The passage of federal tax reform (Pub. L. No. 115-97), and the resultant cap on the state and local tax (SALT) deduction, has thrust state taxes into the national spotlight in a way that perhaps hasn’t been seen for many years. State and local tax practitioners, of course, are regularly immersed in the issues concerning sales and use taxes, state corporate and individual income taxes, state excise taxes, and property taxes. In late December, however, the property tax, in particular, stole the show as a nationwide drama played out around whether taxpayers would be able to prepay property taxes and take advantage of the last(?) opportunity to claim an un-capped state and local tax deduction on federal income tax returns.
The uproar over property taxes in the waning days of 2017 may have been a precursor to a lot more scrutiny of the property tax in 2018 that goes well beyond distress over capped deductions. In his final state of the state address on Jan. 9, outgoing New Jersey Gov. Chris Christie "warned” that property taxes will be a major concern for the state as the new governor takes the reins.
Texas, one of the few non-income tax states, is expected to “accelerate [its] efforts at property tax relief in 2018 in advance of the 2019 Legislature,” as reported by Bloomberg Law’s Paul Stinson in a legislative preview (subscription required) for the Lone Star State. In Wisconsin, retail proponents of the “dark store” theory of property valuation face limits on using “dark property” as comparable to property that is not dark property under pending bills S.B. 292/A.B. 386. (For a comprehensive discussion of the controversial “dark store” theory, see the three-part blog series by Bloomberg Tax’s Stephanie Cangialosi.)
Lawmakers working on state tax reform in Nebraska are expected to tussle over priorities—while urban representatives see a need for lowering corporate and individual income taxes, legislators from rural districts are looking for property tax relief for the “agricultural sector,” according to Bloomberg Law’s Christopher Brown (subscription needed). And Pennsylvania’s legislature is set to again consider the “Property Tax Independence Act” (S.B. 76), a bipartisan bill introduced several times in recent years, that is designed to eliminate the school property tax, apparently “the most-hated and egregious tax” among at least some of the state’s voters.
Property taxes comprise 31.3 percent of state and local tax collections in the U.S., according to the Tax Foundation. The Council on State Taxation (COST) issued a report last August finding that property taxes are “by far the largest state and local tax paid by businesses,” at 38.4 percent of total state taxes paid and 76.8 percent of total local taxes paid. These figures illustrate the critical role of property taxes as revenue for the states and localities and as a potential burden for companies and homeowners. As state and local governments and taxpayers alike decide how to respond in the wake of the 2017 federal tax reform act, we may see the property tax emerge as the hottest policy issue of the year.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Will property taxes dominate the tax policy deliberations in your state this year?
For more information on the impact of Pub. L. No. 115-97, examine Bloomberg Tax’s Tax Reform Roadmap, showing detailed comparisons between pre-reform law and the impending changes, with pertinent cites attached.
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