Key Takeaways
- Athletic competition, state tax competition.
- Road funding around the US in the EV era.
- Tax bills advance in AL, CO, IA, KY, MI, MS, MO, OR.
- Property tax battles in Florida and Kansas.
- Corporate state tax deduction elimination to fund tax cut extension?
- FATCA turns 15.
Welcome to this edition of our roundup of state tax developments. Consider the Eide Bailly State & Local Tax team for your state tax planning, compliance, and incentive needs.
Giving college athletes tax breaks on NIL earnings isn’t choosing to win at all costs - David Ubben, The Athletic:
Also in February, Georgia state Sen. Brandon Beach and four other senators introduced what’s being called the Kirby Smart Bill. Their bill would do the same for athletes who choose to play college sports in Georgia. Rep. Joe Lovvorn and Rep. Chris Blackshear filed a near identical bill in Alabama.
...
And they convinced my cynical heart it’s a worthwhile pursuit.
Taxes aren't everything, but they are a thing. Still, not every problem is a tax problem.
What To Do, And Not To Do, Before A State Tax Court Judge - Maria Koklanaris, Law360 Tax Authority ($):
That does not mean rehashing the entire case, Judge Tien cautioned.
"Know that the judge, if it's me, has already read it, so you don't have to read your whole brief all over again," she said. "Just hit your high points and be ready to answer questions."
Road Taxes and Funding by State, 2025 - Jacob Macumber-Rosin and Adam Hoffer, Tax Foundation:
However, these road taxes and fees are far from a perfect user fee, especially as inflation, electric vehicles, and fuel efficiency gains erode gas tax revenues per mile of road driven. Most states fail to collect enough in user fees to fully provide for roadway spending. This necessitates transfers from general funds or other revenue sources that are unrelated to road use to pay for road construction and maintenance.
State-By-State Roundup
Alabama
State House approves tax cuts that will affect all Alabamians - Brendan Kirby, Fox10tv:
But with a temporary elimination of the income tax on overtime pay set to expire over the summer, some folks could end up paying more.
...
Republicans in the House have chosen this approach in place of continuing the elimination of the state income tax on overtime pay that expires in June. That ended up costing the state more money than anticipated.
Arkansas
Ark. Sale Of Arby's Restaurants Not Biz Income, Judge Rules - Maria Koklanaris, Law360 Tax Authority ($). "A now-defunct corporation that was the largest franchisee of Arby's fast-food restaurants did not earn business income in Arkansas when it sold the brand because it was not in the business of disposing of such property, a state trial court ruled in an opinion obtained Monday by Law360."
Link: CASE NO.: 60CV-22-2158
Colorado
Colorado House OKs Credits to Attract Sundance Festival - Emily Hollingsworth, Tax Notes ($). "H.B. 25-1005 would establish refundable tax credits to attract a global film festival and support Colorado's existing smaller state film festivals. The House passed it March 13 on a 43–17 vote."
Colo. Senate OKs Lowering Family Leave Premium - Sanjay Talwani, Law360 Tax Authority ($). "The Colorado Senate passed S.B. 144 by a 22-12 vote, sending it to the state House. If enacted, the bill would reduce the premium to fund the leave program from 0.9% of most employee wages to 0.88% in 2026. The premium is paid jointly by employers and employees."
Florida
Florida Explores Ditching Property Tax as Home Prices Soar - Arian Campo-Flores and Deborah Acosta, Wall Street Journal. "In Florida, which has no personal income tax, property taxes play a significant role in paying for schools, police, parks and other services. They account for 18% of county revenue, 17% of municipal revenue and 50% to 60% of school-district revenue, according to a recent report by the Florida Policy Institute, a nonprofit focused on economic mobility. If property taxes were eliminated, the sales tax would have to be at least doubled, to 12%, to make up for the lost revenue, the report said."
Idaho
Idaho Combats Tax Return Fraud With Identity Verification Letters - Emily Hollingsworth, Tax Notes ($):
“If you receive an identity verification letter, please respond," Commission Chair Jeff McCray said in the release. "We won't issue a tax refund until we can verify your identity.”
Idaho Governor Signs Grocery Tax Credit Increase - Emily Hollingsworth, Tax Notes ($). "Gov. Brad Little (R) signed H. 231 on March 13. The legislation, which is effective retroactive to January 1, increases the state’s income tax credit against food expenses from $120 to $155. Taxpayers can claim $155 credits for themselves, their spouses, and for each of their dependents."
Illinois
Pepsi Loses Bid to Overturn Illinois Tax Avoidance Ruling - Perry Cooper, Bloomberg. "The Illinois Department of Revenue determined that Frito-Lay North America Inc. was improperly excluded from Pepsi’s unitary business group for 2011-2013, and added Frito-Lay’s income of $2.5 billion a year to Pepsi’s income for purposes of calculating its Illinois income taxes."
Chicago Enacts Property Tax Incentive for Theater Renovation - Emily Hollingsworth, Tax Notes ($). "During its March 12 meeting, the Chicago City Council passed an ordinance approving the use of the Cook County Class L property tax incentive for the historic Congress Theater. The incentive program lowers property tax assessment levels on historic buildings for a 12-year term to encourage their preservation and rehabilitation."
Iowa
Iowa House Passes Lease Exclusion Expansion for Retired Farmers. The Iowa House of Representatives yesterday passed a bill to expand the optional exclusion of rental income for retired farmers to property held through a partnership or S corporation. Retired farmers who opt for this exclusion give up the ability to exclude gains from a sale of farmland. HF 624, which advanced on a 96-0 vote, would be retroactive to 2024 if enacted.
