From Carbon Taxes to No Sales Taxes: Ballot Initiatives in Missouri and Washington

The Bloomberg BNA Tax Management Weekly State Tax Report filters through current state developments and analyzes those critical to multistate tax planning.

Tax Policy

Bloomberg BNA regularly spotlights the insights of state and local tax attorneys at KPMG LLP. In this installment, Sarah McGahan discusses ballot initiatives up for a Nov. 8 vote in Missouri and Washington.

Sarah McGahan

By Sarah McGahan

Sarah is a director in the State and Local Tax group of KPMG LLP's Washington National Tax practice. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser. This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG LLP.

As Election Day 2016 approaches, much of the country's attention will be focused on the selection of our next Commander-in-Chief. However, voters will also be asked to make many decisions on key state policy issues, such as legalizing marijuana, increasing the minimum wage, and implementing gun control. Certain other pending initiatives address state tax issues, such as increasing taxes on corporations (Oregon Measure 97) or higher-income earners (California Proposition 55 and Maine Question 2). A couple of other state ballot initiatives have received less press, but are groundbreaking in their own right.

Missouri

When Missouri voters go to the polls on November 8th, they will decide whether Missouri should constitutionally limit the ability to expand the state sales and use tax to service transactions in the future. If approved, Constitutional Amendment 4, aptly titled the “Taxpayer Protection Amendment” would amend the Missouri Constitution to prohibit the Legislature from enacting new state sales or use taxes (or any similar transaction-based taxes) on any service or activity that was not subject to sales or use tax (or a similar tax) as of Jan. 1, 2015. Under Missouri law, sales of tangible personal property are generally subject to sales and use tax, but only a limited number of services are taxable. Over the last several years, many state lawmakers, including those in Missouri, have considered expanding the sales tax base as a means of raising revenue or reducing the state's reliance on income or property taxes. Opponents are taking the constitutional route to thwart such efforts in the future.

Washington

Washington State voters will use the ballot box to decide if Washington will become the first state to tax carbon emissions. If approved, the Washington State Carbon Emission Tax Initiative 732, will create a new carbon pollution tax administered by the Department of Revenue. The tax would be levied on (1) the carbon content of fossil fuels sold or used in Washington State, and (2) the carbon content inherent in electricity consumed within Washington, including electricity generated within Washington. Carbon content is generally calculated by measuring carbon dioxide emitted from fossil fuels. The tax rate would be equal to $15 per metric ton of carbon dioxide as of July 1, 2017. The tax would increase to $25 per metric ton of carbon dioxide as of July 1, 2018. After that, the tax would be increased annually by 3.5 percent, with adjustments for inflation. The rate would ultimately be capped at $100 per metric ton in 2016 dollars.

A key element of the proposal is that it is purportedly revenue neutral. Revenue raised from the tax would be offset by a state sales tax reduction from 6.5 percent to 5.5 percent over a two-year period, tax rebates for low-income families, and a reduction in the B&O tax rate applicable to manufacturers. Initiative 732 is modeled after a 2008 carbon tax implemented in British Columbia that likewise increased costs of motor fuels and electricity, but offset such tax increases by personal income tax cuts and other reductions. The measure has garnered some opposition from environmental groups and others that would generally be supportive because it does not use the proceeds of the carbon tax to promote increased use of renewable energy.

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