Wednesday, May 19, 2010

States limit sweeping tax hikes — so far

While much of the nation may be focusing today (May 18) on key U.S. Senate primaries in Arkansas, Kentucky and Pennsylvania, a special statewide election in Arizona could gauge voters’ temperature on the question of whether or not to raise taxes.

Arizona voters will decide whether to endorse Republican Governor Jan Brewer's proposal to raise the state sales tax by a penny to 6.6 percent. The proposed tax hike would last for three years, raising $1 billion. If approved, it would mark a departure from what many state legislatures have been doing in 2010 to balance their books.

Few states are going for across-the-board hikes in sales taxes, one of their major sources of revenue. Instead, they are slapping higher sales taxes on particular items, from tanning beds in Indiana to wind energy in Wyoming.

The Kansas Legislature is the lone exception thus far. Kansas bumped up its rate by a penny, from 5.3 percent to 6.3 percent starting July 1.

Compare these moves to last year, when California, Massachusetts, Nevada and North Carolina all went after higher sales tax rates.

If Arizona voters endorse the governor’s tax plan, they would join Oregon voters, who in January approved a general tax increase, although Oregon’s targeted corporations and the wealthy.

At least 28 statehouses have completed their sessions for the year. Some of the most cash-strapped states, such as California, New Jersey, Ohio, Pennsylvania and Rhode Island, are among those whose legislatures are still in session and working on new budgets that begin July 1.

While the revenue picture appears to be brightening, states are facing a third straight year of cutting spending and raising taxes and fees. And it won’t be the last. At least two more lean years are in the offing because tax collections plunged more than 18 percent during the recession.

Here’s how states are responding, thus far, on the tax front:

Higher taxes on candy and soda passed in Colorado and Washington State. A similar measure is pending in Massachusetts.

Cigarettes are still a target, as New Mexico, Utah and Washington all raised the tax by $1 per pack, while Hawaii boosted its rate by 20 cents. Over the governor’s objections, South Carolina raised its tax by 50 cents, so the state no longer has the lowest-in-the-nation cigarette tax (Missouri now holds that distinction).

Sixteen states raised tobacco taxes last year.

The “Amazon” tax— essentially, enforcing the sales-tax law on Internet purchases — is still getting a look even though the legality of it is in question. Colorado acted this year. North Carolina and Rhode Island were among states that passed last year, following New York’s lead.

Discontinuation of tax breaks or exemptions is increasing. Colorado dropped a sales-tax exemption for “to-go containers” and other items ranging from printed materials used in direct-mail advertising to compounds used in agriculture. Iowa dropped $115 million worth of tax credits it didn’t think created jobs and suspended for three years its incentives for boosting film productions in the state. Hawaii suspended the claiming of technology investment tax credits and repealed deductions for political contributions.

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