At state and local elections held on Tuesday November 8, 2016, voters across the United States approved and rejected various state and local ballot measures that affected state and local taxes. Most notable, Oregonians said "no" to a statewide ballot measure that would have imposed a 2.5% gross receipts tax on all C corporations with $25 million or more in Oregon sales. In Washington, voters also said "no" to what would have been the first statewide carbon tax in the US. While these measures failed, voters in Missouri approved a constitutional amendment to prohibit new sales and use (or other similar transaction-based) taxes on services, thus limiting a potential revenue stream in an economy that is increasingly becoming more reliant upon services and the sale of intangible property. Four states — Arizona, Colorado, Maine and Washington — approved minimum wage increases. Further, a number of local jurisdictions in California and Colorado approved "soda taxes" on sugary beverages.

Below is a summary of the results of the significant, tax related state and local ballot measures voters considered on November 8.

Approved ballot measures

Alabama: Statewide Amendment 14 (Approved 68.76% to 31.24%) upholds local budget laws, by amending the Alabama Constitution to correct a procedural issue by ratifying, approving, validating and confirming any resolution authorizing the consideration of any bill proposing a local law, including local tax laws, adopted by the Legislature before November 8, 2016, that conformed to the rules of either body of the Legislature at the time it was adopted. Had this provision not been approved, hundreds of local acts, including local tax laws, passed by the legislature in previous years could have been invalidated due to an Alabama court ruling regarding the quorum required for this type of bill to approved.

Arizona: Proposition 206 (Approved 59.08% to 40.92%) incrementally increases the state minimum wage to $12 per hour by 2020. The state minimum wage will increase to $10 per hour in 2017, then to $10.50 per hour in 2018, to $11 in 2019, and $12 in 2020. Thereafter, the state minimum wage will be adjusted annually based upon any change in the cost of living.

California: Proposition 55 (Approved 62.1% to 37.9%) extends through 2030 the "temporary" personal income tax rate increases on the incomes of those individuals earning over $250,000 ($500,000 for married filing jointly returns). The tax increase was initially approved in 2012 and was set to expire at the end of 2018. California's highest marginal personal income tax rate remains 13.3% (on incomes in excess of $1 million) (if one includes the 1% mental health tax imposed under an earlier ballot measure. Under the personal income tax alone, the highest marginal rate is only 12.3%.) By adopting this measure, California continues to impose the highest combined state and local marginal personal income tax rate in the entire US. (To provide some measure of contrast, New York City comes in second at a combined effective tax rate of 12.49% (but only with respect to residents of New York City.)

California: Proposition 56 (Approved 62.9% to 37.1%) increases the taxes on cigarettes and tobacco products to $2.00 per pack of 20 cigarettes and extends such taxes to electronic cigarettes. Proposition 56 takes effect November 9, 2016, however, the change in the definition of tobacco products and electronic cigarettes is not effective until April 1, 2017.

San Francisco, California: Proposition V (Approved 61.87% to 38.13%) imposes a 1 cent per ounce tax on the distribution of sugar-sweetened beverages, beginning on January 1, 2018. A sugar-sweetened beverage is defined as "a beverage that contains added sugar and 25 or more calories per 12 ounces … " such as soft drinks, sports drinks, iced tea, juice drinks and energy drinks, syrups and powders that can be made into sugar-sweetened beverages. Tax will not be imposed on diet sodas, beverages containing only natural fruit and vegetable juice, infant formula, milk (animal and plant based), alcoholic beverages. The distributors of the sugar-sweetened beverages in San Francisco are responsible for paying the tax.

Oakland, California: Measure HH (Approved 60.75% to 39.25%) imposes a 1 cent per ounce general tax on the distribution of sugar sweetened beverages, effective July 1, 2017. Taxable drinks include soda, sports drinks, sweetened teas, energy drinks, but do not include milk, 100% juice, diet drinks or drinks taken for medical reasons.

Albany, California: Measure O1 (Approved 70.67% to 29.33%) imposes a 1 cent per ounce tax on the distribution of sugar-sweetened beverages and sweeteners used to sweeten such beverages. Beverages that will be taxed include soda, energy drinks and pre-sweetened tea. Beverages that are not subject to the tax include baby formula, milk, alcoholic beverages, drinks containing only natural fruit and vegetable juice, and drinks consumed for medical reasons.

Alameda, California: Measure K1 (Approved 73.423% to 26.577%) imposes a 7.5% video users tax on charges made for such services. The tax is imposed on the service user by the video service supplier or billing agent. The video services are billed to the service user's billing address; however, if such address is different from the service address, the service address is used for purpose of imposing tax. Video programming subject to the tax include video games, pay-per-view services, video on demand, regardless of the technology used to deliver such services. Measure K1 also includes guidance on what constitutes substantial nexus, substantial economic presence and minimum contacts sufficient to create nexus for purpose of collecting taxes under Alameda's tax.

Watsonville, California: Measure K (Approved 73.41% to 26.59%) imposes a 5.5% tax on charges made for video services. The tax is collected from the service user and collected by the video service supplier or its billing agent. The video services are billed to the service user's billing address; however, if such address is different from the service address, the service address is used for purpose of imposing tax. Taxable video programming included video games, pay-per-view, video-on-demand regardless of the technology used to deliver such services. Measure K also includes guidance on what constitutes substantial nexus, substantial economic presence and minimum contacts sufficient to create nexus for purpose of collecting taxes under Watsonville's tax.

Colorado: Amendment 70 (Initiative 101) (Approved 54.30% to 45.70%) incrementally increases Colorado's minimum wage. Effective January 1, 2017, Colorado's minimum wage increases to $ 9.30 (from $ 6.85) then will be increased annually by $0.90 each January 1 until it reaches $12 per hour on January 1, 2020. Thereafter, the minimum wage is adjusted annually for increases in the cost of living.

