2016: State Tax Actions

6/2/2017

Executive Summary

The cover of the State Tax Actions 2016 reportFollowing the same trend as in 2015, this past year saw net reductions in personal and corporate income taxes and increases across most other tax categories. This is a result of a continued phase-in of major tax reduction packages passed during previous legislative sessions. Increases in sales and use, health, tobacco, and motor-fuel-related taxes led to a $2.3 billion revenue increase across all reporting states. Illinois did not enact a FY 2017 budget during the 2016 legislative session, and some states—such as Texas, Montana and Nevada, where the legislature only convenes biennially—did not have significant tax changes to report.

This report includes tax actions taken during regular and special legislative sessions in 2016, as well as actions approved by voters during the November 2016 general election. Fifty states provided information, which was obtained through a survey of the National Association of Legislative Fiscal Offices.

Highlights include:

  • Collective actions taken by the 50 states resulted in a net tax increase of $2.3 billion, representing 0.3 percent of the prior year’s tax collections. This compares to relatively little activity in 2015 and a $3.1 billion, or 0.4 percent, decrease in 2014. 
  • Illinois did not enact a FY 2017 budget during the 2016 legislative session, but Pennsylvania, which did not enact a budget during the 2015 legislative session, passed an extensive tax package in 2016, increasing net tax revenue for the state by $633 million, or 1.9 percent.
  • Across the nation, the multiyear trend of lowering personal and corporate income taxes continues. Tax increases included motor fuel taxes to fund state infrastructure projects, substantial sales tax increases in two states, increased health care provider taxes to offset insurance costs and tax increases on many tobacco products.
  • Of the 50 reporting states, five—Georgia, Indiana, Mississippi, New Mexico and Wisconsin—reduced net taxes by more than 1 percent. There were six states—Louisiana, New Jersey, Oklahoma, Pennsylvania, South Dakota and West Virginia—that reported a net tax increase of more than 1 percent. Thirty-nine states made no significant net tax changes in 2016. see Figure 2 above.
  • In addition to tax changes, states approved nontax revenue changes, including fee increases or decreases, revenue accelerations or decelerations, and tax compliance initiatives for a net increase of $426 million. This resulted in a combined total revenue increase of about $2.8 billion in 2016.

 

Louisiana and South Dakota experienced the largest tax increases in 2016 due to raising the sales and use tax in each state. Louisiana raised $1.5 billion in new revenue, or an increase of 16.4 percent. South Dakota experienced a net revenue increase of $107 million, or 6.4 percent of the total taxes collected in the previous year.

Indiana reported the largest tax decrease with a net reduction in revenues of 2.3 percent. This reduction is the result of phasing in personal and corporate income tax reductions that were originally enacted during the 2013 legislative session.

Sales and use and health-care-related taxes experienced the largest increases this year. This is primarily a result of Louisiana and South Dakota’s sales tax actions. Net increases in health care taxes are driven by California’s introduction of a tax on Managed Care Organization providers, which raised $1.1 billion in new revenue.

Additionally, states enacted tax changes that will have out-year revenue effects. New York reduced personal income taxes for middle-class taxpayers, which will lead to a revenue reduction of $4.2 billion when fully effective in 2026. California, Maine, Massachusetts and Nevada legalized recreational marijuana for persons 21 years and older during the 2016 general election. The regulatory structures still need to be developed in each state, but are expected to lead to additional out-year revenue generation.

Source:  Information for this report was gathered with cooperation from the National Association of Legislative Fiscal Offices (NALFO).