.25%. The Michigan House of Representatives passed the bill 65-43 on Tuesday."
Mississippi
MS governor set to sign bill eliminating income tax despite obvious errors in wording - Grant McLaughlin, Mississippi Clarion Ledger:
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One tax expert, Jared Walczak, vice president of State Projects at the Tax Foundation, took to X on Thursday, saying if the legislature's tax cut is passed into law as is, it would hurt Mississippi.
"If implemented as-is, the law could trigger tax cuts when Mississippi can't afford them," Walczak wrote. "Twenty-eight states have cut (personal income tax rates) rates since 2021, including Mississippi. They've mostly done so responsibly. With this drafting error, the Mississippi legislation would break from that pattern of responsible tax relief and could put the state in a very tough spot."
New Jersey
NJ Tax Court Deems Farmland Transfer Subject to 'Mansion Tax' - Richard Tzul, Bloomberg ($). "State law requires the transfer of farm property must be charged the 1% fee if the transaction cost more than $1 million and if there’s a building intended for residential dwelling, Judge Joan Bedrin Murray said. The structure on the parcel was meant for residential dwelling at the time the transfer was completed—it doesn’t matter if the purchaser planned to demolish the building, the opinion said."
New Mexico
New Mexico Legislature OKs Expanded Tax Break for Families - Paul Jones, Tax Notes ($). "The bill's final version, now at the desk of Gov. Michelle Lujan Grisham (D), would repeal the state’s working families tax credit and replace it with a new earned income tax credit beginning for tax year 2025, effectively an expansion of the original tax break. According to a fiscal note, the state EITC would increase tax relief for residents by increasing the credit and expanding eligibility for it."
New York
Hochul Has 30 Days to End New York City Congestion Pricing - Emily Hollingsworth, Tax Notes ($). "Hochul was originally given a deadline of March 21 to end the program, according to a February 20 letter sent to state transportation officials by the Federal Highway Administration. That letter was sent one day after a letter from Duffy informed Hochul that the Trump administration was revoking federal approval of the congestion pricing program."
North Carolina
North Carolina Tries Mimicking Trump’s Tips and Overtime Proposal, But Should Be Cautious - Abir Mandal, Tax Policy Blog. " The bill, recently advanced by the House Commerce Committee, seeks to exempt all income taxes on tips, overtime pay, and the first $2,500 of annual bonuses. While pitched as relief for low-wage service workers and hourly employees, this approach is economically distortive, poorly targeted, and risks unintended fiscal consequences."
Oregon
NBC Had Enough Oregon Contacts to Justify Taxation, Judge Rules - Perry Cooper, Bloomberg ($). "'Plaintiff maintained continuous and systematic contact with Oregon’s economy by partnering with affiliates under contract to deliver broadcast television programming and advertisements aimed at Oregon viewers,' Magistrate Richard D. Davis wrote for the court Tuesday."
Utah
Utah To End Mining Exploration Severance Tax Credit In 2037 - Zak Kostro, Law360 Tax Authority ($). "Utah created a severance tax credit for mineral exploration under a 2022 law known as S.B. 250, with total credit benefits allowed for certified expenditures capped at $20 million per mine. The state imposes tax on the extraction of metals in Utah at rates that vary depending on the type of metal, according to the state tax commission's website."
Washington
Wealth Tax, Higher Payroll Tax in Washington Democrats' Plan - Laura Mahoney, Bloomberg ($).
- A “financial intangibles tax” of $10 on every $1,000 of assessed value of stocks, bonds, exchange-traded funds, and mutual funds held by people with more than $50 million of these assets. It would apply to about 4,300 people and generate $4 billion a year starting in 2027, according to the state Senate Democrats.
- A 5% tax on large employers on the amount of payroll above the Social Security tax cap of $176,100 a year for companies with $7 million or more in payroll expenses. Similar to Seattle’s Jump Start tax, it would apply to about 5,289 companies and raise about $2.3 billion a year...
And three others.
‘This is catastrophic’: Seattle payroll tax revenues $47M short as jobs leave city - Julia Dallas, MyNorthwest:
...
Even Harrell acknowledged, “This decrease in revenue is aligned with recent reports of major employers moving thousands of high-paying jobs out of Seattle to other cities in our region.”
Tax Policy Corner
Property Taxes Pay For Services; No Relation to Your Mortgage - Annette Nellen, 21st Century Taxation:
"While Florida property values have surged in recent years, this has come at a cost to taxpayer squeezed by increasing local government property taxes. ... Taxpayers need relief. You buy a home, pay off a mortgage - and yet you still have to write a check to the government every year just to live in your own property?"
Perhaps he was more focused on increasing tax collections leading to more government spending rather than making an adjustment to reduce tax collections to match government spending needs. But questioning why a homeowner should continue to pay taxes to the government after paying off their mortgage is odd and certainly doesn't help improve tax literacy. Note that he didn't say that people who can afford to buy a home without a need for a mortgage should always be exempt from property taxes, which would seem to be the logical statement if property taxes are only paid by mortgagees.
Tax History Corner
President Obama signed the Affordable Care Act 15 years ago this week. The ACA added the "Additional Medicare Tax" and the "Net Investment Income Tax" to the tax law as funding mechanisms. The law also included an "individual mandate" that was zeroed-out by the 2017 Tax Cuts and Jobs Act.
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