STATE TAX UPDATE
Bloomberg Government – State of the States: Tax Relief Leads Governors’ 2020 Agendas: Both Democratic and Republican governors are calling for tax relief this year. And as they mull ways to pay for their tax cuts, which could involve shifting tax burdens in some cases, they’re careful to avoid any talk of raising taxes as they approach the 2020 elections.
- A year ago, governors across the country were pushing to tax online marketplaces, streaming services, marijuana, and sports betting. New laws brought a bundle of new taxes and a $25.1 billion uptick in revenue collected across states in the first six months of fiscal year 2020, according to data from the Urban-Brookings Tax Policy Center. Now, governors in states like Iowa and Colorado are pursuing larger tax cuts as the fruit of that bounty, while the rest of the country’s lawmakers are zeroing in on targeted relief. “It’s not surprising to see some of those public investments on the agenda this year for governors since state revenues continue to be in a pretty stable place,” said Erica Williams, senior director of state policy initiatives at the Center on Budget and Policy Priorities, alluding to last year’s broad push to tax new industries.
- Consider Iowa, where Gov. Kim Reynolds (R), in her state-of-the-state address, outlined a plan to cut income tax rates for most Iowans by broadening the base of taxpayers who pay the highest rate. She also proposed increasing the state sales tax by one percentage point, to 7%, which she said would allow an average 10% cut in income taxes.
- Iowa has already enlarged its tax base, particularly with respect to corporations, said Tom Sands, president and CEO of the Iowa Taxpayers Association, which advocates on behalf of businesses in the state. That helped the state to increase revenue substantially over the past few years, he said.
- In Colorado, Gov. Jared Polis (D) has expressed interest in that approach, calling for the creation of a bipartisan group to examine how cuts could be paid for with an expansion of the state’s tax base. Colorado also began taxing marketplace facilitators such as Amazon and Etsy in 2019 and passed legislation to legalize and tax sports gambling. And the state, the first to legalize marijuana back in 2014, last year collected more than $300 million in cannabis tax revenue
- Only one governor, New Jersey’s Phil Murphy (D), braved the subject of higher income taxes in his state-of-the-state speech, saying he won’t be “giving up the fight” to increase rates by nearly 20% on those making more than $1 million a year.
- “You do see governors who are seeing good revenue reports, but are also wary of the instability out there—national politics, the threat of a recession, and a host of other issues,"said Richard Auxier, a researcher at the Tax Policy Center. “They’re probably more excited to put money in the rainy day fund and look at targeted tax relief, whether that’s through property taxes or the earned-income tax credit, which is slightly less ambitious but politically exciting.”
- Gov. Andrew Cuomo (D-N.Y.)said he wants to cut the income tax rate in half for New York’s small businesses. In his state of the state speech he also proposed light income tax cuts for the middle class—as well as raising the age for children covered by the poverty credit to include more low-income families with infants and newborns.
- While the trend is the same nationwide, the local details vary considerably. In West Virginia, Gov. Jim Justice (R) announced in his state-of-the-state speech that he was calling for an amendment to the state constitution to eliminate property tax on business inventory. He said the state’s current tax makes it an unattractive place for investment.
- Of the five states that border West Virginia, only Kentucky and handful of localities in Maryland impose similar taxes on inventory.
- Property-tax relief is picking up steam in the Midwest, as governors look to deliver targeted measures. Since many constituents pay some sort of property tax on their real estate, lowering it for one targeted group or another can be more politically feasible than pursuing overarching cuts.
- Nebraska Gov. Pete Ricketts (R) has made property tax relief for homeowners a priority since 2015, when he took office. In his state-of-the-state speech he unveiled a proposal that would expand the state’s property tax credit and lower the ceiling on local rates.
Bloomberg Government reports -- Wisconsin GOP’s Tax-Cutting Measure Heads to Governor: A Republican-backed bill providing Wisconsin residents with $300 million in tax relief is headed to the desk of Gov. Tony Evers, but there are significant doubts the first-term Democrat will sign a measure he has described as “unsustainable.” The Assembly and the Senate on Thursday passed S.B. 821, which reflects the GOP’s strategy for managing an unexpected surplus estimated at more than $800 million by the state’s Legislative Fiscal Bureau. The bill includes a plan that cuts individual income taxes by $250 million through modifications to the standard deduction. Another $45 million would go to businesses by rolling back assessments on personal property through an exemption on industrial machinery and tools.
- The income tax provision would start with the 2020 tax year and provide the average filer approximately $105 in tax relief, Assembly sponsor Rep. Joan Ballweg (R) said.
- The bill passed largely on Republican votes and Senate Democrats held up passage for several hours. During floor debate, Democrats—in the minority in both chambers—expressed solidarity for Evers’ competing plan to use the surplus for K-12 education and a property tax cut.
