A Quiet Year for State Taxes…So Far

According to a recent National Conference of State Legislatures report, many states have made tax policy changes in the first half of 2012, but the net effect of these changes is small.  State tax actions in the first half of 2012 have resulted in a net tax decrease of $1.8 billion, or 0.2% of total state tax collections. 

Most of the cuts were to personal income taxes. Thirteen states made income tax cuts, but Idaho, Kansas, and New York are responsible for most of the revenue reduction.  Idaho reduced its top income tax rate from 7.8% to 7.4%.  Kansas reformed its personal income tax by reducing the rate, repealing several tax credits, and increasing standard deductions for certain filers.  New York, on the other hand, restructured its personal income tax for the 2012 through 2014 tax years, reducing tax rates in most brackets and increasing rates in the upper brackets. 

Only three states raised income taxes. Maryland’s tax increase accounts for most of the new revenue.  It raised taxes on higher-income taxpayers by raising rates and lowering exemptions. 

On the business tax front, 13 states cut corporate taxes and three raised them.  Pennsylvania, for instance, enacted a single sales factor apportionment formula and approved several new business tax credits.  New York reduced its corporate income tax rate for manufacturers by lowering the rate from 6.5% to 3.25% and approved a new job retention tax credit.

As for sales taxes, 13 states cut their sales tax rate and two raised them.  Georgia reported the largest sales tax cut, which resulted from a cut to the sales tax rate on jet fuel and the repeal of a variety of tax exemptions. Rhode Island, on the other hand, expanded its sales tax base to include a number of previously exempt services.