State & Local Tax Alert
Breaking state and local tax developments from Grant Thornton LLP
________________________________________________________
State Efforts to Raise Revenue Find Success with Voters on Some
Ballot Initiatives
On November 8, 2016, voters in numerous states cast their ballots on tax issues ranging
from increases in individual income tax rates to a new carbon emission tax. While many
states saw their efforts to raise revenue prove successful, other measures, particularly
those focused on sales tax, were defeated.
Release date
November 16, 2016
States
Multiple
Issue/Topic
Multiple
Individual Income Tax Rate Initiatives
Contact details
California Proposition 55
California voters overwhelmingly approved Proposition 55, garnering 62.2 percent
support.1 Proposition 55 extends the temporary personal income tax rate increases
enacted by Proposition 30 in 2012 by 12 years (from the end of 2018 to the end of 2030).2
The measure will impact approximately 1.5 percent of high-income taxpayers3 and is
expected to raise between $4 billion to $9 billion in revenue depending upon future
varying economic and stock market conditions. This revenue will be used for K‐12
schools, community colleges and health care services.4 Proposition 55 does not extend the
sales tax rate increase that voters approved in Proposition 30, which is set to expire at the
end of 2016.5
Maine Question 2
Maine voters narrowly passed a measure that will increase personal income tax rates.
Question 2 asked Maine voters if they would “add a 3% tax on individual Maine taxable
income above $200,000 to create a state fund that would provide direct support for
1 California Secretary of State, California General Election Tuesday, November 8, 2016, SemiOfficial Election Results (Nov. 2016).
2 California Secretary of State, California General Election Tuesday, November 8, 2016, Official
Voter Information Guide (Nov. 2016).
3 Id. Income tax rates under Proposition 30 (brackets are in effect for 2015 and are adjusted for
inflation in future years): Single filer’s taxable income: $263,000 to $316,000 – 10.3 percent;
$316,000 to $526,000 - 11.3 percent; over $526,000 - 12.3 percent. Joint filers’ taxable income:
$526,000 to $632,000 - 10.3 percent; $632,000 to $1,053,000 - 11.3 percent; over $1,053,000 - 12.3
percent.
4 Id.
5 Id.
.
Jamie C. Yesnowitz
Washington, DC
T 202.521.1504
E [email protected]
Chuck Jones
Chicago
T 312.602.8517
E [email protected]
Lori Stolly
Cincinnati
T 513.345.4540
E [email protected]
Priya D. Nair
Washington, DC
T 202.521.1546
E [email protected]
www.GrantThornton.com/SALT
Grant Thornton LLP - 2
student learning in kindergarten through 12th grade public education.”6 On this question,
377,562 Maine voters said “yes” and 371,445 said “no.”7 With the passage of this measure,
Maine will have the second highest individual income tax rate imposed on at least a
portion of its taxpayers, with California having the highest rate.8 The measure is expected
to raise approximately $142 million annually, with this amount increasing by at least an
additional $12 million each subsequent year.9 The rate increases are effective with tax years
beginning on or after January 1, 2017.10
Sales Tax Initiatives
Missouri Constitutional Amendment 4
Voters in Missouri approved, with 57.056 percent of support, an amendment to the state’s
constitution that will prohibit a new state or local sales, use or other similar tax on any
service or transaction that was not subject to such a tax as of January 1, 2015.11 The
measure represents a “backlash against efforts in Missouri” to expand the sales tax base to
services.12 Organizations representing real estate agents, fearful that the tax would extend
to services on home sales, spent $7 million in their efforts to see the amendment
approved.13
Oklahoma Question 779
With 59.4 percent of the total vote,14 Oklahoma voters rejected a proposal which would
have increased the state sales and use taxes by one cent per dollar to provide revenue for a
limited purpose fund to increase funding for public education.15
Louisiana Amendment 3
Under Louisiana Amendment 3, state voters were asked whether they supported an
amendment to eliminate the deduction for federal income taxes paid when computing
state corporate income taxes.16 With 56.1 percent of the total vote,17 Louisiana voters
rejected the amendment. H.B. 29, enacted by Louisiana on March 9, 2016, was tied to
Amendment 3 and would have reduced the corporate income tax rate to a flat 6.5 percent
6
Maine Secretary of State, Maine Citizen’s Guide to the Referendum Election (2016).
