State Net Capitol Journal – December 23, 2013; Tax Reform Trend Taking Hold In States

State Net Capitol Journal – December 23, 2013; Tax Reform Trend Taking Hold In States

TAX REFORM TREND TAKING HOLD IN STATES: Five states — Alaska, Minnesota, North Carolina, Ohio and Virginia — enacted major tax reforms this year, and several others approved smaller tax changes, according to the National Conference of State Legislatures. And it looks like more states intend to do the same in 2014.

At least four governors have said they will seek major reforms of their tax codes next year. New York Gov. Andrew Cuomo (D), who is up for re-election, wants to cut his state's property taxes, among the highest in the country, and make the state's tax code fairer and less complicated. As his Tax Reform and Fairness Commission put it, "Good tax policy, including a more equitable tax code, would limit exemptions and tax expenditures for the few and lower taxes for all taxpayers." Oregon Gov. John Kitzhaber (D), who is seeking a fourth term next year and currently has no Republican challenger, has set his sights on addressing his state's heavy reliance on income taxes to pay for education, public safety and other basic services. Kentucky Gov. Steve Beshear, another Democrat, but one who will be termed out of office in 2015, is hoping he can convince his state's divided Legislature to approve a tax system overhaul next year, with the state facing a $370 million budget deficit. Another chief executive who has said he will seek big tax changes next year is Nebraska's Gov. Dave Heineman, a Republican. He wants his state's lawmakers to either reduce or abolish the income tax and raise sales taxes.

The fate of those reform plans is uncertain, with lawmakers often reluctant to approve such changes in election years. But some lawmakers are proposing tax overhauls of their own next year. Arizona lawmakers are considering reducing the number of state income tax brackets from five to three. Indiana lawmakers may make changes to that state's personal property tax. And Missouri's Republican-controlled Legislature might make another run at enacting the income and business taxes that Democratic Gov. Jay Nixon vetoed and they failed to override this year.

Voters will also get a crack at tax reform next year. A measure seeking the repeal of a law passed earlier this year granting tax cuts to the oil and gas industry is slated for Alaska's August ballot. And Nevada voters will be asked in November whether the state's Constitution should be amended to let lawmakers remove the cap on mining industry taxes, which could be a first step toward comprehensive tax reform there. (STATELINE.ORG, STATE NET)

CONGRESS PASSES BUDGET: Congress delivered President Barack Obama a thoughtful holiday gift last week by passing a plan to fund the federal government for the next two years. But the president didn't get everything on his wish list.

Senate Budget Committee Chairman Patty Murray (D-Washington) and House Budget Committee Chairman Paul Ryan (R-Wisconsin) were given the unenviable task of negotiating a budget agreement back in October. The deal they came up with reverses about half of the indiscriminate spending cuts known as sequestration planned for next year and about three-quarters of the cuts planned for 2015, offsetting the $63 billion those rollbacks will cost with $85 billion in other changes, including higher fees for airline passengers and less generous retirement benefits for federal employees.

The $1.01 trillion deal ends nearly three years of battling over agency budgets that repeatedly threatened to shut down the federal government and partially did so for 16 days in October. Passed by a vote of 332-94 in the Republican-controlled House and 64-36 in the Democrat-led Senate, it is actually the first bipartisan budget passed by a divided Congress since 1986, when partisan control of the two chambers was reversed. It also neither raises taxes nor cuts entitlement programs — which undoubtedly eased its passage through each chamber — and lowers the federal deficit over 10 years.

But the deal does nothing to shore up the nation's sagging social safety net. And of more immediate concern, it doesn't raise the federal debt ceiling, which President Obama and Congressional Democrats have been trying to make happen for months, meaning another budget battle could be coming in late February or early March, just months before the midterm elections.

Some conservatives want another showdown to force more spending cuts. But Republican leaders have little appetite for another government shutdown that could hurt their chances next November.

"Republicans kind of look at this election as probably the best opportunity we've ever had at taking control" of the U.S. Senate, said U.S. Sen. James Inhofe (R-Oklahoma). He added that threatening to default on the national debt "hasn't really worked all that successfully in the past." (WASHINGTON POST, BLOOMBERG)

CA LEAD PAINT RULING MAY SPUR MORE LAWSUITS: Over the last 25 years, public agencies across the country have failed at least 50 times to convince courts that paint manufacturers should have to foot the bill for removing lead-based paint from homes built before the federal government banned that product in 1987. But they finally succeeded last week, when a state court judge in California ordered three paint companies to pay $1.1 billion to 10 cities and counties in the state — including Los Angeles County and the City of San Francisco — to help them remove lead from 5 million homes.

