BPAA State Policy Update - August 10
- State Rundown Overview: August is often a season for states to define the parameters of tax debates to come, and that is true this week in several states: a tax task force in Arkansas is nearing its final recommendations; residents of Missouri, Montana, and North Carolina await results of court challenges that will decide whether tax measures will show up on their ballots this fall.
- A legislative task force in Arkansas is closer to finalizing its recommendations for reforming the state’s tax system after voting on what personal and corporate income tax provisions to advance in its report. Among the actions taken, lawmakers voted to consolidate income tax tables while cutting the top marginal rates, rejected a proposal to adopt a state EITC, approved lowering the corporate income tax rate, collecting sales taxes from remote sellers, eliminating the complete capital gains exemption for gains over $10 million, and indexing motor vehicle taxes to the costs of construction.
- The Jobs Impact of the Tax Cuts and Jobs Act by State, 2018-2027: The Tax Cuts and Jobs Act (TCJA) is projected to add 215,000 full-time equivalent jobs in 2018 alone, and 1,443,000 cumulative full-time equivalent jobs by 2025. One of the major goals of Tax Reform 2.0 is to extend job growth beyond 2025 by making the recent federal individual income tax changes permanent. In order to illustrate the impact of the Tax Cuts and Jobs Act on job growth, the Tax Foundation has launched a new interactive map that allows users to explore the cumulative increases in full-time jobs each year by state. You can also compare the impact of the Tax Cuts and Jobs Act by congressional district here or see how tax reform will impact after-tax incomes using our 2018 Tax Reform Calculator. Click here to view the chart.
- New Jersey: Expect the fiscal debates in New Jersey to continue, where lawmakers recently enacted income tax reforms but did not fully address the state's pension funding gap or structural budget deficit. Leaders are currently looking at paring back state business tax subsidies:
- NJ.com reports: Is it worth it for New Jersey to dole out billions of dollars to lure corporations to the Garden State? Researchers tasked with answering that question sent their findings to Gov. Phil Murphy on Wednesday. In a letter addressed to the governor, they delivered rather inconclusive news, saying it's too soon to tell if the tax deals are helping New Jersey's economy, and suggested the state may be giving out more generous incentives than stipulated by law… The report failed in determining whether the deals were necessary to create or keep jobs in the state, he said. The letter to Murphy, sent by the Economic Development Authority -- the agency that oversees the state's economic incentive packages -- was attached to a long-awaited study by Rutgers University that analyzed the economic impact of the incentive deals. The report by the university's Bloustein School of Public Planning and Public Policy looked at corporate tax break deals struck under the Grow New Jersey Assistance Program and the Economic Redevelopment and Growth Program. The Grow NJ program offers tax breaks to companies to remain in or relocate to particular areas of the state. In exchange, the company is required to create jobs. Companies can also earn bonuses when they fit certain categories, locate in certain areas or adopt certain practices. For example, when a business' project location is within a three-mile radius of a college campus, it can receive up to $1,000 per each job created. Read more at NJ.com.
- Pew Charitable Research Trusts: Are Sin Taxes Healthy for State Budgets?: Research by The Pew Charitable Trusts and the Nelson A. Rockefeller Institute of Government similarly found that state revenue growth from taxes on alcohol and gambling is unlikely to be sustained due to how the products are taxed, changes in demand, and casino competition. The key findings include:
- Because of greater consumption of alcohol, tax revenue from those products, unlike tobacco, rose over the study period without significant tax hikes. However, the long-term revenue potential of tobacco and alcohol taxes is limited by their shared structure—a tax on the quantity sold, not its value, and thus requires either increased tax rates or increased consumption to generate more revenue.
- Nonetheless, states are increasingly looking at sin taxes to generate new revenue. This trend is demonstrated by the steady flow of casino openings, a majority of states considering implementing sports betting, and continued interest in legalized recreational marijuana.
- States are experimenting with ad valorem taxation—which is based on the price of the good, not quantity sold—and other tax structures on e-cigarettes and legalized recreational marijuana.
- Alcohol: Revenue driven by consumption patterns
- Unlike tobacco, alcohol revenue grew from 2008 to 2016 in many states despite fairly stable tax rates. This trend is explained by higher consumption, underscoring the fact that sin taxes based on quantity, not price, rely on increased sales for revenue growth.
- States have generally been more leery of hiking taxes on alcohol than tobacco. Only a handful have raised taxes on beer, wine, or liquor since 2008.28 The median tax rates on these three alcohol types are actually lower than they were in the 1980s, after accounting for inflation.29
- State coffers have benefited from this boost in sales. Inflation-adjusted alcohol tax revenue nationwide was up 12 percent in 2016 compared with 2008. Thirty-five states saw alcohol tax revenue grow from 2012 to 2016.30 Again, increased drinking led to the gains: Per capita wine and spirit consumption each rose around 10 percent between 2008 and 2016. Although beer consumption fell 9 percent in those years, the greater numbers drinking wine and spirits made up for the decline. Bolstering this effect is the fact that taxes on wine and spirits also are usually significantly higher than those on beer.
