Key Takeaways
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A look at state revenue trends and why they matter
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Florida, Missouri, and North Carolina put tax questions to voters
- Illinois approves taxes and fees on social media, digital assets and advertising services
- New York to tax second homes
Welcome to this edition of our roundup of state tax developments. The State Tax News and Views is published weekly. Consider the Eide Bailly State & Local Tax team for your state tax planning, compliance and incentive needs.
State tax policy continues to evolve rapidly as legislatures wrap sessions, courts address emerging issues, and policymakers experiment with new revenue strategies. Several recent changes highlight where policymakers and tax authorities are focusing their attention — particularly around tax reform, audit enforcement, and shifting tax bases.
Ballot-Driven Tax Policy
Even as most state legislative sessions have adjourned, tax policy activity remains active — and in many cases unresolved — with several issues set to continue into future sessions. States continue to experiment with structural tax reform, often pushing major decisions directly to voters.
In November, Florida voters will decide whether to amend the state constitution to raise the homestead exemption from $50,000 to $250,000 over two years and index future increases to inflation.
FLORIDA
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If approved, the tax cutting strategy will likely remove $13 billion from the coffers of local governments in its first two years–a revenue shift that, "would fundamentally reshape the relationship between counties and the state," said Jeff Brandes, a former Republican state senator who runs the Florida Policy Project, a non-profit research institute.
In Missouri, voters will decide on whether to authorize a gradual phaseout of the state’s income tax, paired with an expansion of the sales tax base. This proposal reflects a broader shift toward consumption-based taxation, particularly in states seeking to attract investment or remain competitive.
MISSOURI
Missouri Governor Puts Income-for-Sales-Tax Swap on August Ballot - Matthew Pertz, Tax Notes ($):
Kehoe on May 22 signed proclamations moving four proposed state constitutional amendments, including the income tax swap (amendment 5), up to the August 4 primaries, instead of the November 3 general election.
North Carolina lawmakers also approved a ballot measure that would significantly reduce the state’s constitutional income tax cap from 7% to 3.5%. If approved, the change would further limit the state’s ability to increase income tax rates in the future and lock in its low-tax structure.
NORTH CAROLINA
North Carolina Lawmakers Approve Income Tax Cap Ballot Measure - Kennedy Wahrmund, Tax Notes ($):
Taken together, these developments highlight a continued willingness by states to rethink traditional tax structures — often pushing decisions directly to voters when legislative consensus is difficult.
Digital Economy Taxes: Targeting Modern Business Models
As traditional revenue sources face pressure, states are increasingly targeting the digital economy.
Illinois recently approved a budget that includes a tax on targeted advertising services, along with a social media platform fee and a tax on certain digital assets. These measures reflect growing interest in taxing digital activity that historically fell outside traditional tax bases.
ILLINOIS
Illinois Lawmakers OK Social Media Fee, Ad Services Tax - Emily Hollingsworth, Tax Notes ($):
At the same time, states are exploring new ways to tax financial transactions. Tennessee enacted a tax on certain international money transfers, applying both a flat fee and a percentage-based tax depending on the transfer amount. The state has already issued detailed guidance addressing sourcing and compliance requirements for these transactions.
TENNESSEE
Tennessee Issues Guidance After Money Transfer Tax Enactment - Kennedy Wahrmund, Tax Notes ($):
These developments show how states are adapting existing tax frameworks to capture revenue from increasingly digital and cross-border activities.
Audit Risk and Recordkeeping: Courts Reinforce Documentation Requirements
Recent litigation reinforces a familiar — but critical — message for taxpayers: documentation matters.
In New Jersey, the state tax court upheld substantial audit assessments after finding that taxpayers failed to maintain adequate records. Because supporting documentation was insufficient, the state was permitted to rely on estimated assessment methods to determine tax liability.
NEW JERSEY
New Jersey Tax Court Upholds Audit, Citing Insufficient Records - Cameron Browne, Tax Notes ($):
The court also emphasized that reconstructed records without independent support carry little weight, making it difficult for taxpayers to rebut the presumption that an assessment is correct.