Current law limits the lease exclusion to land held directly by a retired farmer.
Kansas
Kansas Policymakers Consider Variations of a Property Tax Levy Limit - Katherine Loughead, Tax Policy Blog:
This proposed levy limit would be a structurally sound way to give local stakeholders a direct say in whether any increase in a local taxing entity’s total property tax collections above the allowable limit is justified.
Kentucky
Kentucky Income Tax Cut Trigger Bill Sent to Governor - Matthew Pertz, Tax Notes ($):
H.B. 775 would create triggers that would allow lawmakers to approve smaller income tax reductions of up to 0.4 percent if general fund revenue exceeds expenditures.
Michigan
Michigan income tax would drop under House-passed bill - Clara Hendrickson, Detroit Free Press. "House Bill 4170 would cut Michigan's income tax rate from 4.25% to 4.05% effective Jan. 1, 2025. Most Michigan income tax revenue goes to the state's general fund — the main source for funding state government — but income tax dollars also go to the state's fund for schools and roads."
Minnesota
Tax On Services In Proposed Minn. Budget Hits Opposition - Sanjay Talwani, Law360 Tax Authority ($). "Representatives of providers of the services that would be affected by the expansion of the state sales tax proposed by Democratic Gov. Tim Walz told the Senate Taxes Committee that the change would bring new, unfair burdens on those providers and their customers. In addition to several other policy changes, the budget bill, S.F. 2374, would trim the state tax rate from 6.875% to 6.8% while expanding its base to include many accounting, legal, banking and brokerage services used by individuals."
Minnesota House Revisits Corporate Return Disclosure Proposal - Emily Hollingsworth, Tax Notes ($). "H.B. 2274's section 4 would require the state tax commissioner to publicly disclose the corporate franchise tax returns of taxpayers with more than $250 million in aggregate gross sales or receipts in a given tax year. The information to be disclosed would include a corporation’s corporate franchise tax return and any amended or adjusted returns; corporate tax forms relating to calculation of income, apportionment, and tax; and the corporation’s identity for state tax purposes."
Mississippi
Senate and House pass revised plans to eliminate income tax, increase gasoline tax - Michael Goldberg and Taylor Vance, Mississippi Today. "The new House Plan would... Fully eliminate the state income tax by 2037. The elimination would begin phasing in after the state next year finishes implementing another income tax cut it approved in 2022. The phase-in period would take a decade, beginning with a reduction from 4% to 3.5% and then lowering further from there."
Missouri
Missouri House Passes Flat Income Tax With Gradual Reductions - Matthew Pertz, Tax Notes ($):
H.B. 798 would also provide for 10 annual reductions of 0.1 percentage points, while retaining the triggers established under 2022’s S.B. 3. Under that legislation, Missouri can reduce the income tax if the previous year’s general fund revenue exceeds the highest of the prior three years’ revenue by $200 million and if the previous year's revenue exceeds the revenue from five years prior, adjusted for inflation.
Link: HB 798.
North Carolina
New North Carolina Governor Seeks to Freeze Tax Cuts, Phase Out School Vouchers in Budget - Associated Press via U.S. News. "How does he do it? In part by asking lawmakers to halt already enacted laws by Republicans that next January would reduce the current individual income tax rate of 4.25% and the corporate income tax rate of 2.25% even further."
New York
Hochul Says No to Income Tax Hike as NY Budget Talks Continue - Danielle Muoio Dunn and Zach Williams, Bloomberg ($). "New York Gov. Kathy Hochul (D) reaffirmed her opposition to increasing income taxes on high-earners as lawmakers negotiate a final budget plan ahead of an April 1 deadline."
Oregon
Oregon Bill to Pause Rolling IRC Conformity Advances - Paul Jones, Tax Notes ($). "The reason for the pause is the uncertainty over what the federal tax code may end up being for 2025 because of congressional debate over the Tax Cuts and Jobs Act's expiring provisions. Committee staff has told state lawmakers that without certainty, it’s impossible to evaluate the potential effects of rolling federal conformity on Oregon’s revenues."
Tax Policy Corner
Capping C‑SALT Is Worth the Tradeoff for Pro-Growth Tax Cuts - Arnold Ventures (my emphasis).
...
Tradeoffs can have unintended consequences. The original SALT cap impacted the individual owners of pass-through businesses such as S-corporations and LLCs who were accustomed to deducting the full measure of the state and local taxes paid by their firms on their individual 1040 forms. Naturally, they thought it was unfair that Fortune 500 companies could continue to deduct their state and local taxes while pass-throughs could only deduct $10,000 worth.
As a remedy, they lobbied state lawmakers to craft workarounds that allowed them to deduct state and local taxes at the firm level, much like traditional C-corporations are allowed to do. While this may seem fair on the one hand, these workarounds greatly complicated state tax codes and created another disparity in how individual taxpayers are treated. Business owners benefited greatly from the workarounds, but their employees could not.
Tax History Corner
This week marks the 15th anniversary of the passage of PL 111-147, which includes The Foreign Account Tax Compliance Act (FATCA). FATCAts, get it? It was billed as a weapon against offshore tax avoidance. It definitely requires more reporting of foreign investments. It has also made financial life difficult for Americans abroad:
You don't have to be a Fat Cat to be FATCAd.
Related: Eide Bailly Expatriate Tax Services