In previous lawsuits, the paint industry had successfully argued, among other things, that a homeowner's lead poisoning could have been caused by lead in water, jewelry or toys rather than lead in paint or that paint manufacturers had never intentionally sold an unsafe product.

But Santa Clara County Superior Court Judge James Kleinberg didn't buy those arguments, ruling that ConAgra Grocery Products Co., NL Industries Inc. and the Sherwin-Williams Co. sold paint they knew was harmful by the 1920s and even earlier.

"In the 1920s, scientists from the Paint Manufacturers Association reported that lead paint used on the interiors of homes would deteriorate, and that lead dust resulting from this deterioration would poison children and cause serious injury," Kleinberg wrote in his 110-page decision. "It was accepted by the medical and scientific community before the 1950s, as reflected in literature from as early as 1894, that lead paint was a significant cause of childhood lead poisoning."

The judge also cited a Sherwin-Williams newsletter from 1900 affirming that lead-based paint was a "deadly cumulative poison" and an advertisement from the company in 1922 claiming its paint was safe.

Although last week's ruling was only preliminary, it could spur similar lawsuits in other states.

"The California ruling is certainly a significant development," said David Logan, dean of Roger Williams University School of Law in Rhode Island. "If it gets upheld, it will open a new path to victory for public agencies."

Lisa Rickard, president of the U.S. Chamber of Commerce's Institute for Legal Reform, however, saw the ruling a little differently. She predicted it would lead to "a surge of frivolous lawsuits," and she also said the industry planned to appeal it.

With Kleinberg's decision having come 13 years after the original lawsuit was filed, it could be years before that appeals process reaches its conclusion. (SACRAMENTO BEE)

ANTI-TAX STANCE TRUMPS TORNADO SAFETY IN OK: After a major tornado tore through the suburbs of Oklahoma City in May, destroying two elementary schools and killing seven children, longtime Oklahoma state Rep. Joe Dorman (D) proposed using a lapsed business tax to fund the retrofitting of shelters at public schools that lack them. With 60 percent of the state's schools falling into that category, the state averaging over 50 tornadoes per year and the state's economy improving, Dorman figured the time was right to address the issue.

But his plan has run into opposition from the state's Republican political leadership, which has cut taxes aggressively over the past few years to stimulate the economy.

"Just adding on a new tax burden on Oklahomans is not the answer," said Republican State Superintendent Janet Barresi, the state's highest ranking education official.

Republican legislative leaders want to permanently repeal the franchise tax Dorman proposed reinstating — a $1.25 levy on each $1,000 a corporation invests in the state — which expired in 2010. But supporters of Dorman's proposal, including teachers and families of children killed in the Spring tornado, haven't given up. They are trying to gather 155,000 signatures to bring the issue before the state's voters next year. (ASSOCIATED PRESS, THINKPROGRESS.ORG, STATE NET)

BUDGETS IN BRIEF: Recent forecasts from ALASKA's top oil producers confirm the state's prediction that the oil tax cut passed by the state's Legislature last year will do nothing to stop the decline in the amount of oil flowing through the trans-Alaska pipeline. The combination of diminishing oil flow and the new tax structure is projected to leave the state with $2 billion less in revenue in FY 2014 (ALASKA DISPATCH, WASHINGTON POST). • PENNSYLVANIA Budget Secretary Charles Zogby said last week the state could face a budget gap of at least $1.2 billion next fiscal year, due to rapidly rising public pension costs and higher health care costs for the poor (PHILLY.COM). • CALIFORNIA won't receive a dime of last week's $648 million Mega Million's lottery jackpot, even though one of the two winning tickets was sold in The Golden State. The state is one of the few that exempt lottery winnings from state income taxes. If it wasn't, the Mega Millions winner would have been taxed at the state's top rate of 13.3 percent and had to fork over $23.1 million (CONTRA COSTA TIMES).

- Compiled by KOREY CLARK

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