Associated Press, Maine Question 2 (updated Nov. 13, 2016 7:20 pm ET).
8 Morgan Scarboro, Maine Question 2: Will Maine Claim the 2nd Highest Individual Income Tax Rate in the
Country?, TAX FOUNDATION, Oct. 12, 2016.
9 Maine Secretary of State, Maine Citizen’s Guide to the Referendum Election (2016).
10 Id.
11 Missouri Secretary of State, 2016 Ballot Measures (2016).
12 Jeff Roberson, Missouri Voters to Weigh Ban on Expanding Sales Tax to Services, THE NEW YORK
TIMES, Oct. 29, 2016.
13 Id.
14 Politico, 2016 Oklahoma Ballot Measures Election Results (updated Nov. 11, 2016 12:59 pm
ET).
15 Oklahoma State Election Board, 2016 State Questions (last modified on Sep. 21, 2016).
16 Louisiana Secretary of State, 2016 Proposed Constitutional Amendments, November 8, 2016
Election (2016).
17 Politico, 2016 Louisiana Ballot Measures Election Results (updated Nov. 11, 2016 12:59 pm ET).
7
Grant Thornton LLP - 3
if the amendment had been successful.18 The Louisiana Task Force on Structural Changes
in Budget and Tax Policy supported passage of the amendment, arguing that it would
“better align Louisiana with its competitor states” and “potentially provide for a more
stable source of revenue than the current corporate income tax structure.”19 The Task
Force also argued that the amendment would make state corporate tax collections more
stable by making them less reliant on actions in Washington, D.C.20
Washington Initiative 732
With 59 percent of the total vote,21 Washington voters rejected Initiative 732 which would
have imposed a new carbon emission tax on certain fossil fuels and fossil-fuel-generated
electricity.22 The initiative also would have reduced the state sales tax rate and the business
and occupation tax rate on manufacturing.23 The carbon emission tax faced heavy
opposition from the fossil fuel industry and major environmental groups.24 Opponents
argued that the tax would “hurt the poor,” and, while the measure was said to be revenueneutral, a state analysis projected that the tax “could cost the state about $800 million in
lost revenues over the first six fiscal years.”25
Oregon Measure 97
In one of the highest-profile ballot initiatives in the nation, 59 percent of Oregon voters26
sent Oregon Measure 97 to defeat. This measure would have altered the Oregon
Corporate Minimum Tax (CMT), effectively imposing a gross receipts tax on C
corporations with more than $25 million in Oregon sales beginning in 2017. Currently,
Oregon’s CMT is based on Oregon-sourced sales with a maximum tax of $100,000 for C
corporations with more than $100 million in Oregon sales. Under Measure 97, C
corporations with over $25 million in Oregon sales would have paid the minimum tax
($30,001) plus 2.5 percent on all additional sales above $25 million, with no maximum tax
cap. Measure 97 was expected to generate billions of dollars annually beginning in 2017.27
Marijuana Tax Initiatives
Five state ballots put the question of legalizing and taxing recreational marijuana to voters:
Arizona Proposition 205, California Proposition 64, Maine Question 1, Massachusetts
Question 4, and Nevada Question 2.
18 Act 8 (H.B. 29), Laws 2016 (First Extraordinary Session). See also Louisiana Department of
Revenue, State Tax Task Force Recommends Package of Changes with Broader Base and Lowered Rates (Nov.
2, 2016).
19 Louisiana Task Force on Structural Change in Budget and Tax Policy, Budgetary Background and
Recommendations: Setting the Stage for Long-Term Fiscal Reform (Nov. 1, 2016).
