State governments across the country are facing some of the worst budget deficits in history. According to the National Conference of State Legislatures, a bipartisan organization that provides research, technical assistance and opportunities for idea exchange among legislators, states are facing an aggregate budget gap of at least $83.9 billion for the 2011 Fiscal Year. This estimate is likely to increase materially as the economic recovery fails to materialize.
For the 2010 Fiscal Year, many states used one-time measures to close over $145 billion in deficits, making many of these “hole-plugging” options unavailable for 2011. What remains are the “oldie but goodie” options of cutting spending and raising taxes (and of course new “hole-plugging” schemes). State legislatures have already proposed (or in some cases enacted) legislation to raise taxes and fees associated with:
- Motor fuel and vehicle taxes and fees
- Sales taxes
- Corporate income taxes
- Personal income taxes
- Alcohol and tobacco taxes
- Other miscellaneous fees and taxes
State sales tax, corporate income tax and miscellaneous fee and tax changes for 2011
This list summarizes some of the key changes that effect businesses that have recently been enacted (meaning they are law) or are currently going through the legislative process. It does not include measures that have failed or those that are only tangentially related to business based on my judgment. As this is a dynamic issue, it’s important to follow how the issues progress in your state.
- Enacted: One-year tax on nursing homes.
- Enacted: temporary repeal of the motor fuel tax will expire.
- Enacted: Increase in sales tax from 5.6 percent to 6.6 percent for three years.
- Under consideration: Proposal requiring online retailers to notify California customers that they owe use tax on their purchases.
- Under consideration: 10 percent severance tax on oil companies.
- Under consideration: Vehicle license fee increase from 1.15 percent to 1.5 percent.
- Enacted: Elimination of sales-tax exemption on candy and soda.
- Enacted: Two-year suspension of sales tax exemption on energy used in manufacturing.
- Enacted: Software delivered online is now subject to sales tax.
- Enacted: Expansion of efforts to collect sales and use tax from out-of-state retailers.
- Enacted: Elimination of sales-tax exemption on take-out containers and condiments at restaurants.
- Enacted: Elimination of sales-tax exemption for printed materials used in direct-mail advertising.
- Enacted: Suspension for three years sales tax exemption on agricultural compounds.
- Enacted: New cap on net operating losses than can be taken in a year.
- Enacted: Reduction of tax credit for alternative-fuel vehicles.
- Enacted: Tax amnesty (through September 30, 2010) for corporate income taxes and sales and use taxes.
- Enacted: 1.45 percent fee on hospital net patient revenues.
- Enacted: Increase in more than 75 permitting, licensing and penalty fees.
- Enacted: Cross-checking program for sales-tax compliance among businesses.
- Enacted: Increase on petroleum products tax from 5-cents a barrel to $1.05 a barrel.
- Enacted: two-year hospital tax on private hospitals.
- Enacted: New system to post list of businesses that are delinquent in sales tax payments.
- Enacted: Elimination of over $100 million in job-related tax credits.
- Enacted: New bed tax for nursing homes.
- Enacted: Increases in sales tax from 5.3 percent to 6.3 percent
- Enacted: Increased fees for coal mining permits.
- Enacted: Increase in fees on oil transferred into the state for oil disaster and contaminated site funding.
- Under consideration: Expansion of sales tax to include 168 services that are currently exempt.
- Enacted: Sales tax refunds will be delayed by six months.
- Enacted: Delaying corporate income tax refunds until the next fiscal year.
- Enacted: New franchise tax regulation that may increase taxes on corporations.
- Enacted: Increase in unemployment taxes and expansion of taxable wage base.
- Under consideration: 4 percent tax on yoga services.
- Under consideration: Expansion and increase of sales taxes.
- Under consideration: Expansion of sales taxes to include services.
- Enacted: New fees on mining claims, applications for water rights, new gaming licenses, bank foreclosures and parks.
- Enacted: Suspension of film production tax credits and high tech tax credits.
- Enacted: Removal of cap on hospital and ambulatory facilities assessments.
- Enacted: Expansion of use tax.
- Enacted: Increase in the sales and use tax rate to 5.125 percent.
- Enacted: Increase in Oil and Gas Conservation Tax rate to 0.24 percent when oil prices increase.
- Enacted: Establishment of quarterly withholding tax payments from pass through entities with non-resident owners.
- Enacted: Elimination of sales tax exemption on clothing purchases under $110.
- Enacted: Sales tax collection on hotel bookings by online travel companies.
- Enacted: Elimination of sales tax vendor credit for timely filing.
- Enacted: Elimination of sales tax credits on uncollectable accounts by private label credit card lenders.
- Enacted: Delay in $100 million of business tax breaks.
- Enacted: Mandatory deferral of business tax credits over $2 million until 2013 or later.
- Enacted: Expansion of 9.63 percent tax to include radiological and surgical services performed in private ambulatory surgery centers, physician offices and urgent care centers.
- Enacted: New local occupancy tax.
- Enacted: One-year increase in hospital taxes from 1.52 percent to 1.61 percent.
- Enacted: Increase in vending machine sales tax decal from $50 to $150.
- Under consideration: Sales tax on purchase made by out-of-state businesses.
- Under consideration: Gross production taxes on oil and gas.
- Under consideration: 8 percent tax on the gross profits of oil companies.
- Under consideration: Production tax on gas from the Marcellus Shale.
- Enacted: 14 percent table game tax on casino gambling activities.
- Under consideration: Repeal of up to $689 million in sales tax exemptions.
- Enacted: Reduction of sales tax refunds on some construction projects.
- Enacted: New 3.52 percent tax on hospital net patient revenues.
- Enacted: Partial amnesty to businesses in noncompliance with the business gross receipts tax.
- Under consideration: Increase in tax on unprepared foods to 4.75 percent.
- Enacted: New assessments on hospitals.
- Enacted: Suspension of sales tax dealer discount for large retailers and reduced discount for other retailers.
- Enacted: Sales tax expansion to include bottled water, bottled soda, candy, gum, casinos, legal services, engineering services and other professional services.
- Enacted: Removal of exemption on purchases by out of state residents.
- Under consideration: Temporary one-cent sales tax increase.
- Enacted: New 1.6 percent revenue tax on critical access hospitals in rural areas.
- Under consideration: Increase in pollution permit fee for industrial livestock farms.
- Enacted: $1/MWh excise tax on wind-generated electricity.
- Enacted: Increase in unemployment taxes and wage base expansion.
U.S. Virgin Islands
- Enacted: Tax amnesty on gross receipts taxes.
Issue to watch: Expanding “nexus” for tax purposes
Nexus is defined as “a means of connection; tie; link.” When discussing taxes, nexus refers to the “economic link” that a company has to a state. If a nexus exists then that company may be subject to corporate income taxes and be responsible for collecting sales taxes. The conditions determining whether or not nexus exists varies by state and by type of tax (income or sales).
The issue of defining nexus is being carefully analyzed by state governments with the goal of expanding the types of activity and presence that qualify as nexus. Your company may soon find that the level of business it currently conducts in a particular state may make it subject to additional taxes. I’ll be monitoring this issue and reporting back regularly.
Mike Periu is the founder of EcoFin Media, LLC an independent producer of financial, economic and entrepreneurial content for television, radio, print and the internet. Over the past ten years he has started three companies and advised over 50 companies on financial strategies including fundraising. Mike also hosts regular small business webinars on a range of topics relevant to business owners.