Although the majority of 2022 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 take effect at the start of the calendar year, some are implemented at the beginning of the fiscal year. Individual and 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. changes usually take effect at the beginning of the calendar year to maintain policy consistency throughout the tax year, but sales and 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. changes often correspond with the beginning of a fiscal year.
Fourteen states have notable tax changes taking effect on July 1, which is the first day of fiscal year (FY) 2023 for every state except Alabama, Michigan, New York, and Texas. Among the highlights:
- The rate of New Mexico’s hybrid 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. —which the state calls a gross receipts taxA gross receipts tax is a tax applied to a company’s gross sales, without deductions for a firm’s business expenses, like costs of goods sold and compensation. Unlike a sales tax, a gross receipts tax is assessed on businesses and apply to business-to-business transactions in addition to final consumer purchases, leading to tax pyramiding. —will decline from 5.125 to 5.0 percent.
- Illinois will begin a year-long 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. on groceries.
- Indiana will begin levying a 15 percent wholesale tax on vapor products.
- Colorado instates a “retail delivery fee,” which is really a tax.
Gas taxA gas tax is commonly used to describe the variety of taxes levied on gasoline at both the federal and state levels, to provide funds for highway repair and maintenance, as well as for other government infrastructure projects. These taxes are levied in a few ways, including per-gallon excise taxes, excise taxes imposed on wholesalers, and general sales taxes that apply to the purchase of gasoline. es are increasing in two states due to previously scheduled statutory rate adjustments, while gas tax rates will rise in seven other states due to 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. adjustments or other automatic factors. Several states adopted new sales 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 IRS, preventing them from having to pay income tax. s.
These and other tax changes taking effect July 1 are detailed below.
2022 State Sales and Use Tax and Gross Receipts Tax Changes
Indiana will implement a new threshold for sales tax exemptions for nonprofits beginning in July. Instead of the previous benchmark of having fewer than 30 days of sales a year, these organizations must now see sales of less than $20,000 in a year.
While prescription drugs were already exempt from the Louisiana state sales tax, enactment of SB 129 will exempt a number of prescription drugs from the local sales tax beginning July 1. Local 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. s can vary dramatically from the state base, but this new law will preclude those local bases from including certain types of prescription drugs.
Through a combination of bills, Maryland will begin exempting a number of items from its sales tax starting in July, including baby products like diapers, car seats, and bottles, in addition to medical items like thermometers, masks, diabetic care products, and oral hygiene products.
Mississippi currently exempts health-care facilities from paying sales taxes on construction materials, and machinery and equipment purchased within three months of completion of construction of a facility. In HB 474, the legislature specified that the category does not include medical marijuana establishments, effective July 1.
Through HB 163, New Mexico will become the first state in many years to reduce its state-level sales tax rate, which the state refers to as its gross receipts tax. On July 1, the state rate will drop from 5.125 percent to 5.00 percent, with a further reduction to 4.875 scheduled for July 1, 2023.
This reduction comes with a contingency plan: if the revenue from the gross receipts tax in any single fiscal year from 2026 to 2029 is less than the 95 percent of the previous year’s revenue, then the rate will return to 5.125 percent on the following July 1.
Additionally, the state will begin exempting all feminine hygiene products from the base at that same time.
Vermont previously exempted manufacturing machinery and equipment from its sales tax, but through H 738, legislators have expanded the definition to specify that equipment used as part of an integrated process is also exempt, effective July 1.
2022 State Tobacco and Vapor Tax Changes
Indiana’s tax on vapor products goes into effect on July 1. The tax rate for e-cigarette cartridges was originally set at 25 percent on wholesale, but Senate Bill 382 lowered this rate to 15 percent—matching the tax rate for refillable vape products—before the higher rate could go into effect.
2022 State Transportation Tax Changes
Last October, Missouri legislators enacted a bill to increase the state’s gas tax 12.5 cents by July 2025. The gas tax increased by 2.5 cents last October and will increase another 2.5 cents on July 1. Notably, legislators are allowing residents to file for a refund of the October 1 increase if they produce their receipts.
In 2017, the South Carolina legislature passed H 3516, which, among other changes, raises the gas tax by 2 cents each July from 2017 to 2022. The state gas tax will see its final increase of 2 cents on July 1, raising the tax from 26 to 28 cents a gallon.
In California, Connecticut, Illinois, Indiana, Maryland, Nebraska, and Virginia motor fuel taxes will be adjusted July 1 due to inflation, changes in the average wholesale price of fuel, or other automatic factors.
Gas taxes were slated to increase in Kentucky for similar reasons, but Gov. Andy Beshear (D) issued an executive order to freeze the gas tax at its current level through January 2023, when the legislature will determine any future changes.
2022 State Sports Betting Tax Changes
When retail sports betting was first authorized in Louisiana last November, sportsbook operators could deduct $5 million of promotional play expenses per app. This deduction was more generous than the legislature intended, and beginning in July, operators will be limited to $5 million of promotional play deductions per license under SB 290.
2022 Miscellaneous State Tax Changes
Beginning in July, Colorado residents will be subject to a retail delivery fee, a tax of 27 cents per sale which will be paid on all deliveries that include at least one item subject to the sales tax. The fee is levied on the end-consumer but will be collected by retailers and marketplace facilitators. The 27-cent levy consists of six separate fees which reference air pollution mitigation, bridges and tunnels, clean transit, and more. While termed a fee, it functions as a tax.
Beginning July 1, the state’s “Family Relief Plan” will take effect. Accordingly, the sales tax on groceries will be suspended for a year (returning July 1, 2023). Although the gas tax will remain in effect, the scheduled increase will be delayed until January 1. The relief plan also includes sending out rebate checks for qualifying individuals in September, making last year’s increase to the earned 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. permanent, giving out property tax rebates to eligible homeowners, and holding a sales tax holiday for school supplies in August.
House Bill 1002, a tax reform bill which will ultimately lower the Indiana 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 from 3.23 percent to 3.15 percent in 2023 and 2024, also repeals the state’s Utility Receipts Tax as of July 1. The Utility Receipts Tax was previously a tax of 1.4 percent on the taxable gross receipts of a utility company if those gross receipts were greater than $1,000.
Under HB 918, Mississippi will allow food trucks to serve alcoholic beverages beginning in July, provided they also offer food, and that their food sales make up at least 25 percent of their revenue. The bill creates an accompanying privilege tax of $100 to be paid annually by each food truck that wishes to sell alcohol.
Effective July 1, in accordance with HB 1221, New Hampshire lawmakers will pass along a portion of the state’s budget surplus to local political subdivisions with the intent that those revenues be used to offset a one-time reduction in local 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. levies.
Notable State Tax Rate Changes Retroactive to January 1, 2022
This legislative session, several states have reduced their individual or corporate income tax rates.
While most of these changes took effect January 1, Idaho’s rate changes are retroactive to January 1. Specifically, Idaho’s flat corporate income tax and top individual income tax rates are now 6 percent, down from 6.5 percent. The state also consolidated five individual income tax bracketA tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat. s into four and reduced the second-highest rate from 3.1 to 3 percent.
Note: This blog was been expanded on July 1st to include the Illinois Family Relief Plan and Virginia’s inflation adjustment of its gas tax.