Postelection State Tax Policy Implications
In summary
- With the presidential election results in, taxpayers should understand how states might respond to federal tax legislative changes, especially in light of the Tax Cuts and Jobs Act of 2017 (TCJA), and what potential state tax changes could be on the horizon.
- As state legislative results continue to roll in, taxpayers will be in a better position to understand what state tax legislative changes might be possible or expected.
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Although state tax policy in 2025 and beyond will have many influencing factors, three primary impacts likely will be felt following the November elections.
- The convergence of expiring TCJA tax provisions with President-elect Donald Trump’s victory likely will result in significant federal tax legislative activity in 2025. If tax legislation is enacted, states will have to decide quickly whether to conform, decouple, or modify new and changing tax provisions.
Crowe observation
The chaos around conformity in 2018 and beyond following the TCJA created a considerable amount of uncertainty and disruption in state tax policy, and similar state tax volatility is expected when the next federal tax legislation is enacted.
- A volatile economy paired with expiring pandemic funding could leave states searching for new revenue streams in 2025. The ease with which new state legislation might be enacted depends, in part, on the balance of party control in the legislative process. When states have single-party control of the governorship and both legislative houses, it’s known as a trifecta. Understanding states with trifectas will be important for analyzing the impact on state tax. Going into the November 2024 elections, there were 40 states with trifectas – 23 states under Republican control and 17 under Democratic control. Of the 11 governor seats up for election, all of the winning candidates maintained the same party control. Accordingly, no trifectas were gained or lost due to governor elections. When all state results are final, taxpayers will have a better understanding of the number of state trifectas and their impact on state tax legislation.
- Some states allow citizens or the legislature to propose laws for voter approval on the ballot. The following summarizes some of the results of significant ballot measures that affect state taxation.
|
State |
Proposal |
Result |
|
Oregon |
Arguably the most impactful proposal on state ballots, Measure 118 would have imposed a 3% gross receipts tax on Oregon business gross receipts over $25 million. |
Did not pass |
|
California |
Proposition 35 proposed to make permanent a tax on managed healthcare insurance plans, which was set to expire in 2026. Revenue from the tax funds the state’s Medi-Cal health program. |
Passed |
|
California |
Proposition M proposed to change the San Francisco gross receipts tax by raising rates from a range of between 0.053% and 1.008% to between 0.1% and 3.716%, raising the threshold for exempt businesses from $2.25 million of gross receipts to $5 million of gross receipts, and consolidating the number of business types subject to tax. |
Passed |
|
Florida |
Amendment 3 proposed to legalize recreational marijuana. No additional tax was proposed, but there could be an impact on general sales tax. |
Did not pass |
|
Georgia |
Amendment 2 proposed moving disputes from the Georgia Tax Tribunal to a newly created Georgia Tax Court, which would be part of the state’s judiciary. |
Passed |
|
Illinois |
An advisory question – a nonbinding referendum that reflects voter choice but makes no statutory or constitutional changes – asked voters whether they would approve a 3% tax on personal incomes over $1 million. |
A majority support a 3% tax on incomes over $1 million |
|
Massachusetts |
Question 4 proposed to decriminalize psychedelic substances, allow the state to impose a 15% excise tax on top of the state sales tax, and authorize local governments to levy an additional 2% sales tax. |
Did not pass |
|
Missouri |
Amendment 2 proposed regulating and taxing sports betting. |
Passed |
|
Washington |
Initiative Measure 2109 proposed the repeal of the capital gains tax on long-term capital assets by individuals with capital gains over $250,000. |
Did not pass |
|
Washington |
Initiative Measure 2117 proposed the repeal of the state’s cap-and-trade program. |
Did not pass |
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Long-term, part-time employees that meet certain requirements will be able to participate in 403(b) plans starting Jan. 1, 2025.