|NOTE: Since initial publication on February 1, this resource has been updated to reflect significant policy developments in the following states:|
If 2021 was a big year for state 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. reform and relief, 2022 may give it a run for its money. Among the 46 states holding legislative sessions this year, there has been a flurry of activity on taxes, with arrows almost invariably pointing toward tax reform and relief.
With 7,383 state legislators and about 100,000 bills introduced each year, it’s possible to find introduced legislation doing almost anything, and sometimes in the early stages of session, it can be difficult to determine which proposals should be taken seriously and which will fall by the wayside.
But now that nearly three months have passed, several major tax changes have already been enacted, while others are moving rapidly through legislative bodies, and others have died for the year.
As we head into April, we have compiled a list of major state tax changes that have been enacted, legislation that is still advancing, and recent proposals that are worth keeping an eye on.
No such list could possibly be exhaustive—any given state likely has more introduced bills on tax-related subjects than are covered in this entire review—but here’s what we’re following as we head into April.
Income tax rate reductions remain a popular trend this year. So far in 2022, 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 reductions have been enacted in Idaho, Indiana, Iowa, and Utah, and a bill to flatten and reduce Mississippi’s individual income tax is awaiting the governor’s signature. Serious proposals to reduce individual income tax rates are still being considered in Colorado (ballot measure), Missouri, Nebraska, New York (lower rates only), Oklahoma, and South Carolina. Additionally, 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 reductions have been enacted this year in Idaho, Iowa, and Utah, and are still being considered in Colorado (ballot measure), Missouri, and Pennsylvania. Meanwhile, one state—New Mexico—has enacted a permanent 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. rate reduction.
Several other states are considering proposals to permanently reduce (Kansas) or temporarily suspend (Illinois, Oklahoma, and Tennessee) the sales taxes on groceries. Proposals to permanently remove groceries from the sales 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. have lost momentum in several states, but the possibility remains on the table in Virginia.
Many other states have enacted or are considering various temporary tax relief measures. Connecticut, Georgia, and Maryland have enacted gas tax suspensions, and legislation awaits the governor’s signature to do the same in Florida. Other states appear poised to follow, although one such proposal was rejected in Massachusetts. Similarly, a new sales tax holidaySales tax holidays are periods of time when selected goods are exempted from state (and sometimes local) sales taxes. Such holidays have become an annual event in many states, with exemptions for such targeted products as back-to-school supplies, clothing, computers, hurricane preparedness supplies, and more. has been enacted in Connecticut, and two new sales tax holidays await the governor’s signature in Florida. Income tax rebates, a comparatively more efficient temporary tax relief approach (though still of mixed benefit in an inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. ary period), have been enacted in Georgia and Idaho and are being considered in multiple states.
Thus far, meaningful efforts to raise taxes—excluding proposals for net tax cuts which have partially offsetting rate increases elsewhere—have been proposed in only two states, Hawaii and Massachusetts. Given robust revenue growth (state tax collections rose 21 percent last year) and projections of significantly higher revenue for the foreseeable future, most states are exploring ways to return some of their increased revenue to the taxpayers.