Corporate Income Tax Cuts, Legal Pot More Likely in States

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By Che Odom

Nov. 16 — A growing number of states may cut taxes on corporations and look to soft drinks and legalized marijuana to make up some of the difference, as a result of the Nov. 8 elections.

Republicans will be taking over three gubernatorial seats formerly held by Democrats: Eric Greitens in Missouri, Chris Sununu in New Hampshire and Phil Scott in Vermont. In addition, the GOP will take control of both houses of state legislatures in Kentucky, Iowa, Missouri and New Hampshire.

Democrats will take control of the legislatures in Nevada and New Mexico, both of which have Republican governors.

Given those and other GOP gains, the trend toward lower corporate taxes among states is likely to continue, Jared Walczak, a Tax Foundation policy analyst, told Bloomberg BNA Nov. 15.

This will happen “whether or not we see tax reform at the federal level, and the results of state gubernatorial and legislative elections probably increase the likelihood that a number of states will pursue tax reform in 2017,” he said.

Rejecting Corporate Hikes

Even voters seem to approve of lower taxes on companies.

Louisiana voters rejected a constitutional amendment that would have abolished a tax break allowing businesses to deduct the federal income taxes they pay from their state taxes.

In Oregon, voters opted against transforming the state’s corporate tax base from one determined mostly by net income to one determined mostly by Oregon sales or gross receipts of a relatively small group of large corporations. The change would have put more money into state coffers.

During the past eight years, 15 states have cut corporate income taxes and 18 have reduced individual income taxes, Walczak said.

Going to Pot

Meanwhile, voters in California, Maine, Massachusetts and Nevada opted to legalize and tax the sale of marijuana. That raises to eight the number of states where, come January, recreational use won’t be a crime. Washington, D.C., also allows legal use of the drug. Twenty-eight states and the District of Columbia allow medical use of marijuana.

Those jurisdictions may rake in tens of millions, “even hundreds of millions” of dollars, in tax revenue as the industry develops, Walczak said.

“States which just adopted marijuana taxes on Election Day may not see an immediate revenue boon, as they will still need to establish frameworks for the cultivation and sale of marijuana, and the industry will take some time to establish itself in these states,” he said. “Given time, however, marijuana taxes are likely to become a meaningful revenue stream.”

All Eyes on Trump

Industry figures tell Wall Street they see more states legalizing marijuana, but are cautious about how the federal government will respond after President-elect Donald Trump takes office.

Derek Peterson, president and chief executive of California-based Terra Tech Corp., said in a Nov. 10 Securities and Exchange Commission filing that he believed Trump would allow the industry “to continue to grow at the rated average.”

“I don’t know that we’re going to see any huge federal overhaul on the short run, but I do believe that we’re going to continue to allow states to make these types of decisions,” he said.

Others in the industry, however, tell Bloomberg News they worry that the Department of Justice under Trump may interfere with state efforts, given that many of those close to Trump, including former New York City Mayor Rudolph Giuliani, are against legalization.

Media reports suggest Trump is considering Giuliani for attorney general or secretary of state.

Costlier Drinks

Also on Nov. 8, Boulder, Colo., Cook County, Ill., and three California cities—Albany, Oakland and San Francisco—joined Berkeley, Calif., and Philadelphia in passing taxes on beverages sweetened with sugar.

“Advocates of soda taxes were heartened by their successes on Election Day and appear eager to expand the playing field in the coming months and years,” Walczak said.

Though advocates had hoped to get the measure on the ballots of about a dozen states, “soda taxes are poised to be the next big push in municipal taxation,” he said.

“Whether soda taxes, which disproportionately fall on lower- and middle-income individuals, will enjoy significant popular support in a broader range of cities remains to be seen, but it’s likely that we’ll find out soon enough,” he added.

California ballot initiatives were supported, in part, by $18.8 million from former New York Mayor Michael Bloomberg, who is the founder and majority owner of Bloomberg BNA parent Bloomberg LP.

To contact the reporter on this story: Che Odom at COdom@bna.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

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