MEDIA ALERT — State tax increases to cover revenue shortfalls caused by COVID-19Posted by On

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–()–Wolters Kluwer Tax & Accounting:

What: The COVID-19 Pandemic has been devastating for the budgets of both states and the federal government in 2020. While the federal government can operate at a deficit, states are required to come up with balanced budgets each year. That means states must identify cost reductions or additional revenue sources to cover COVID-19-related shortfalls. States received some assistance from the federal government in the CARES Act (Coronavirus Aid, Relief, and Economic Security Act), and they have been hoping for more assistance from Washington, D.C. that has not yet been forthcoming. State legislatures are frequently most active in the spring; therefore, many states have not yet been able to act as the full impact of the pandemic has started to be felt. Several states had revenue raising proposals on the ballot in the November elections. States are now working on their 2021 budgets and identifying not only expense reductions but also revenue sources to help them balance their budgets.

Why: States have several tools at their disposal to try to raise additional revenue. These may include income taxes, sales and use taxes, property taxes, and various licenses and fees. Tax increases can be obtained indirectly by approval of additional revenue sources such as those included on ballot initiatives in the November 2020 election. Others may be taken up in spring legislative sessions. Some of the actions that states have taken or are contemplating include:

  • Decoupling state tax systems from tax breaks enacted under the federal tax system
  • Approving various drug-related initiatives, such as recreational and medical marijuana, with potential revenue from income taxes, sales taxes, and license fees
  • Approving sports betting initiatives that also promise additional revenue by converting what had been in many states an illegal activity into a legal, and taxable, activity
  • A few states have discussed income tax increases on high income taxpayers
  • A few states are looking at digital services advertising taxes
  • Some states and local jurisdictions have been considering sales tax increases
  • Property tax increases are also an element of budget planning both at the state and local level
  • Other revenue sources being looked at in particular jurisdictions include property transfer taxes, taxes on tobacco, and car license fees

Who: Tax experts Tim Bjur and Carol Kokinis-Graves, both Senior Content Management Analysts at Wolters Kluwer Tax & Accounting, can discuss in greater detail these steps states are undertaking to close revenue shortfalls.

PLEASE NOTE: The content of this alert has been prepared by Wolters Kluwer Tax & Accounting for general informational purposes only. The information is provided with the understanding that Wolters Kluwer Tax & Accounting is not engaged in rendering legal, accounting, or other professional services.

Contact: To arrange an interview with Tim Bjur, Carol Kokinis-Graves or other federal and state tax experts from Wolters Kluwer Tax & Accounting on this or any other tax-related topics, please contact Bart Lipinski.

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