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Taxes in Many States Changing January 1, 2015

3 min readBy: Joseph Bishop-Henchman

With 2015 comes a number of 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. changes effective January 1:

  • Arizona’s 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. drops from 6.5 percent to 6.0 percent, as part of multi-year package reducing it to 4.9 percent by 2018.
  • Illinois’s income tax drops from 5 percent to 3.75 percent, and its corporate income tax drops from 9.5 percent to 7.75 percent, as temporary increases enacted in 2011 partly sunset.
  • Indiana’s income tax drops from 3.4 percent to 3.3 percent. Some county income taxes drop too. (The corporate income tax cut from 7 percent to 6.5 percent takes effect July 1, 2015.)
  • Massachusetts’s income tax drops from 5.2 percent to 5.15 percent, as part of an automatic provision triggered when state revenue growth exceeds certain thresholds.
  • Nebraska begins indexing its tax brackets for 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. for the first time, part of a package passed in 2014.
  • New Mexico’s corporate income tax drops from 7.3 percent to 6.9 percent. Further reductions are scheduled to happen in future years, ultimately dropping the rate to 5.9 percent by 2018.
  • New York repeals one of four calculations required to pay corporate income tax, the alternative minimum 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. , and expands net operating loss carrybacks to three years and removes the cap. The changes are the first to take effect of a larger corporate tax reform that in future years will drop the rate from 7.1 percent to 6.5 percent and repeal a second base, the capital stock base. Also on January 1, 2015, the capital stock rate for manufacturers drops from 0.15 percent to 0.132 percent and fixed dollar tax for manufacturers drops as well. Effective April 1, 2015, the estate taxAn estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits, at the time of death. The tax is paid by the estate itself before assets are distributed to heirs. exclusion rises from $1 million to $2,062,500. The New York Business Council yesterday urged making the 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. cap permanent; currently it is scheduled to expire on June 15, 2016.
  • North Carolina continues phasing in elements of its historic 2013 tax reform package, dropping the 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 further to 5.75 percent (it was 7.75 percent in 2013 and 5.8 percent in 2014) and the corporate tax rate to 5 percent (it was 6.9 percent in 2013 and 6 percent in 2014). The state this year approved further reforms, dropping a complicated state calculation of net economic losses and instead aligning with federal net operating loss rules.
  • Ohio reduces its carveout for pass-through businesses from 75 percent to 50 percent. (It was temporarily increased to 75 percent for 2014 only, as part of a package that accelerated an income tax cut, increased the EITC from 5 percent to 10 percent, and increased the personal exemption for low-income taxpayers.)
  • Pennsylvania’s capital stock tax drops from 0.067 percent to 0.045 percent. The tax was scheduled to expire in 2014 but policymakers keep extending it. Incoming Gov. Tom Wolf (D) has pledged to repeal it, although he’s also discussed raising income taxes.
  • Rhode Island’s corporate tax rate drops from 9 percent to 7 percent, and they implement single sales factor apportionmentApportionment is the determination of the percentage of a business’ profits subject to a given jurisdiction’s corporate income or other business taxes. U.S. states apportion business profits based on some combination of the percentage of company property, payroll, and sales located within their borders. .
  • West Virginia’s franchise tax is repealed. This tax on business investment has been reduced over time as the state rainy day fund met certain thresholds.
  • District of Columbia: Several more components of D.C.’s 2014 tax reform package take effect:
    • Income between $40,000 and $60,000 will be taxed at 7 percent instead of the current 8.5 percent. This rate will drop further to 6.5 percent in 2016 if enough revenue is available to trigger the reduction.
    • The standard deductionThe standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. It was nearly doubled for all classes of filers by the 2017 Tax Cuts and Jobs Act (TCJA) as an incentive for taxpayers not to itemize deductions when filing their federal income taxes. increases to $5,200 for singles, $8,350 for married couples, and $6,650 for heads of household
    • Some income tax credits are eliminated, including the low income tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. , District employee homebuyer tax credit, long-term care insurance deduction, and government pension exclusion
    • Business tax (corporate income tax and tax on unincorporated businesses) is cut from 9.975 percent to 9.4 percent. The reform phases in further reductions in future years, aiming to bring the tax rate to 8.25 percent, equivalent to Maryland’s 8.25 percent rate and closer to Virginia’s 6 percent rate.
    • The earned income tax credit for single childless workers rises to 100 percent of the federal credit.
    • The Washington Post details the sequence of 17 future tax reductions to take effect as revenue thresholds are met. Contrary to that article, D.C.’s elimination of several 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. carveouts (including on gyms and yoga studios) already took effect, on October 1, 2014. Those groups proposed preserving their sales tax carveout by raising the business tax on all businesses to 9.55 percent in 2015, but that effort failed.