- Only one state, Arizona, increased its general income tax rates.
- Several jurisdictions raised or amended their property taxes; but California voters refused to an increase commercial property taxes and left Proposition 13 unchanged.
- Arkansas made its sales tax permanent; Colorado and Oregon increased taxes on cigarettes and related products; Nebraska imposed a 20% tax on racetrack gambling revenue.
- Arizona, Montana, New Jersey, and South Dakota legalized recreational marijuana and imposed taxes on its sale.
As the nation focused principally on the election of a president and other officeholders, voters in a number of states and localities also cast votes on an array of initiatives and ballot measures dealing with income, property, sales, and other taxes. With the pandemic challenging many state governments economically the need for additional revenue was obvious. However, only one state increased individual income taxes while most others approved targeted taxes affecting property ownership, businesses, and product sales. The following discussion outlines the new taxes that have been approved—or that currently are projected to be approved by voters.
Arizona. Arizonans passed Proposition 208, which adds a 3.5% tax surcharge to the present levy on taxable incomes over $250,000 for single filers and over $500,000 for married couples filing jointly or heads of households. Revenue will support public education, including staff salaries, teacher mentoring and retention programs, and career and technical education. The new tax added to the current top rate of 4.5%, making the top rate on incomes above the specified income levels 8%. Unlike the thresholds for lower-rate tax brackets, the thresholds for the 8% rate are not indexed for inflation.
Colorado. Coloradans, on the other hand, passed a reduction in the income tax rate from 4.63% to 4.55%. The reduction will apply retroactively from January 1, 2020.
Illinois. Voters here defeated a proposed Constitutional amendment that would have allowed a graduated income tax rate to be enacted for individuals and corporations and ended the Constitutional mandate for a flat-rate income tax.
Real Property Taxes
Several jurisdictions adopted property tax changes.
Colorado. Amendment B repeals a provision of the state constitution, the “Gallagher Amendment,” that set a ratio of 45% to 55% for the residential and non-residential property-taxes shares of the property tax base. It also allows property tax rates to be set by the legislature and continues the requirement of voter approval of rate increases.
California. San Franciscans adopted an increase in the real estate transfer tax to 5.5% on transactions between $10 million and $25 million, and to 6 % on transactions over $25 million.
Louisiana. Louisiana Amendment 6 increased the income threshold for eligibility for the homestead exemption special assessment for seniors, certain military and disabled persons provided under the state constitution from $50,000 to $100,000 beginning in 2026, with future adjustments for inflation. The exemption freezes the assessed value of a residential property, and therefore also freezes the amount of property taxes owed unless the local tax rate is increased.
Missouri. St. Louis voters approved Proposition R which will increase the property tax by $60 per $100,000 of assessed value to fund early childhood education. Voters in Portland, Oregon, passed Measure 26-213 imposing a property tax of $80 per $100,000 for five years starting in 2021 to provide funding for parks and recreation.
One notable tax defeat
The highest-profile ballot initiative, California’s Proposition 15—which would have increased property taxes on commercial real estate—failed. This ballot initiative would have excluded most commercial real property from protection of Proposition 13, a state constitutional amendment enacted in 1978 that was upheld by the US Supreme Court in 1992. Under this amendment, California real property, both residential and non-residential, was valued for property tax purposes at its purchase price with annual adjustments limited to the lower of the rate of inflation or 2%. Voters rejected Proposition 15 which would have assessed commercial property based on its market value, while continuing the Proposition 13 protections for residential properties.
Sales and Excise Taxes
Arkansas and San Francisco. Arkansas voters approved Issue 1, a proposal to make permanent a 0.5% sales tax provided in state Constitutional Amendment 91, which was scheduled to expire in 2023. Revenue from the sales tax is designated for state and local public transportation. San Francisco adopted Proposition RR to increase the sales tax by 0.125%, making it 8.625%, for 30 years, to fund the Caltrain rail service.
Colorado and Oregon. Taxes approved in both Colorado and Oregon would increase the cost of tobacco, cigarettes and nicotine products. Colorado’s Proposition EE will increase the tax on cigarettes to $1.94 per pack in 2021 with subsequent increases to $2.64 per pack in 2027. The rate of tax on other tobacco products will rise from the current 40% of manufacturer’s list price (MLP) to 62% of MLP by 2027. The tax will be extended to e-cigarettes, starting at 31% of MLP in 2021 and reaching 62% in 2027. Revenue will be dedicated to specified health and education programs.
Oregon’s Measure 108 will tax vapor and nicotine products at 65% of wholesale price and increase the cigarette tax from $1.33 to $3.33 per 20-cigarette pack. Revenues will be used for health-related programs in Oregon.
Nebraska. At that same time that Nebraska approved Initiative 430 which authorizes gambling at licensed racetracks, it also approved Initiative 431 which will impose a 20% tax on gross annual gambling revenue from licensed racetracks.
San Francisco. The passage of San Francisco’s Proposition F will make a number of changes to the city and county business taxes. It will fully repeal the current payroll tax while increasing the gross receipts tax rates by 40% across all industries effective in January 2021; it also will impose new annual increases to the gross receipts tax rates for various industries through 2024. Beginning in 2021, for example, tax rates for the information industry will match those of the professional, scientific and technical services industries. Businesses with only an administrative office in San Francisco will pay a gross receipts tax of 1.47% in 2022, 1.54% in 2023 and 1.61% in 2024 and thereafter.
Six industries impacted by the pandemic will have temporary tax reductions: retail trade, certain services (including maintenance and laundry businesses), manufacturing, arts, entertainment and recreation, accommodations, and food services.
The small business threshold for exemption from the gross receipts tax will increase from its present $1.7 million level to $2.0 million. Annual registration fees for businesses with $1 million or less in gross receipts will be lowered by approximately 50%, while the registration fees for businesses with more than $1 million up to $2 million in gross receipts will increase.
As a result of the passage of Proposition L, San Francisco will impose a new “Overpaid Executive Gross Receipts Tax“ beginning in 2022 on businesses whose compensation (wages, salaries, bonuses, commissions, and property, including stock options) for their highest paid management employee is more than 100 times their median employee salary. Affected businesses will pay an additional tax of 0.1% to 0.6% of taxable gross receipts, increasing at the salary differential increases—except that businesses with only administrative offices in San Francisco shall be liable for a tax of 0.2% to 2.4% of payroll expenses depending on the size of differential.
Georgia and Louisiana. Voters in these two states passed measures granting their legislatures authority to designate the use of government revenues. Georgia Amendment 1 authorizes the General Assembly to require that revenues collected for a specific purposes be used for that purpose. Louisiana Amendment 3 permits the legislature to allocate up to one-third of the state’s budget stabilization fund to cover the costs of a federally declared disaster.
Arizona, Montana, New Jersey and South Dakota. Voters in these states legalized recreational marijuana. Arizona, Montana and South Dakota will tax marijuana sales at 16%, 20% and 15% respectively. In New Jersey, the state sales tax of 6.625% will apply and local governments are authorized to impose additional sales tax of 2%.