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The Tax Story Across the 50 StatesThe Tax Story Across the 50 States
Texas Taxpayers and Research AssociationAnnual Membership MeetingOctober 2, 2006
Council On State Taxation
Council On State Taxation2
Overview
• Revenues & Business Taxes
• Federal Legislative Activity
• State Legislative Activity
Council On State Taxation3
8.8%
10.2%
6.7%
0%
2%
4%
6%
8%
10%
12%
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
State Year-End Balances As a Percentage of General Fund Expenditures (Source: NCSL)
Projected
Council On State Taxation4
Percentage Change in FY 2006 Revenue Growth
Estimated vs. Actual (Source: NCSL)
2.7%
7.7%
0%
2%
4%
6%
8%
10%
Original Estimate Actual49 states reporting.
Council On State Taxation5
Projected Percentage Changes in Revenue and
Appropriations: FY 2007 (Source: NCSL)
7.6%
3.0%
0%
2%
4%
6%
8%
10%
Appropriations Revenues49 states reporting.
Council On State Taxation6
-$2.6
-$7.1 -$7.3
$9.1 $8.8
$4.1$3.4
$1.4
-$1.5
-$9.9
0.2%
-0.3%
0.6%0.8%1.6%1.6%
-0.6%
-1.6%-1.7% -2.0%
-$10
-$8
-$6
-$4
-$2
$0
$2
$4
$6
$8
$10
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006*-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
Billions of dollars
Percent of previous year's collections
Net State Tax ChangesBy Year of Enactment, 1997-2006* (Source: NCSL)
* 44 states reporting for FY 2006.
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$1.7$2.0
-$7.2
$11.5
-$4.0 -$2.4-$2.7
$4.3
-$2.2
-$9.8-$7.1
$5.9
$13.1
-$20
-$15
-$10
-$5
$0
$5
$10
$15
$20
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006*
TotalNontaxTax
Total Tax and Nontax Revenuesin billions of dollars (Source: NCSL)
* 44 states reporting for FY 2006.
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State Structural Deficits in FY 2007, FY 2008 and Beyond (Source: NCSL)
37
26
19
10
19 20
0
10
20
30
40
50
FY 2007 FY 2008 Beyond FY 2008
Sta
tes
NoYes
Council On State Taxation9
Longer-Term Fiscal Pressures
•K-12 education
•Medicaid
•Pension obligations & OPEB
• Infrastructure
Council On State Taxation10
Total State & Local Business Taxes
• Nationwide, businesses paid $497 billion in
state-local taxes in FY05
• Businesses paid 44 percent of total taxes
collected by state and local governments
• State & local business taxes up by 25% -
over $100 billion – between FY02 and FY05
Council On State Taxation11
Federal Legislation on State Taxation
• Authorizing State Tax Incentives after Cuno
• Nexus for Business Activity Taxes; PL 86-272
• Streamlined Sales Tax Legislation
• Withholding for Nonresident Employees
• State Taxation of Retirement Income
• Internet, Telecom, Pipelines…
Council On State Taxation12
State Legislative Trends
• Gross Receipts Taxes
• Related Party Expense Addback (“anti-PIC”)
• Unitary Combined Reporting
• Sales Factor Trends
• Tax Shelter Disclosure
• SSTP, Property Tax Reform, Telecom Reform…
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Gross Receipts Taxes: Next Big Thing?
• History–Washington–West Virginia (repealed 1987)– Indiana (repealed 2002)
• Today–New Jersey (sunsets after 7/1/2006)–Kentucky–Ohio–Texas
Council On State Taxation14
Gross Receipts Taxes: Next Big Thing?
• Tomorrow ?– Illinois–Michigan– IN, WV, NC…
• Concerns–COST Policy Position & Survey Results–Joint COST / Tax Foundation Study
Council On State Taxation15
Anti-PIC: State of the States
AK
HI
ME
RI
VT NH
MANY
CT
PA
NJ
MDDC
DE
VAWV
NC
SC
GA
FL
ILOH
IN
MIWI
KY
TN
ALMS
AR
LATX
OK
MOKS
IA
MN
ND
SD
NE
NMAZ
COUT
WY
MT
WA
OR
ID
NV
CA
Key
Not applicable (e.g., unitary or no corporate income tax)
Anti-PIC statute (SC-Geoffrey; TN-No addback if disclosed)
Anti-PIC legislation considered bin 2004 or 2005 or 2006 but not enacted (as of September)
Council On State Taxation16
Trends in Expense Addback Proposals
• Scope: Royalties, interest, management fees?
• Safe Harbors
• Expansion of Sec. 482-type Powers
• MTC Model Language
Council On State Taxation17
Unitary Combined Reporting
• Vermont
• Kentucky AMC: Nexus Consolidated
• Ohio CAT: Consolidated or Combined
• Texas Margins Tax: Unitary Combined
• MTC Model Statute & “Tax Havens”
Council On State Taxation18
Increased Sales Factor: Recent Activity
State Provision
Arizona HB 2139 (enacted) allows an election to increase the weight of the sales factor (to 80% by 2009)
California HB 1037 (proposal) would phase in single sales factor for targeted industries
Georgia HB 191 (enacted) phases-in a single sales factor by 2008
Indiana HB 1001 (enacted) phases-in a single sales factor by 2011
Louisiana HB 679 (enacted) establishes a single sales factor for taxpayers whose net apportionable income is primarily derived from manufacturing or merchandising
Michigan SB 634 (enacted) increases weight of sales factor (to 95% by 2008)
Minnesota HF 138 (enacted) phases-in a single sales factor by 2014 SF 3326 (proposed) would accelerate phase-in
New York AB 6845 (enacted) phases-in a single sales factor for most Art. 9-A and targeted Art. 32 taxpayers
Oregon SB 31 (enacted) accelerated the adoption of a single sales factor (by 7/1/05 instead of 7/1/08)
Pennsylvania HB 859 (enacted) increases the weight of the sales factor to 70%
Utah HB 78 (enacted) allows an optional double-weighted sales factor
Vermont 2004 enactment double-weights the sales factor
Wisconsin 2003 enactment of phased-in single sales factor by 2008
Council On State Taxation19
Tax Shelter Disclosure
• Enactments (in order of adoption)– California (2004)– Illinois (2005)– New York (2005)– Connecticut (2005)– Minnesota (2005)– Massachusetts (2005)– Utah (2006)– West Virginia (2006)
• MTC Model Statute & “51-State Spreadsheet”
Council On State Taxation20
Other Issues
• SSTP
• Property Tax Reform–Real Property (ID, SC, TX)–Business Personal Property (CT, KS, ME)
• TABOR
• Telecom Taxation
