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Sales and use taxes drove biggest state tax shifts in 2018

Sales and use tax accounted for the largest net tax change at the state level in 2018, with an increase of $847.1 million, according to a recent report from the National Conference of State Legislatures.

“States faced an abnormal set of federal changes that resulted in an uptick in activity” during the year, the report noted, including the Tax Cuts and Jobs Act and the legalization of sports gambling, as well as the Supreme Court's Wayfair decision’s greenlighting states’ expanding their tax bases to include remote sales.

Thirteen states experienced net increases to sales and use taxes, and 10 reported net decreases; Louisiana, Kentucky and Georgia reported the largest increases. Kentucky’s sales and use tax increase was an estimated $192.5 million for fiscal 2019, but the change is expected to add an additional $3.2 billion to the state’s sales and use tax base. Georgia projected an increase of $113.9 million in sales and use tax revenues, primarily due to Wayfair-related legislation.

The report includes tax actions taken during regular and special legislative sessions in 2018, as well as actions approved by voters, that result in a revenue impact of $1 million or more. Collective actions taken by the 50 states and the District of Columbia resulted in a net tax increase of about $1.3 billion, representing a 0.1 percent increase of the prior year’s tax collections.

AT-012819-State tax change drivers

All categories saw tax increases, except for personal income taxes (down $44.2 million) and health care-related taxes (down $3.8 million). Alcoholic beverage taxes saw no changes. Among other highlights:

  • Georgia, Kansas, Kentucky, Louisiana, New Jersey, Oklahoma, Oregon, Rhode Island and the District of Columbia increased net taxes by more than 1 percent. Idaho, Missouri, Nebraska, New Hampshire and Wisconsin reported a net decrease of more than 1 percent.
  • Kansas and Oklahoma experienced the largest tax increases in 2018, according to the report. The increase in Kansas was from the extensive tax package passed in the 2017 legislative session that had a series of phase-ins also taking place in 2018; the estimated impact of these phase-ins was combined with rate changes that took place in tax year 2018. The state’s tax changes totaled a 7.7 percent increase in revenues compared to 2017’s collections.
  • Oklahoma had a variety of tax changes this year, including motor fuel tax and cigarette tax increases, among others. The state’s enacted changes totaled $490.7 million, or an increase of 5.7 percent, the report said.
  • Nebraska reported the largest tax decrease, with a net reduction in revenues of 6.4 percent. This offset what otherwise would have been a comparably large tax increase for Nebraska taxpayers as a result of the TCJA.
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