Report: First Time in 10 Years, More State Tax Reductions Than Raises

Despite budget deficits, states reduced more taxes than they raised in 2011, a recent National Conference of State Legislatures report found.
by | September 21, 2011

Despite budget deficits, states reduced more taxes than they raised in 2011, a recent National Conference of State Legislatures report found.

The 2011 State Tax Update, a compilation of information on tax policy changes in recent legislative sessions, found that 32 states made no significant tax changes. Of those that did, most state legislatures made cuts benefitting businesses and consumers. (The report does point out that cuts may be a bit of a misnomer  -- many "cuts" were just expired temporary tax increases that lawmakers' chose not to renew.)

Twenty states decided to give corporations a break on taxes. North Dakota imposed one of the nation's largest reductions, lowering its corporate income tax rate by 19.5 percent. Eight states raised their corporate income tax.

Twenty-one states cut personal income taxes. But  increases in just three of six states that did raise personal income tax are expected to generate almost $8 billion of revenue for Illinois, Connecticut and Michigan. In addtion, 12 states lowered their sales taxes.

The report found one area where a few states were willing to increase taxes: health care. Facing soaring Medicaid costs, 15 states increased existing or created new health care provider taxes, which account for the year's second largest tax increase behind income taxes. Florida, which gave an insurance premium tax exemption to health care providers serving only Medicaid patients, was the only state to go against this trend.

Other state changes could make consumers' wallets thinner. For example, Connecticut and Rhode Island both decided to tax previously exempt items like nonprescription drugs. And in California and Texas, lawmakers upset online retailers like Amazon when they modified their laws requiring such retailers to collect sales taxes. The battle over online sales tax is still up in the air, as Amazon lobbies Congress for national legislation on the issue.

Eighteen states looked to fee increases to beef up their budgets, making it more expensive for Californians to register their car and Rhode Islanders to visit the beach and North Carolinians to go through the court system. Three states cut such fees.

Overall, the 50 states made tax, fee and revenue changes that will result in a net tax decrease of almost $2.5 billion.

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