While much of the attention on the 2022 midterm elections revolved around the balance of power in Congress, voters across the country approved several new tax and budget initiatives. Many of these will have modest impact on state budgets, but some were estimated to reduce or increase revenues by tens to hundreds of millions of dollars.
Noteworthy Income Tax Changes
Colorado Proposition 121
Proposition 121 permanently reduces the income tax rate for individuals and corporations from 4.55% to 4.4%. The state temporarily reduced the income tax rate to 4.5% in 2020 because revenues exceeded limits set by the Taxpayer’s Bill of Rights. The temporary reduction, which was intended to return excess revenues to taxpayers, was expected to last through 2024. Now, after passage of Prop 121, the income tax rate is further reduced to 4.4% for tax years beginning Jan. 1, 2022.
Tax collections are expected to decrease by $412.6 million in fiscal year 2023-24, which is a 2.4% reduction in general fund revenues.
Colorado Proposition FF
Prop FF raises taxes on people with incomes over $300,000 to create and fund the Healthy School Meals for All Program. Households with at least $300,000 in taxable income will be limited to $12,000 in state tax deductions for single filers and $16,000 for joint filers. State revenue is estimated to increase by $50.4 million in fiscal year 2022-23 and by $100.7 million in FY 2023-24. The program, with an estimated start-up cost of $212,289, will increase state spending between $71.4 million and $101.4 million in FY 2024-25 when it is fully in place. The proposition passed with 56.3% of voter support.
Massachusetts Question 1
In a year in which legislatures in at least 14 states passed measures to reduce income tax rates, Massachusetts approved a new 4% surcharge on individual taxpayers with incomes over $1 million. The constitutional amendment was referred to voters by the Legislature in 2021 and was approved with 52% of the vote. The measure is estimated to increase state tax collections by $2 billion. The revenues will be dedicated to education, road and bridge maintenance, and public transportation. Massachusetts joins New Jersey, New York and Washington, D.C., in having higher marginal rates for income over $1 million.
Maryland Question 4
By a nearly 30-point margin, Maryland voters approved the possession or use of cannabis for individuals 21 or older. The constitutional amendment was referred to voters by the Legislature earlier in the year (H 1).
While the taxation and licensing component of cannabis implementation will need to be addressed by the Legislature in 2023, the state’s FY 2023 budget included $5.5 million in general funds and restricted $46.5 million in general funds contingent on the enactment of the amendment.
Missouri Amendment 3
Voters approved the purchase, possession, consumption and cultivation of marijuana for people 21 and older. The measure imposes a 6% tax on the retail price of the product, and proposes expunging the records of people with nonviolent marijuana offenses.
According to the fiscal estimate for the measure, “State governmental entities estimate initial costs of $3.1 million, initial revenues of at least $7.9 million, annual costs of $5.5 million, and annual revenues of at least $40.8 million. Local governments are estimated to have annual costs of at least $35,000 and annual revenues of at least $13.8 million.”
With the addition of Missouri and Maryland, 21 states, the District of Columbia and Guam have now legalized adult-use cannabis.
New Tax Limitations
Arizona Proposition 132
Arizona voters approved a measure requiring 60% of voter support to authorize tax changes via ballot initiative. The state becomes the 10th to create a supermajority requirement for passage of constitutional amendments or statutory initiatives. Supporters of the legislation noted that lawmakers need a two-thirds majority to approve new taxes. Opponents were concerned that the proposition could lead to minority rule by allowing as few as 41% of voters to prevent a measure from being passed.
Other Approved Fiscal Ballot Measures
Alabama Amendment 6
With the approval of more than 60% of voters, Alabama cities and towns that already collect a special property tax may use that revenue to pay for construction projects instead of going into debt. The measure does not affect the amount of revenue collected.
Arizona Proposition 130
Prop 130 allows the Legislature to set property tax exemption amounts and determine who should qualify for exemptions. The measure’s passage, with support from 65.3% of voters, means veterans with disabilities qualify for the exemption at an estimated cost of $2.1 million beginning in FY 2024.
Colorado Amendment E
With 87.9% voter support, Amendment E extends property tax exemptions to the spouses of military members and veterans who died in the line of duty or from a service-related injury. Fifty percent of the first $200,000 of a home’s value is exempt from taxation for qualifying homeowners. The cost of the exemption totals $288,000 in FY 2023-24.
Georgia Referendum A
Approved by 73.09% of voters, Referendum A exempts timber equipment from property taxes. Because no fiscal note was prepared for the measures, its costs are unknown. The exemption is set to begin Jan. 1, 2023.
Georgia Referendum B
Currently, family-owned farms are exempted from taxes on some farm equipment and products. Approved by 76.5% of voters, Referendum B amends the definition of “family farm” to include two or more entities that qualify as family-owned. Family-owned farms that share equipment with other family-owned farms now qualify for the property tax exemption. The measure also makes dairy and egg products tax-exempt.
Georgia Amendment 2
Approved with 91.85% support, Amendment 2 authorizes local governments to grant temporary tax relief to homeowners affected by a nationally declared natural disaster.
Idaho Advisory Question on Recent Income and Corporate Tax Changes
By nearly 80%, Idaho voters approved an advisory question regarding a recent tax relief package passed by the Legislature (HB 1). The measure included a one-time $500 million tax rebate, a consolidation of personal and corporate income tax brackets to a 5.8% flat tax, and an annual dedication of $410 million in sales tax revenues to the public school income fund. HB 1 included a provision to place the advisory question on the ballot to gauge voter approval of the changes, though the outcome would have had no effect on the law.
Louisiana Amendment 2
This constitutional amendment will expand the state’s existing property tax exemption for disabled veterans and their surviving spouses. It was approved with nearly a three-fourths majority after being referred to voters by the Legislature earlier in the year. The fiscal note for the measure did not include an estimate of the impact on local government revenues.
Louisiana Amendment 8
Another constitutional measure referred by the Legislature, this one approved by nearly 55% of voters, removes a requirement to annually recertify the income of permanently and totally disabled homeowners so they can keep their special assessment level for property taxes.
Washington Advisory Vote 39
Voters in Washington repealed a tax increase on aircraft fuel that was passed by the Legislature earlier in the year. State law requires advisory votes on legislative actions that increase taxes or fees. The law, SB 5974, increased the aircraft fuel tax from 11 cents to 18 cents per gallon and was estimated to generate a relatively small amount of revenue ($14 million) over 10 years.
Washington Advisory Vote 40
Washingtonians also repealed a new fee on transportation network companies (e.g., Uber and Lyft) that had been recently approved by the Legislature. In addition to a 15-cent per passenger fee, the bill, HB 2076, set a guaranteed compensation rate for drivers and required companies to inform employees of workers’ rights and provide paid sick leave. The premiums charged for rides were to go to a fund providing workers’ compensation coverage for drivers.
Andrea Jimenez is a policy analyst and Jackson Brainerd is a program principal in NCSL’s Fiscal Affairs Program.