States Enact Flurry of Tax Changes
Accountants across the nation barely had time to recover from the 2011 tax season before being buried under a blizzard of new tax law changes approved by dozens of state legislatures from Harrisburg to Honolulu.
The newly enacted state tax changes that will keep CPAs busy during this summer’s CPE classes include Michigan’s sweeping tax code overhaul, to far more targeted measures affecting the tax bills of wind farmers in Wyoming, whiskey drinkers in Maryland, and tornado victims in the Carolinas.
Advocates of a “Flat Tax” fell short of their goal of overhauling Arizona’s tax system during the 2011 legislative session, but it was a different story in Michigan where CPA-turned-Governor Rick Snyder made good on his campaign pledge to revamp the tax code in his state.
The new law eliminates the state’s tax exemption for most pension income, scraps the unpopular Michigan Business Tax, replaces it with a new 6 percent corporate income tax, and repeals a raft of credits, exemptions and loopholes in an effort to attract more business investment.
Michigan lawmakers aren’t alone in seeking to create a more business-friendly climate this year.
A series of other states with freshly elected Republican governors and more conservative legislatures are cobbling together tax changes of their own to promote business growth.
In Florida lawmakers approved freshman GOP Governor Rick Scott’s plan for corporate tax relief —a change that will give an average of $1,100 a year in tax breaks to some 15,000 Sunshine State small businesses. Indiana Governor Mitch Daniel also pushed through cuts in his state’s corporate tax rate. Former Hawaii Governor Linda Lingle approved a bill slashing unemployment insurance rates for employers by $77 million. New Jersey Governor Chris Christie signed two important pro-growth business bills that accountants in that state say “will go a long way toward stimulating both jobs and our economy.”
The bills, which were supported by the New Jersey Society of CPAs, include one that will give small businesses organized as S Corps, LLCs, LLPs, sole proprietorships or partnerships the same tax benefits as those who pay the corporate business tax. The change will allow these businesses to carry forward net operating losses for 20 years, and eventually will enable them to offset gains and losses from one category of income to another.
The other measure phases in a single sales factor allocation formula for Garden State businesses over three years. Currently, New Jersey determines the portion of a company's income that is subject to state Corporate Business Tax by considering the company's property, payroll and sales in the state—a formula that CPA leaders say discourages capital investment and job creation in New Jersey. The new law will eliminate property and payroll as factors, and base the Corporate Business Tax solely on sales.
Kansas lawmakers enacted a change in their state’s tax code that liberalizes the rules governing expense deductions by businesses. The Texas legislature is moving on proposals to prevent a drop in the state’s current $1 million floor for franchise taxes to $600,000, and a pending Wisconsin bill would extend that state’s soon-to-expire tax credits for dairy or livestock farm modernization through 2017.
In Ohio, advocates of repealing the state’s estate tax are packaging their plan as part of GOP Governor John Kasich’s business promotion agenda. Testifying in favor of the bill earlier this year, representatives of the Ohio Society of CPAs argued that the current estate tax not only encourages entrepreneurs to leave the state, but also negatively affects Ohio in other ways.
Minnesota businesses, meanwhile, figure to benefit from a newly passed law authorizing charitable tax deductions for companies that donate used computer equipment to worthy causes.
In Idaho, business owners who are called to active duty while serving in the reserves or Idaho Guard would no longer have their taxable wage rate negatively impacted if they are forced to terminate employees because of their mobilization. And ranchers in Wyoming suffering under last year’s newly enacted state tax on bull semen will get relief under the repeal measure pushed through this year’s legislative session.
While businesses were the primary beneficiaries of much of the tax legislation dished out by state lawmakers in 2011, individual taxpayers and other groups were also on the receiving end of tax breaks enacted in a number of states.
In North Carolina, storm victims who suffered losses due to the tornadoes and other extreme weather afflicting the state this year were granted a waiver of late filing penalties for tax returns submitted to the state’s Department of Revenue.
Lawmakers in Minnesota approved new state income tax deductions for higher education tuition expenses. Kentucky adopted a new health insurance tax exclusion for residents, and New York’s legislature passed a measure preserving the state’s property tax exemption for first time purchasers of newly constructed homes.
In Pennsylvania, the state’s Institute of CPAs is supporting several proposed changes in the tax code, including one permitting a surviving spouse to file a joint return for the year in which his or her spouse died if such a return could have been filed had both spouses been living for the entire year.
A separate measure backed by accountants in Pennsylvania would eliminate penalties and interest for taxpayers who make estimated tax payments equal to the amount of the taxpayer’s liability for the preceding tax year.
Michigan approved a limited-time tax amnesty program offering a 45-day window for taxpayers to settle tax liabilities with the state, and avoid civil and criminal penalties and prosecution by the state’s Department of Treasury.
New Jersey residents will soon find help navigating the tax code thanks to the newly created state Taxpayer Advocate Office. Pennsylvania is debating a series of increases in the state tax credits available to donors who contribute to scholarship funds or educational improvement organizations, and Vermont approved the establishment of a Canadian-style single-payer health care program for all residents of the state. The catch: lawmakers ducked the issue of what new taxes Vermonters will have to pay to finance the new “Green Mountain Care” health benefit. That will be decided later this year by a new health care board established by the legislation.
Not all of the thousands of tax proposals introduced in the states during this year’s session made it to the finish line. Among the casualties: a plan pushed by alternative energy advocates who urged the Wyoming legislature to blow off the current $1 per megawatt hour sales tax on wind power and replace it with a formula more likely to encourage the development of wind farms.
Similarly, lawmakers in Annapolis passed up the opportunity to repeal the limit on the unified credit used for determining Maryland’s estate tax, and voted to keep the state death tax in place even if the federal estate tax is abolished.
One tax bill that did win approval by the Maryland legislature is not likely to cause much celebrating among the state’s taxpayers. That measure calls for a whopping 50 percent hike in the state’s liquor tax, raising it from 6 percent to 9 percent.