20 Id.
21 Associated Press, Washington Initiative 732 (updated Nov. 13, 2016 8:23 pm ET).
22 Washington Secretary of State, Voters’ Guide, Initiative Measure No. 732.
23 Id.
24 Phuong Le, Washington Rejects Carbon Tax, but Backers Are Undeterred, U.S. NEWS AND WORLD
REPORT, Nov. 12, 2016.
25 Id.
26
Oregon Secretary of State, Unofficial 2016 General Election November 8, 2016 (last updated
Nov. 11, 2016 4:52 pm PT).
27 For a discussion of Oregon Measure 97, see GT SALT Alert: Oregon Gross Receipts Tax Will Be
Considered by Voters in November.
Grant Thornton LLP - 4
California voters, with 56.1 percent of support,28 approved Proposition 64 which will
legalize marijuana and impose a state excise tax of 15 percent on retail sales of marijuana,
and state cultivation taxes on marijuana of $9.25 per ounce of flowers and $2.75 per ounce
of leaves.29 In Maine, Question 1 asked voters whether to legalize recreational marijuana
and assesses a sales tax of 10 percent.30 Maine voters narrowly approved the measure with
378,288 voting “yes” and 375,668 voting “no.”31
Massachusetts voters, with 53.6 percent of support,32 approved Question 4 which will
legalize marijuana and subject sales of marijuana and marijuana products to the state sales
tax as well as an additional excise tax of 3.75 percent.33 Additionally, a city or town can
impose a separate tax of up to 2 percent.34 In Nevada, 54.5 percent of voters35 approved
Question 2 which will legalize marijuana and impose a 15 percent excise tax on wholesale
sales of marijuana.36
Finally, with 51.81 percent of the vote,37 Arizona voters narrowly defeated Proposition
205, which would have allowed individuals to possess, grow and purchase marijuana from
state-licensed facilities for personal use, with the state levying a 15 percent tax on all
marijuana and marijuana products.
Commentary
From the perspective of state taxation, voters in this election cycle were most inclined to
approve measures designed to increase taxes on high-income individuals and legalize (and
tax) marijuana. With respect to the targeted individual income tax rate increases that will
remain in effect for a significant period of time, California’s Proposition 55 represents a
continuation of the “state’s reliance on the wealthiest Californians to fund a significant
amount of services,” a move which began with the passing of Proposition 30 in 2012.38
Proposition 30 had proved successful in improving the state’s revenues and California’s
governor had “warned” voters “of future deficits unless Proposition 55 was approved.”39
Maine passed an individual income tax rate increase on high-income taxpayers but, unlike
California, Maine voters approved this presumably permanent increase by the narrowest of
margins. Analysts have questioned the move by Maine arguing that creating a businessfriendly tax environment requires that both individual and corporate income tax rates be
28 California Secretary of State, California General Election Tuesday, November 8, 2016, SemiOfficial Election Results (Nov. 2016).
29 California Secretary of State, California General Election Tuesday, November 8, 2016, Official
Voter Information Guide (Nov. 2016).
30 Maine Secretary of State, Maine Citizen’s Guide to the Referendum Election (2016).
31 Associated Press, Maine Question 1 (updated Nov. 13, 2016 10:36 pm ET).
32 Politico, 2016 Massachusetts Ballot Measures Election Results (updated Nov. 11, 2016 12:59 pm
ET).
33 Secretary of the Commonwealth of Massachusetts, 2016 Information for Voters (2016).
34 Id.
35 Politico, 2016 Nevada Ballot Measures Election Results (updated Nov. 11, 2016 12:59 pm ET).
36 Nevada Secretary of State, Statewide Ballot Questions 2016 (2016).
37 Arizona Secretary of State, Proposition 205 (updated Nov. 12, 2016 5:54 pm ET).
38 Liam Dillon, Voters Approve Proposition 55, Which Extends Higher Income Tax Rates for the Wealthiest
Californians, LOS ANGELES TIMES, Nov. 8, 2016.
