Taxes in Many States Changing January 1, 2015

With 2015 comes a number of state tax changes effective January 1:

• Arizona’s corporate 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 inflation 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 base, 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 tax exclusion rises from $1 million to $2,062,500. The New York Business Council yesterday urged making the property tax 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 tax 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 apportionment.
• 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 deduction 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 credit, 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 tax 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.