Boulder, Colorado: Measure 2H (Approved 53.86% to 46.14%) imposes a 2 cent per ounce tax on the distribution of sugar-sweetened beverages and sweeteners used to produce such drinks, effective July 1, 2017. Taxable sugar-sweetened beverages include soda, sports drinks, and sweetened teas and coffees. The term does not include milk products, baby formula, alcohol and drinks consumed for medical reasons.

Maine: Question 2 (Approved 50.47% to 49.53%) imposes a 3% income tax surcharge on an individual's taxable income in excess of $200,000. The surcharge will be imposed starting in taxable years beginning on or after January 1, 2017. The revenue generated by the surcharge will help fund education.

Maine: Question 4 (Approved 55.56% to 44.44%) gradually increases the current $7.50 state minimum wage to $12 per hour by 2020. In 2017, the state minimum wage will be $9, in 2018, $10, in 2019, $11, and in 2020, $12. Thereafter, the minimum wage will be adjusted annually for a cost-of-living increase.

Missouri: Amendment 4 (Approved 57.056% to 42.944%) amends the state's constitution and prohibits the state from imposing a state sales or use tax or similar transaction-based tax on any service or activity that was not subject to a sales or use tax or similar transaction-based tax as of January 1, 2015.

Missouri: Amendment 1 (Approved 80.138% to 19.862%) continues the existing sales and use tax of 0.1% used for soil and water conservation and state parks and historic sites for an additional 10-year period. Because the measure was approved, this provision will be resubmitted for continuation in 2026 either during a general election or special election called by the governor.

Nevada: Question 4 (Approved 71.8% to 28.2%) and if approved again in 2018 as required under Nevada's constitution, will exempt from sales and use tax durable medical equipment and oxygen delivery equipment and mobility enhancing equipment prescribed by a licensed health care provider (e.g., oxygen tanks and concentrators, ventilators, CPAS machines, nebulizers, drug infusion devices, feeding pumps, infant apnea monitors, hospital beds and bath and shower aids, wheelchairs, walkers, canes and crutches).

Washington: Initiative 1433 (Approved 59.54% to 40.46%) incrementally increases the state's minimum wage from $9.47 to $13.50 by 2020. The minimum wage increases to $11 in 2017, $11.50 in 2018, $12 in 2019, and $13.50 in 2020. In addition, Initiative 1433 requires employers to provide employees with paid sick leave.

Rejected ballot measures

Colorado: Amendment 69 (Initiative 20) (Rejected 79.71% to 20.29%) would have imposed a 10% tax on all sources of income (the 10% tax on wages, salaries and tips would have been collected in part from employers and in part from employees) to pay for a single-payer health care system.

Louisiana: Constitutional Amendment No. 3 (Act 31, First Extraordinary Session 2016) (Rejected 56% to 44%) would have eliminated the constitutional requirement that federal income taxes paid be deducted when computing corporate income tax liability. Because Amendment 3 did not pass, Act 8 (which would have changed Louisiana's current graduated tax rates to a flat 6.5% corporate income tax rate) WILL NOT take effect.

Missouri: Proposition A (Rejected 55.262% to 44.738%) would have increased the current 17 cent tobacco tax on cigarettes and other tobacco products to a total of 23 cents per pack by 2021.

Missouri: Amendment 3 (Rejected 59.240% to 40.760%) would have imposed an additional 60 cents per pack tax on the sale of cigarettes, bringing the total tax on cigarettes to 77 cents by 2020.

North Dakota: Measure 4 (Rejected 61.67% to 38.33%) would have increased the tax on cigarette sales and created an inventory tax on cigarettes and tobacco products, which includes liquid nicotine products used for e-cigarettes.

Oklahoma: Question 779 (Rejected 59.41% to 40.59) would have increased the state's sales tax rate to 5.5% (from 4.5%), effective July 1, 2017. The extra revenue would have helped fund teachers' raises, higher education, grants, early childhood programs, and vocation and technology education.

Oregon: Measure 97 (Rejected 59% to 40%) would have replaced Oregon's minimum corporate excise tax based on a schedule that was capped at $100,000 with a 2.5% apportioned gross receipts tax on C corporations that had $25 million or more in Oregon sales.

Washington: Ballot Initiative I-732 (Rejected 58.46% to 41.54%) would have imposed a statewide carbon tax and reduced the state's sales and use tax rate and business and occupation tax rate for manufacturers.

Washington: Initiative 1464 (Rejected 52.54% to 47.46) would have repealed the tax exemption for sales to non-residents of tangible personal property, digital goods and digital codes for use outside of the state.

Implications

Although some of the ballot initiatives were defeated (e.g., Oregon's minimum tax, Louisiana's income tax amendment), there is no doubt because of perceived revenue needs that some of these states' legislatures will revisit some of the very same tax issues in 2017, albeit coming up with different types of tax proposals. Taxpayers should carefully monitor legislative and administrative developments in those states in the near term.

Despite the defeat of most of the tax measures, initiatives affecting pressing social needs with revenue implications, such as increases in the state minimum wage and the imposition of local taxes on sugary-based soft drinks, resonated with voters and may find increased interest in other states and local taxing jurisdictions throughout the country.

Although the first statewide carbon tax was defeated, the novelty of the approach could attract other proponents and perhaps even legislators, to respond to the need for incentives to reduce carbon emissions. Although federal tax action is not expected, it may be that citizens in other states, either through the initiative process or by direct legislation, could pursue similar carbon tax measures at the state and local levels.

———————————————