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State and Local Tax Ballot Measures to Watch on Election Day 2020

4 min readBy: Jared Walczak, Katherine Loughead, Ulrik Boesen, Janelle Fritts

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Arizona Proposition 207

Arizona Proposition 207 would legalize recreational marijuana and taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. retail sales at 16 percent of retail price. Arizona forecasts roughly $166 million in excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. revenue when the market has matured, and this revenue would be allocated to community colleges, police departments, fire departments, transportation funding, and a new Justice Reinvestment fund. Click here for the Tax Foundation’s full analysis.

Arizona Proposition 208

Arizona Proposition 208 would create a new top marginal individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. rate of 8 percent on taxable incomeTaxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income. above $250,000 (single filers) and $500,000 (joint filers). Revenue from the new top rate would be dedicated to education rather than to the General Fund. Click here for the Tax Foundation’s full analysis.

California Proposition 15

California Proposition 15 would undo the protections of California’s Proposition 13 and introduce “split roll” property taxation—commercial properties would be assessed on their market value, while residential properties would continue being assessed on purchase price. Ultimately, this would yield significantly higher taxation of businesses without resolving the inequities created by Proposition 13. This measure could also affect the tax exemptionA tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the Internal Revenue Service (IRS), preventing them from having to pay income tax. for solar energy systems. Click here for the Tax Foundation’s full analysis.

Colorado Amendment B

Colorado Amendment B would repeal the Gallagher Amendment, a longstanding but nonneutral provision within the Colorado constitution that limits residential property to 45 percent of the statewide property tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. . Amendment B would also remove property taxA property tax is primarily levied on immovable property like land and buildings, as well as on tangible personal property that is movable, like vehicles and equipment. Property taxes are the single largest source of state and local revenue in the U.S. and help fund schools, roads, police, and other services. assessment rates from the constitution, instead allowing those rates to be set by the legislature (and approved by voters, where applicable).

While the amendment itself does not establish any new rates or limitations, legislation was proactively enacted earlier this year that would freeze assessment rates at their current levels if Amendment B is ratified. While a statutory rate freeze would prevent significant residential property tax increases from occurring in the short term, over time, residential property taxes would be expected to increase as home values continue to rise. This would, however, ultimately yield a more equitable and competitive tax system, as the continuation of the current structure threatens to make doing business in Colorado increasingly expensive. Click here for the Tax Foundation’s full analysis.

Colorado Proposition 116

Colorado Proposition 116 would reduce the income tax rate from 4.63 percent to 4.55 percent on both the individual and corporate sides. The tax cut would be retroactive to January 1, 2020, meaning taxpayers would benefit from the relief starting this year. Click here for the Tax Foundation’s full analysis.

Colorado Proposition EE

Colorado Proposition EE would increase the cigarette tax per pack to $1.94 in 2021, $2.24 in 2024, and $2.64 in 2027. Taxes on other tobacco products would increase to 50 percent of wholesale value in 2021, to 56 percent of wholesale value in 2024, and to 62 percent of wholesale value in 2027. It would also create a tax on e-vapor products that is equal to the tobacco tax rate. FDA-certified modified-risk tobacco products would be taxed at half of the statutory tobacco tax rate, effective January 2021. Click here for the Tax Foundation’s full analysis.

Illinois’ Allow for Graduated Income Tax Amendment

Illinois’ Allow for Graduated Income Tax Amendment would remove the constitutional requirement for a flat income tax, allowing the legislature to create a graduated-rate structure. While the constitutional amendment itself does not set new income tax rates, legislation was proactively adopted in 2019 with rates that would take effect on January 1, 2021, if the amendment is ratified by voters.

Under the enacted rate schedule, a new top rate of 7.99 percent would take effect, which includes a recapture provision that would subject all income to that rate for taxpayers with more than $750,000 (single filers) or $1 million (joint filers) in taxable income. Meanwhile, since most businesses in Illinois are required to pay the personal property replacement tax (PPRT) on the same income base, partnerships, S corporations, and trusts would end up paying a top rate of 9.49 percent and C corporations would pay a top rate of 10.49 percent when the PPRT is included. If Amendment B is adopted, Illinois would have the second-highest corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. rate in the country and the sixth-highest rate on pass-through businesses. Click here for the Tax Foundation’s full analysis.

Montana I-190

Montana I-190 would legalize the sale of recreational marijuana, taxed at 20 percent of the retail price. Montana estimates $38.5 million in excise tax revenue when the market has matured, and revenue would be divided among the general fund, conservation programs, veteran programs, drug addiction treatment programs, local authorities enforcing the initiative, and health-care workers. Click here for the Tax Foundation’s full analysis.

New Jersey Question 1

New Jersey Question 1 would amend the state constitution to legalize the recreational use of marijuana and impose the general sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. on those transactions. It also allows for a 2 percent local tax. Other taxes levied at the retail level would be prohibited under the amendment, but the legislature could apply taxes at the cultivation or wholesale level. Click here for the Tax Foundation’s full analysis.

South Dakota Amendment A

South Dakota Amendment A would legalize the recreational use of marijuana and impose an excise tax of 15 percent of sales price. South Dakota estimates collections totaling $29 million from the excise tax, fees, and the general sales tax. Revenue would be divided between the general fund and state public schools. Click here for the Tax Foundation’s full analysis.

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