For multistate taxpayers, this is a reminder that audit exposure is often driven as much by documentation quality as by underlying tax positions.
Tax Incentives and Credits: More Targeted, More Scrutinized
States are continuing to use tax incentives to influence economic and policy outcomes, but with increased scrutiny.
South Carolina enacted a new credit for renewable natural gas production, allowing taxpayers to claim a percentage of qualifying equipment costs, subject to annual caps.
SOUTH CAROLINA
South Carolina Bill Creates Renewable Natural Gas Production Tax Credit - Tax Notes ($):
At the same time, states are reassessing large-scale incentives. Ohio recently paused new applications for its data center tax exemption program to evaluate the broader economic and infrastructure impact of these incentives before approving additional projects.
OHIO
Ohio Pauses New Data Center Tax Exemption Requests - Kennedy Wahrmund, Tax Notes ($):
This combination of expansion and reassessment suggests that while incentives remain a key policy tool, states are becoming more deliberate about their long-term effectiveness.
Property Taxes and Tax Base Strategy: Shifting Toward More Stable Revenue
States are also refining how they rely on different tax bases — particularly those that are less mobile.
New York’s latest budget includes a new tax targeting high-value second homes, along with an expansion of a long-standing property tax abatement program designed to support housing development and rehabilitation.
NEW YORK
New York Enacts Tax on Second Homes, Deduction for Tips - Emily Hollingsworth, Tax Notes ($):
The tax and revenue portion of the budget (A. 10009C / S. 9009C) was signed into law by Gov. Kathy Hochul (D) on May 28. The budget plan was estimated to cost $268 billion as of May 7.
This points to a broader trend: states are increasingly focusing on less mobile tax bases, such as real estate, while taking a more cautious approach with highly mobile income and capital. As policymakers balance revenue stability with competitiveness concerns, this type of tax base segmentation is likely to shape future tax policy decisions.
SEASONED WITH SALT
Tax Tips, Tricks and Opportunities
Why State Revenue Trends Matter for SALT Planning - Chris Martin, Eide Bailly:
I have always found it interesting to follow state government fiscal revenue receipts in Minnesota (my home state) and in other states. Trends can offer insight into both the economy and what a state prioritizes when the general fund is increasing or decreasing.
Law360, a tax news and research site, publishes regular updates on state fiscal revenue collections. Most state revenue collections over the last several quarters were positive. For example, New Jersey’s collections for the last 10 months were up nearly $2 billion, or 4.6% over prior year. Wisconsin’s collections were up over 5%. Utah’s were up over 4%. Oregon increased its forecast of general fund revenue for the biennium by $351 million.
Virginia's collections were up over 7% and Pennsylvania, South Carolina, Oklahoma, Ohio, Idaho, and Kentucky also received additional revenue over prior year. You get the idea. Even New York, Illinois, and Minnesota, states not known for recent growth, showed increased revenue collections. The above statistics indicate (perhaps) a healthy economy of businesses and individuals earning and spending money in the state. a downturn in hiring or the stock market could quickly shift a state’s fiscal outlook.
Not all states are seeing the same results. Iowa and Missouri showed a decline in income tax revenue, at least in part due to reduced tax rates. Despite these declines, Missouri has a proposed constitutional amendment on the August primary ballot to phase out the state's income tax and expand its sales tax base. Meanwhile, facing budget pressure, Hawaii is eliminating various tax credits, including several for renewable energy and research activities.
There certainly could be many reasons why a state’s coffers may grow or shrink. A state experiencing increased tax revenues might be less likely to settle an audit or appeal over a contested SALT issue because the state isn’t hurting for cash. But the opposite could also be true: a state flush with cash could be more likely to concede or settle an audit versus expending resources to fight an issue that may not apply in future years. Or perhaps a state with decreasing tax revenues, like Iowa or Missouri, may be signaling that the state is more business- and taxpayer-friendly by reducing rates and tax burdens. However, Hawaii may ramp up various audit activities to help shore up its budget shortfall.
In that context, it can be worth keeping an eye on a state’s fiscal collections and political landscape when negotiating with the state an audit settlement, considering a Voluntary Disclosure Agreement, or looking to apply for credits and incentives.