- Despite gains in alcohol tax revenue tied to more imbibing, policymakers would be wise to take a long view. Alcohol consumption tends to be cyclical. The average per capita alcohol consumption in 2015 was 2.3 gallons, down from the 1981 peak of 2.8 gallons (and up from the 1998 trough of 2.1 gallons).32 Given alcohol’s quantity- based tax structure and that usage ebbs and flows with societal trends and consumer whims, revenue gains may not always be a reality—nor is increased usage desirable from a public health or safety perspective. Policymakers should therefore not rely on alcohol tax revenue for long-term budget commitments.
- Read full article here.
- See Pew chart here on How States Raise Their Tax Dollars
- State of Wayfair: States Bracing for Digital Services Legislation:
- Kentucky wants remote sellers to register by Oct. 1
- Arkansas expects $43 million Wayfair windfall
- Collections scheduled to begin Jan. 1, 2019, for Nebraska
Congress will soon see a new bill on states’ tax authority over online sellers from Amazon.com Inc. to those using other platforms like Etsy Inc., according to Multistate Tax Commission official. Thomas Shimkin, legislative counsel and director at the MTC, an interstate tax organization that tries to shape state tax activity via model legislation, told Bloomberg Tax July 31 the details and a timeline for introducing the bill are unknown. Four other bills already are pending in Congress, which for years hasn’t moved on legislation that would limit states’ tax authority over online sales. The House Judiciary Committee held a hearing July 24, but there was no clear path ahead on any particular piece of legislation. The MTC has urged Congress to leave the issue to states, though the National Conference of State Legislatures passed a resolution July 30 urging Congress to step in. The new bill would join that crowded picture. And it is the latest reaction in Washington, D.C., and otherwise to the U.S. Supreme Court’s groundbreaking ruling in South Dakota v. Wayfair, Inc.—which tossed out Quill Corp. v. North Dakota, the court’s 1992 physical presence threshold for when states could tax remote sales. States are expected to become even more active in taxing online sales after the June 21 ruling, and prominent members of Congress like House Judiciary Committee Chair Robert W. Goodlatte (R-Va.) have urged Congress to intervene despite years of inactivity on the subject matter.
- Could Sports Betting League Fees Gain Traction in Nevada? Nevada is poised as the country’s expert on how to regulate sports betting following the recent U.S. Supreme Court decision that allows other states to legalize it. One element missing from Nevada’s model? The “integrity fees” that leagues including the National Basketball Association, Major League Baseball, and the PGA Tour want mandated to guarantee them a piece of the money. Dozens of states could follow Delaware, New Jersey, and Mississippi and launch legalized sports betting after the court’s decision in Murphy v. NCAA, which struck down the Professional and Amateur Sports Protection Act that barred the activity in most places. Nevada was grandfathered into the act, giving the state decades of regulatory experience over the majority of the country. New York, Rhode Island, Pennsylvania, and West Virginia— which have already legalized the activity—are on a path to be the next states to offer wagers. Sports leagues want a number of provisions in the new state laws, including a dedicated percentage of the total money bet on events. States are looking at their own need for revenue in an industry that brings Nevada millions of dollars in taxes each year. Read more at Bloomberg Government.
- West Virginia: The First Approval For West Virginia Sports Betting Has Been Granted: West Virginia started issuing interim permits for sports betting in preparation to launch a state-regulated industry later this summer. The WV Lottery published its proposed rules for sports betting on Tuesday, commencing a 30-day public comment period. Read more at Legal Sports Betting.
- Delaware: Delaware Has Taken More Than $15 Million In Bets Since Launch: The second batch of numbers from Delaware sports betting is out, and the state has now taken more than $15 million in wagers since launch on June 5. Read more on Delaware sports betting here.
Mississippi: New Day For Ole Miss As Mississippi Sports Betting Launches: With seven simultaneous bets placed in Biloxi and Tunica, Mississippi sports betting started Wednesday at two MGM Resorts properties. Mississippi becomes the fourth state with active legal sports betting, and the third to launch following the Supreme Court‘s repeal of PASPA in May. Delaware and New Jersey both fired up their initial operations in June. MGM opened its sportsbooks at Beau Rivage in Biloxi and Gold Strike in Tunica with fanfare. Former NFL stars Willis McGahee and Stanley Morgan led a crowd of dignitaries marking the start of Mississippi sports betting. Read more on Mississippi sports betting here.