39 Id.
Grant Thornton LLP - 5
considered and Maine’s rate increase “would ultimately make Maine less competitive,
giving Maine the highest top marginal individual income tax rate in the Northeastern
region of the country.”40
As far as the continuing efforts to support the legalization and taxation of marijuana
(which began in earnest with Colorado and Washington), the approval by the electorate in
California, Maine, Massachusetts and Nevada will provide these states with new and
potentially substantial revenue streams, and likely will encourage more ballot initiatives on
this issue in the coming years.
For those states that saw their revenue-raising efforts fail, the reasons for their lack of
success with voters are far-ranging. Oregon’s Measure 97 was a costly affair for both
supporters and opponents alike41 and its defeat has been attributed to warnings that the
measure could hurt in-state employment and spending power.42 As a result, other tax
increase measures may be proposed in 2017 as Oregon is facing a significant budget
deficit.43 Another state that will be grappling with budgetary issues is Louisiana, as
commentators have argued that the failure of Proposed Amendment 3 will mean that the
governor will face an uphill battle when looking to propose other changes.44 The
experience in Louisiana also shows how risky it can be when a budget agreement by a
legislature is conditioned upon prospective approval of a measure by the electorate.
________________________________________________________
The information contained herein is general in nature and based on authorities that are subject to change.
It is not intended and should not be construed as legal, accounting or tax advice or opinion provided by
Grant Thornton LLP to the reader. This material may not be applicable to or suitable for specific
circumstances or needs and may require consideration of nontax and other tax factors. Contact Grant
Thornton LLP or other tax professionals prior to taking any action based upon this information. Grant
Thornton LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that
could affect information contained herein. No part of this document may be reproduced, retransmitted or
otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying,
40
Morgan Scarboro, Maine Question 2: Will Maine Claim the 2nd Highest Individual Income Tax Rate in the
Country?, TAX FOUNDATION, Oct. 12, 2016.
41 Paul Jones, Failure of Oregon Measure 97 Not the End of Tax Revenue-Raising Efforts, TAX ANALYSTS,
Nov. 11, 2016. “The campaigns for and against Measure 97 were hard fought, with over $42 million
reportedly spent by both sides.”
42 Paul Jones, Voters Legalize Pot but Reject Taxes on Tobacco, Gross Receipts, Carbon, TAX ANALYSTS,
Nov. 9, 2016. “But opponents won over voters with warnings that the effort was a major tax
increase that could hurt in-state employment and families’ spending power.”
43 Paul Jones, Failure of Oregon Measure 97 Not the End of Tax Revenue-Raising Efforts, TAX ANALYSTS,
Nov. 11, 2016. “Both sides say Measure 97’s failure on the ballot is not the final word on tax
increase proposals in the near term. For one thing, Oregon continues to face budget challenges,
with rising public employee and Medicaid-expansion-related costs. . . . There may also be legislative
support for the effort. State Sen. Mark Hass (D) had sought earlier in the year to avoid a ballot fight
on Measure 97 by pushing for more modest gross receipts tax legislation.”
44 Paul Jones, Voters Legalize Pot but Reject Taxes on Tobacco, Gross Receipts, Carbon, TAX ANALYSTS,
Nov. 9, 2016, quoting Meg Wiehe, Institute on Taxation and Economic Policy: “Louisiana has a
crazy process . . . it requires constitutional amendments to make changes [to some tax rules].”
“They have huge revenue problems . . . I’m afraid [Amendment 3’s] failure will make it harder for
the governor to propose other changes.”
Grant Thornton LLP - 6
facsimile transmission, recording, re-keying or using any information storage and retrieval system without
written permission from Grant Thornton LLP.
This document supports the marketing of professional services by Grant Thornton LLP. It is not written
tax advice directed at the particular facts and circumstances of any person. Persons interested in the subject
of this document should contact Grant Thornton or their tax advisor to discuss the potential application of
this subject matter to their particular facts and circumstances. Nothing herein shall be construed as
imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter
addressed.