- Evers has been largely silent on S.B. 821, but he lamented Republicans’ failure to address his school funding proposal in a Tweet on Wednesday. Evers complained Republicans had presented an “unsustainable tax bill” and called on lawmakers to invest in “our kids and property tax relief.”
LABOR & MINIMUM WAGE UPDATE
New Law Guarantees Tips Are the Property of the Employees Who Earned them: Legislation signed by Governor JB Pritzker clarifies an existing state law and makes it crystal clear - employees own their tips. The law, which took effect the beginning of this year, amends the Illinois Wage Payment and Collection Act. The law states that gratuities are the property of employees, and that their employers cannot retain them. "People in the various service industries work hard for their money and in many cases, such as for restaurant servers, tips make up an important part of the overall compensation," said Michael Kleinik, Director of the Illinois Department of Labor. "This law leaves no doubt that gratuities belong to the workers who earned them."
- The law requires gratuities to be paid to employees within 13 days after the end of the pay period during which the gratuities were earned. Employers are required to pay tipped workers a minimum of 60 percent of the state's minimum wage - which rose to $9.25 an hour on January 1 -- and the tips and wage combined must equal at least the minimum wage. The law does not prohibit a tip pooling arrangement among employees as permitted by law.
Vermont House Postpones Vote on Veto Override of Minimum Wage Raise: Montpelier, Vt. (AP) -- The Vermont House on Wednesday postponed a vote on whether to override Republican Gov. Phil Scott's veto of a bill that would increase the minimum wage to $12.55 over the next two years. Wednesday was the earliest day that House members could vote, WCAX-TV reported. House Speaker Mitzi Johnson said she postponed the vote because of the number of lawmakers who were absent. Last week, the Senate, which has a Democratic majority, voted 24-6 in favor of the veto override. The original minimum wage bill did not pass the Democrat-led House with the two-thirds margin that would be needed to override the governor's veto. Scott said in his veto message that raising the minimum wage to $12.55 by 2022 could end up hurting the people it is intended to help.
FOOD & BEVERAGE UPDATE
Seattle's Sugary Drink Tax Is Drying Up Sales: New research published in the journal Economics and Human Biology found that sales of sugar-sweetened drinks in Seattle fell by more than 32 percent one year after the city slapped a 1.75 cents-per-ounce tax on such beverages. In nearby Portland, Ore. — where there's no such levy — sales fell by 10 percent over the same period.
- The backdrop: It's the latest batch of data in a limited but growing body of research on the impact of such taxes in major cities from Philadelphia to Oakland, Calif., Catherine writes. A separate study published last year found no evidence that levies in those two cities, implemented in 2017, led to lower purchases or consumption of sugary drinks. There's fierce debate over whether the taxes help reduce health problems stemming from high sugar consumption in the U.S. — or if they're regressive and disproportionately affect poor communities of color.
- One of the biggest players in that debate is Bloomberg, who unsuccessfully pushed for a ban on Big Gulps and other oversized sugary drinks when he was mayor of NYC. Since then, Bloomberg has poured millions of dollars into ballot initiatives across the country in support of sugary drink taxes. Bloomberg Philanthropies provided grants for the latest study, which was conducted by the University of Illinois at Chicago. Read the findings for yourself.
SPORTS BETTING UPDATE
Bloomberg Government reports -- Fantasy Sports Battle in New York Could Be Boon for New Jersey: Fantasy sports companies like DraftKings and FanDuel might have to pivot from a key market in New York to New Jersey if the latest obstacle to the industry’s legal standing holds up. Sports-loving New York accounts for an estimated 10% of the total daily fantasy sports market, which generated $390 million in revenue in 2019, according to research firm Eilers & Krejcik Gaming LLC. A New York appeals court ruling that deemed fantasy sports illegal, however, is putting that business in jeopardy, which could drive diehard fantasy fans into adjacent New Jersey, where regulated sports betting is legal.
- The court’s ruling shouldn’t pose an existential threat to fantasy sports, but “it’s tough to ignore how big of a market New York is,” said John Holden, a business professor at Oklahoma State University who studies sports betting. “It should be eye-opening to DraftKings and FanDuel,” Holden said.
- Online wagers are location-dependent, so some New Yorkers are already crossing into New Jersey to bet on events like the latest Super Bowl, said Robert Rosborough, a partner at Whiteman Osterman & Hanna LLP in Albany, N.Y. “That could happen in daily fantasy sports too,” Rosborough said.
- C.J. Fisher, a partner in Fox Rothschild LLP’s gaming law group in Atlantic City, N.J., likewise said New York could face “an exodus” of fantasy contestants headed for New Jersey, which hasn’t seen a similar challenge to its law. Daniel Etna, co-chair of the sports law group at Herrick Feinstein LLP, doesn’t think DraftKings and FanDuel will leave New York. But they might have to “think outside the appeal box” and mount a public campaign to amend the state’s constitution instead, Etna said.