State Tax Actions 2006
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Executive Summary
The positive performance of the U.S. economy reinforced state revenues in 2006, allowing many states to cut income and business taxes and others to provide local property tax relief with new state revenue sources. Despite these cuts, however, states enacted an aggregate net tax increase of $1.1 billion, the smallest increase in five years.
This report includes tax actions taken during regular and special legislative sessions in 2006, as well as actions approved by voters in the fall 2006 elections. Forty-nine states provided information, which was obtained through the National Association of Legislative Fiscal Offices. Highlights include the following.
- States cut personal income taxes much more significantly this year than last year, with the $1.8 billion tax cut representing the largest reduction of any major category.
- States also cut business and corporate income taxes.
- Although sales taxes had an aggregate increase of $913 million, more states cut sales taxes than raised them. A significant portion of new sales tax revenue is dedicated to local property tax relief. In addition, voters approved almost all proposed property tax relief measures.
- Tobacco tax increases were approved by three state legislatures, and voters approved tobacco tax increases in Arizona and South Dakota.
- Four states replaced property tax revenues with new sales or other taxes to provide relief to homeowners.
- States increased health care-related taxes by $291 million, less than the increase in the prior year.
- States increased motor vehicle-related taxes by $97 million but did not increase motor fuels taxes.
- Miscellaneous taxes increased by $1 billion, primarily as a result of new taxes on natural resources.
In addition to tax changes, states made other nontax changes, such as fee increases and revenue accelerations or decelerations, for a net increase of $273.6 million. In addition, Indiana generated $3.8 billion in nontax revenue through the long-term lease of the Indiana toll road. In a year-over-year comparison, this results in a combined revenue increase of $1.4 billion, which is $2.9 billion below the $4.3 billion total increase in 2005. This comparison is net of the $3.8 billion one-time lease action in Indiana, which otherwise brings total revenues in 2006 from all actions to $5.25 billion.
See more about the State Tax Actions series.
Posted April 2007.
Email statefiscal-info@ncsl.org for more information.
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