2015 State Tax Outlook

This exclusive special report provide you with the critical insights you need on some of the hottest topics impacting state and local taxes.

Fiscal Issues
In 2015, as many states continue to emerge from the lingering financial hardships of the Great Recession, the fiscal forecast is cautiously optimistic. As states set the budget for the next biennium they will grapple with balancing the need for increased spending on public initiatives, such as education, Medicaid and infrastructure projects, against pressure to provide tax relief. The 2014 election results do not signal major tax policy changes ahead. But many states will be watching Kansas and North Carolina before enacting tax cuts to spur economic growth. Key issues include 2015 fiscal outlook, impact of election, budgetary challenges and prospects for tax reform.

Constitutional Issues

In 2015, the U.S. Supreme Court will decide three important cases that could have profound impacts for state taxes. Wynne and CSX will contribute to our understanding of commerce clause jurisprudence, while DMA will answer the question of whether the Tax Injunction Act bars a state’s use tax reporting requirement from being challenged in federal court. Key issues include high court to rule on "Credit for Taxes Paid," discriminatory sales taxes and scope of Tax Injunction Act.

Federal Legislation

Congress concluded 2014 by temporarily extending the Internet Tax Freedom Act and leaving the Marketplace Fairness Act stalled in the House of Representatives. Both of these measures are likely to reemerge in 2015, along with other state-tax related legislation, such as the Business Activity Tax Simplification Act and the Mobile Workforce State Income Tax Simplification Act. Key issues include imposing sales tax on e-commerce, continuing the tax ban on internet access and taxing the mobile workforce.

Sales and Use Tax

In 2015, states are likely to continue to respond to federal inaction by legislating self-help bills that will inevitably create compliance confusion for companies until Congress brings clarity. States are also likely to consider broadening the sales tax base to include services that are presently not subject to sales taxes. Key issues include click-through nexus, hybrid-origin sourcing and broadening the sales tax base.

Corporate Income Tax

States will likely continue to take aggressive positions with respect to nexus in 2015, especially in cases involving corporate affiliates and intangible property. Apportionment methods and the sourcing of income are also likely to remain in focus as more states shift toward a market-based sourcing approach that reflects sales made to customers within their borders. Meanwhile, the California high court is likely to render its decision this year on the controversy surrounding a taxpayer’s right to elect the three-factor apportionment formula under the Multistate Tax Compact. The states will press on with efforts to preserve their tax base by implementing policies aimed at preventing income shifting. Key issues include economic nexus, apportionment, market-based sourcing, the MTC Election Controversy and tax base erosion.

Individual Income Tax

Same-sex couples are likely to continue facing uncertainty as to their state income tax filing status in 2015. While states are increasingly recognizing same-sex marriages and allowing these couples to file joint returns, several jurisdictions are still refusing to grant legal recognition to these unions. Meanwhile, small business owners are awaiting a potentially groundbreaking U.S. Supreme Court decision regarding the constitutionality of a Maryland statute that gives less than full credit for amounts representing taxes paid to other states. The upcoming year is also likely to see states continuing the trend of disputing the classification of workers as independent contractors. In addition, while trustees and settlors of trusts with a presence in multiple states remain in need of a resolution for the issue of double taxation, estate taxes are becoming less of a burden for those with sizeable estates. Key issues include same-sex married couples, the "Wynne" Case, worker classification and the tax treatment of trusts.

Excise Tax

A perfect storm of conditions—low energy prices, underfunded transportation coffers and deteriorating highways—could set the stage for gas tax reform at the federal and state levels. Meanwhile, the battle rages on over the amount of taxes online travel companies are required to remit. The states will also grapple over whether or not to legalize marijuana (and tax it) and how best to regulate (and tax) e-cigarettes. Captive insurance is likely to emerge as an issue in some states. Key issues include gas tax reform, hotel occupancy taxes, marijuana legalization, e-cigarettes and captive insurance.

Property Tax

The dual pressures of increasing education funding while providing property tax relief to taxpayers will be two conflicting themes that will play out in 2015. Funding for public education has decreased in states throughout the country. One result has been state courts in Kansas, South Carolina and Texas ruling that current state education funding is inadequate and unconstitutional. Key issues prospects for property tax reform, budgetary battles over funding public education.

Unclaimed Property

Several key developments in state unclaimed property law are on the horizon for 2015, including a new draft of the Uniformed Unclaimed Property Act and a U.S. Court of Federal Claims case on federal savings bonds. Additionally, Delaware is considering revising its unclaimed property law. Key issues include a new draft of UUPA, ruling on escheat
of federal bonds and further reforms expected in 2015.