The response of the majority of states to Pub. L. No. 115-97 has been to introduce tax reform bills and proposals to capture revenue through lowering tax rates or joining the streamlined sales tax initiative. However, change for some states has also involved going after the previous administrations’ acts to do away with laws that current lawmakers dislike.
Texas joins Alabama, Arkansas, Arizona, Florida, Georgia, Indiana, Kansas, Louisiana, Maine, Mississippi, Missouri, Nebraska, North Dakota, South Carolina, South Dakota, Tennessee, Utah, West Virginia, and Wisconsin in filing a lawsuit in the U.S. District Court of the Northern District of Texas to repeal the Affordable Care Act (ACA).
Their claim is that the recent congressional repeal of the tax for failure to obtain health insurance during the taxable year contradicts the Supreme Court’s ruling in NFIB v. Sebelius that the ACA has a valid revenue-raising provision passed under Congress’s taxing power. Essentially, they are arguing that the federal tax act changed and therefore eradicated the ACA’s validity.
Opposition to the suit has called it a “nuisance” and arguments have been made that the removal of the penalty provision was done with the knowledge that it would not affect the rest of the ACA. Another obstacle for these states is to successfully argue that the states have standing to seek an order barring the federal government from enforcing the ACA. Texas has already been a party to the losing side of a suit challenging the ACA’s constitutionality in the U.S. Supreme Court, in NFIB v. Sebelius, so it will be interesting to see how far this new suit will go.
On Feb. 22, Missouri Rep. Elijah Haahr (R) introduced H.B. 2540, a tax reform bill that would bring major taxation changes, such as cutting corporate and individual income tax rates, launching a corporate income single-sales factor apportionment system, and put the wheels in motion for joining the streamlined sales tax initiative.
The corporate and individual income tax rates would both drop to 5 percent from their current respective rates of 6.25 percent and 5.9 percent. By lowering the corporate income tax rate and changing corporate income to a single-sales factor apportionment system, the bill’s supporters aim to attract more business activity from both in-state and outside Missouri.
Becoming a part of the streamlined sales tax initiative would mean new sales tax revenue from remote sales. However, complications may arise if Quill Corp. v. North Dakota were to be overturned. In fact, a direct challenge to Quill has been brought in the case South Dakota v. Wayfair, where oral arguments are scheduled for April 17, 2018.
Although the state Legislature has not yet resolved how they plan to conform to the 2017 federal tax act, the House Tax Policy Review Committee has released a proposal that would impact individual income tax and the sales tax rate.
Under this proposal, individual income tax would be based on federal adjusted gross income by removing and replacing the income brackets to a single “flat” 4.85 percent tax rate. This would abolish almost all income deductions except for the standard deduction in an effort to achieve revenue neutrality.
Another proposal from the committee stands to lower the sales tax rate from 6 percent to 3 percent, as well as removing exemptions.
Stay informed with Bloomberg Tax coverage to see if Missouri’s bill is passed, what happens to South Carolina’s tax proposals, and whether Texas has a chance against the ACA.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: What tax reform measures do you want to see?
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 impending changes, with pertinent cites attached.
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