January is State-of-the-State Address season in which governors announce their plans for 2013 – including proposed  changes to their tax systems. The following is a discussion of sales tax changes proposed by the governors that are likely to be included in this year’s budget proposals.

Arizona – Governor Jan Brewer (R) stated that Arizona’s sales tax code is one of the most complicated in the nation.  She recommended simplifying the sales tax code to remove one barrier to economic growth and make Arizona even more competitive.

 Arkansas – Governor Mike Beebe (D) said, “With the challenges we face, I don’t see room to cut this tax [sales tax on groceries] at this time without endangering needed services. But I still want to plan for it.” Money should become available, according to the governor, when current payments for school desegregation end.

Florida - Governor Rick Scott (R) will propose legislation this session to fully eliminate an outdated “productive output” requirement, currently at 5 percent, required for businesses to receive a sales tax exemption on equipment.

 Nebraska - Governor Dave Heineman (R) said he would ask the legislature to close loopholes in the state sales tax system to offset revenue lost through elimination of the income and corporate taxes (which he also proposed in his state of the state address). “Imagine if we eliminated just half of the current exemptions,” he said.

 New Hampshire – Governor Maggie Hassan (D) stated in her address, “To those of you who believe deeply in an income tax, I ask you to put that aside. I will veto an income or sales tax. And as we build our next budget, though we have much to address, we must acknowledge that we will not be able to do everything all at once.” 

 New York – Governor Andrew Cuomo (D) proposed 10 higher education/private sector high-tech incubators will be selected as “Hot Spots” through a competitive process that fosters innovation by offering inventors and entrepreneurs support to grow their businesses and to be part of a tax-free zone, where start-ups will not be subject to business, real property, and sales taxes, to encourage business growth in New York State.

 South Dakota –Governor Dennis Daugaard (R) remarked in his address, “Continued tourism promotion has brought record numbers of visitors to South Dakota and has grown this important industry. That success is due, in no small part, to the tourism tax that the industry imposed on itself several years ago to fund promotion efforts. Much of this tax is paid by visitors from out-of-state, and I strongly support the industry’s effort this year to make that tax permanent.”

 Virginia – GovernorRobertMcDonnell's (R) five-year plan replaces the state's gas tax with a 0.8 percent sales tax increase dedicated to transportation funding. If approved, Virginia will be the first state in the nation to eliminate its gas tax. The plan also dedicates additional sales tax revenue to transportation, increase vehicle registration fees by $15, and impose an annual $100 fee on alternative fuel vehicles. The governor's office estimates the changes would generate more than $3 billion in transportation funding for the state over five years. See Bloomberg BNA story in the Daily Tax Report for January 10.

 Wyoming – Governor Matthew Mead (R) proposed an increase in the gas tax.

By Nancy Emison

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