In just a few days, tax rates will be rising in four states, falling in one and doing both in New Jersey, South Carolina and Tennessee. Most of the changes take effect on July 1, which is the beginning of their 2018 fiscal year, according to the Tax Foundation, which produced a new report on state tax changes.
Kansas Reverses Tax Cuts
In Kansas, several tax cuts from 2012, including zero taxes on pass-through entities, are being repealed, retroactive to Jan. 1, 2017. When the carve-out for pass-throughs was passed five years ago it was expected that 191,000 entities would take advantage of it, but by 2015 the number was more than double that forecast, resulting in a $200-$300 million decline in revenue, according to the Tax Foundation.
Facing a budget deficit of roughly $900 million over the next two years, the state Legislature voted to raise taxes to boost revenues by $1.2 billion. Gov. Sam Brownback, who had led the tax cut movement in 2012 vetoed the bill, but the Legislature overrode it.
Kansas state income tax rates, which were also cut in 2012, will rise slightly. The bottom two tax brackets of 2.7% and 4.6% increase to 2.9% and 4.9%, respectively as of Jan. 1, 2017, and then to 3.1% and 5.25% in 2018.
A third bracket with a tax rate at 5.2% for income above $30,000 for singles and $60,000 for married couples filing jointly, retroactive to Jan. 1, 2017, was created; it rises to 5.7% in 2018.
Indiana, Montana, New Jersey, South Carolina and Tennessee Increase Gas Taxes
These tax hikes are designed to help finance improvements in transportation and infrastructure.
Indiana is raising its excise tax on gasoline from 18 cents to 28 cents per gallon which, combined with a gasoline use tax of 12.8 cents, brings the total gas tax to 40.8 cents. One-quarter of the revenues collected from the excise tax will be remitted to local governments. Diesel fuel taxes rise by 10 cents, and a variety of vehicle registration fees will also increase.
Montana is increasing its fuel tax for the first time in 24 years. Gasoline taxes will rise 4.5% to 31.5 cents per gallon initially, then gradually to 33 cents a gallon by fiscal 2023. The diesel rate increases 1.5 cents this year to 29.25 cents per gallon and climbs to 29.75 cents a gallon by fiscal 2023.
New Jersey, which raised its gasoline tax in November 2016 and diesel tax in January 2017 to help finance a $2 billion transportation funding bill, is increasing its diesel fuel tax again on July 1 from 8.75% of the per gallon price to 12.5%.
New Jersey fuel tax rates could rise or fall in the future because the law is tied to gasoline consumption, rather than fuel prices. The design insures that the tax will yield $1.23 billion in revenue per year.
The gasoline tax increase was paired with a repeal of the state estate tax by Jan. 1, 2018.
South Carolina outdoes Montana, by raising its gasoline tax for the first time in 30 years. The increase is 12 cents over the next five years culminating in a 28.75 cent-per-gallon tax in 2022. The first increase of 2 cents a gallon to 18.75 cents per gallon takes effect July 1.
The state Legislature also expanded several tax credits including the earned income tax credit, tuition credit, two-wage earner credit and manufacturing property tax exemption to offset the gasoline tax hike for low-income earners.
Tennessee is raising its fuel taxes in stages: up 4 cents to 25.4 cents as of July 1, then one cent per year through 2019, ending at 27.4 cents a gallon by 2019. Diesel fuel taxes increase 14 cents this year, 3 cents in the following two years to reach 35.4 cents a gallon by 2019.
Tennessee is also reducing its sales tax rate on groceries to 4% from 5% previously, effective July 1.
Colorado Hikes Marijuana Tax
One of a few states to legalize recreational marijuana, Colorado is raising taxes on reactional sales from 10% to 15% but exempting those sales from the state’s general sales tax of 2.9%. There’s also a 15% tax on the average market prices of retail marijuana imposed on the first sale or transfer from a cultivation grower to retail stores. In addition, some localities may impose their own excise taxes.
Indiana continues its corporate tax reform, which was designed to reduce rates from 8.5% in 2011 to 4.9% by 2022. The corporate tax rate will decline to 6% from 6.25% on July 1.
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