State Tax Reform Gains and Turns Made in 2013
In all tax reform, there are winners and losers, but the perspective depends on whose ox is being gored. For decades, Americans and their elected officials have been crying out for comprehensive tax reform. While these proposals are often casualties of the numerous compromises and deals that make up the normal legislative process, in 2013 several major tax reform bills were introduced in state houses around the country. Some of these bills were even able to clear their state legislatures and were signed into law. This year was particularly significant in that many of these measures not only passed, but did so with bipartisan support.
Tax Reform Advances
Taxpayers in Iowa and North Carolina received major tax reform this year. In Iowa, property taxes were markedly reduced, particularly on commercial properties, while residents of North Carolina saw their estate tax completely repealed and a modified flat-tax system implemented. Lawmakers in other states, Oregon for one, considered similar proposals. In New York, a tax relief commission was formed to explore ways to update and streamline the state’s convoluted property and business tax codes. The commission’s findings will be reported later this year.
Reform Efforts Stalled
Despite these successes, many state legislatures found their tax reform efforts stalling in the face of economic uncertainty. A controversial Kansas tax reform bill was passed earlier this year, but its troubled drafting process led to ballooning costs, making its long-term prospects unclear. Other states such as Louisiana, Nebraska and Pennsylvania saw their tax reform proposals killed in committee or otherwise shelved for the foreseeable future. Many recent efforts have been focused on eliminating state income taxes, forcing legislators to choose between increasing taxes in other areas, such as property and sales taxes or facing sizeable revenue decreases.
Taking a Different Turn
While some states experiment with reducing and simplifying their tax codes, others are moving in the opposite direction. In October, Oregon Gov. John Kitzhaber signed into law a bill that substantially increases the corporate tax rate while also eliminating numerous exemptions and raising the earned-income tax credit. In California, Gov. Jerry Brown signed a bill to retroactively reinstate the Qualified Small Business Stock deferral and 50 percent gain exclusion for small business and investors between 2008 and 2012. A joint task force to help the state collect unpaid taxes, known as the Revenue Recovery and Collaborative Enforcement Team, has also been established. The California Board of Equalization estimates that California loses $9 billion in unpaid revenue each year.
The renewed interest in state tax policy has led many to believe that the door is open for comprehensive tax reform on the federal level. Both House Ways and Means Committee Chairman Dave Camp (R-Mich.) and Senate Finance Committee Chairman Max Baucus (D-Mont.) have called for major changes to the tax code in an effort to make it simpler and fairer to all Americans. If these measures find support in Congress at large, they have the potential to provide dramatic benefits to the franchise industry.
IFA has joined with the Reforming America’s Taxes Equitably Coalition to push for these commonsense reforms to the tax code. The RATE Coalition, a bipartisan group composed of major U.S. business leaders, is dedicated to providing immediate tax relief to Americans. When drafting legislation, it is important that our elected officials don’t pick winners and losers in the marketplace. Rather, our government should facilitate commerce by providing a level playing field for everyone willing to compete.
Sam Higginbotham is assistant, government relations, for the International Franchise Association. Find him at fransocial.franchise.org via the directory.