- Missouri voters reject right-to-work law in rare win for unions: The national push to check union power was dealt a rare blow Tuesday when voters in Missouri rejected a right-to-work law that would have prevented private-sector unions from collecting compulsory fees from workers who do not join. The law was defeated by a 2-1 margin and came after unions had secured a referendum on the measure, signed into law by then-Gov. Eric Greitens in February 2017. Unions immediately cheered the result on Tuesday, which comes as a relief for Big Labor as a break from a series of blows to union power. “The defeat of this poisonous anti-worker legislation is a victory for all workers across the country,” AFL-CIO President Richard Trumka said in a statement. “The victory in Missouri follows a national wave of inspiring activism that is leading to life-changing collective bargaining agreements and electoral triumphs that remind America the path to power runs through the labor movement,” he said. The result was also hailed by left-wing Sen. Bernie Sanders, I-Vt., who called on right-to-work legislation to be defeated “nationwide.” “We must stand together, beat back union busters, and continue to build and grow the trade union movement in this country,” he said. The referendum comes on the heels of the Supreme Court’s Janus decision, which dealt a significant blow to unions by ruling that government workers can’t be forced to pay union fees for collective bargaining. Missouri’s law would have extended protection to all private-sector employees. Read more at Fox News.
- Bloomberg Government: Arkansas Minimum Wage: Supporters of a ballot measure to raise the hourly minimum wage to $11 by 2021 from $8.50 on Aug. 3 submitted to the secretary of state’s office an additional 44,665 signatures, of which roughly 15,000 valid signatures are needed to meet the 67,887 signatures required for the measure to appear on the Nov. 6 ballot. Secretary of State Mark Martin said July 30 that of the 69,413 signatures that were submitted by July 6 in support of the minimum-wage ballot measure, 52,124 signatures were valid. An additional 30 days was granted for supporters to obtain the signatures necessary for the measure to appear on the ballot. Arkansas’ current minimum wage is $8.50 per hour. Under the minimum-wage proposal, it would rise to $9.25 in 2019, $10 in 2020, and $11 in 2021.
Bloomberg Government: Minimum Wage Hike, Medical Pot on Missouri's Nov. 6 Ballot: Missouri voters will likely get a chance to weigh in on proposals to change state redistricting, increase the state's minimum wage and legalize medical marijuana when they head to the polls in November. Secretary of State Jay Ashcroft on Thursday approved the initiatives for the Nov. 6 ballot, though they could still face court challenges from opponents hoping to block the measures from going to voters. The issues approved Thursday could draw more liberal-leaning crowds to the polls, possibly giving Democratic U.S. Sen. Claire McCaskill a boost in her bid for a third term in office. She'll likely face off in November against Republican front-runner Josh Hawley, the state's attorney general, whose primary election is next week.
- Wisconsin: Association Health Plans Advance in Wisconsin, Other States: Wisconsin’s largest employers group joined the vanguard in rolling out an association health plan that doesn’t have to meet many federal and state standards. A recent Labor Department rule promoted the formation of association health plans on the basis of common geography or industry by establishing additional criteria under the Employee Retirement Income Security Act. The change will allow employers more opportunities to join together to buy or self-fund health coverage for their workers. Wisconsin Manufacturers & Commerce is finalizing benefit and cost structures of its association plan, Nick Novak, a spokesman for the group, told Bloomberg Law in an Aug. 7 email. Supporters say such plans will expand affordable health coverage options for consumers. But opponents allege they could give individuals a false sense of security. Consumers thinking the plans cover full benefits may be harmed when they find they cover fewer benefits than health policies regulated under the Affordable Care Act. Claims denials could be trickier, they say, because association plans do not have to observe claims and appeals processes under ERISA. The Wisconsin association may be one of the first Midwest employer groups to signal intent to create a such a plan. But other regional organizations aren’t far behind. Illinois, Iowa, and Michigan business group and farm bureau representatives told Bloomberg Law their organizations may launch plans as well. Nationwide, an Avalere Heath report concluded the Labor Department rule could result in more than 4.1 million consumers leaving Obamacare individual and small-group plans for the cheaper association plans by 2022.
- But Illinois Attorney General Lisa Madigan (D) and 16 other state attorneys general argued in a March letter to the Labor Department that the rule increases the risk of fraud due to inadequately funded plans, undermines the Affordable Care Act by potentially siphoning off healthier individuals participating in Obamacare, and is “inconsistent” with Affordable Care Act provisions.
- Nevertheless, many associations are at least considering creating the plans.
- “The Michigan Chamber is still exploring its options related to association health plans,” Michigan Chamber of Commerce lobbyist Wendy Block told Bloomberg Law in an email. “We did support the federal regulations related to AHPs,” said Block, who is responsible for health policy issues.
- The Iowa Association of Business and Industry will decide by Sept. 30 whether it will offer its own plan to its membership, Mike Ralston, the group’s president, said in an email to Bloomberg Law.
Read full article here at Bloomberg Government with subscription.