Tax and Budget

Overall, state fiscal conditions showed modest improvements in fiscal year 2015. Revenue growth accelerated, mostly due to strong income tax collections, while total state spending from all fund sources increased at its fastest rate since 1992 due to additional federal funds from the Affordable Care Act. In addition, the number of states making mid-year budget cuts remained low, and states’ total balances reached an all-time high in actual dollar terms. In fiscal 2016, states expect both revenue and spending to grow slowly. However, some states are facing significant budgetary challenges associated with the decline in oil prices. It is likely that budget proposals for fiscal 2017 and beyond will remain mostly cautious with limited spending growth.

State and local governments have been reshaping their finances since the Great Recession. They have been struggling with three major sources of fiscal stress: slow tax revenue growth, growth in pension contributions that has been heavily concentrated in a few states, and Medicaid spending growth driven by recession-related enrollment. In 37 states, pension contributions plus state-funded Medicaid grew by more than state and local government tax revenue between 2007 and 2014, in real per-capita terms. In response to these strains, state and local governments have cut infrastructure investment, slashed support for higher education, cut spending on K–12 education, cut spending on social benefits other than Medicaid, reduced administrative staff and reduced most other areas of the budget.

CSG Midwest
Lawmakers in two Midwestern states have given close scrutiny in recent months to a targeted tax credit that has become an increasingly popular policy tool for trying to help entrepreneurs and startup companies. Known as “angel investor” tax credits, these incentives encourage investment in early-stage firms by mitigating some of the potential loss if a company fails. Most states in the Midwest have some form of this tax credit.

In March 2015, U.S. Supreme Court Justice Anthony Kennedy wrote a concurring opinion for Direct Marketing Association v. Brohl stating that the “legal system should find an appropriate case for this Court to re-examine Quill.” Two lawsuits out of South Dakota and Alabama might be exactly the case Kennedy had in mind. 

In the last month, legislation to eliminate the so-called “tampon tax” has been passed in New York, Connecticut and Illinois. The push to exempt tampons, pads, and other feminine hygiene products from state sales taxes has come amid criticism that the tax unfairly affects women. Supporters argue that menstrual products should be treated like other medical necessities, which are currently tax exempt in most states.

According to the National Association of State Budget Officers, most states (46) will start their fiscal year on January 1, 2016. Most states (39) have enacted their budgets for the new fiscal year, including 16 states that operate on a biennial budget and who passed their fiscal year 2017 budgets last year. That leaves 11 states that have yet to enact a budget for 2017: Alaska, California, Delaware, Illinois, Louisiana, Massachusetts, Michigan, New Jersey, Pennsylvania, Rhode Island and West Virginia.

An internet retailer has filed suit against Alabama claiming its new rule requiring all retailers who sell more than $250,000 in goods annually must collect sales tax—regardless of whether the retailer has a physical presence in the state—is unconstitutional.

This lawsuit is the second of its kind. Earlier this spring a lawsuit was filed against South Dakota challenging its law, which is similar to Alabama’s rule.

Last March, U.S. Supreme Court Justice Anthony Kennedy wrote a concurring opinion stating that the “legal system should find an appropriate case for this court to re-examine Quill.”

San Francisco startup Airbnb is a vital part of what’s known as the sharing economy as it connects property owners with travelers seeking unique travel accommodations. As some states find themselves in budgetary binds, looking to Airbnb and similar businesses for additional revenue may prove a popular option. As of July 1, 2016, ten states require Airbnb to collect and remit applicable state lodging and sales taxes.

Chapter 7 of the 2016 Book of the States contains the following articles and tables:

Researchers at the Harvard School of Public Health say yes, using a sophisticated microsimulation model to predict impacts of the tax. In a report released last month, the Harvard researchers calculated the proposed soda tax in Philadelphia would prevent 2,280 cases of diabetes each year once the tax is fully implemented. The Harvard microsimulation model assumes lower consumption if the city implements the three cents tax per ounce of sugar-sweetened beverage, a 49 percent price increase.

Pages