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March 6, 2024

Governors' budget proposals include tax relief measures and other tax changes

As of early March, governors across the country have delivered their state-of-the-state addresses and presented state legislatures with proposed budgets for the upcoming fiscal year (collectively, "proposals"), with many of them including tax law changes affecting individuals and businesses. While these individual proposals have been wide-ranging, some trends have emerged, including: individual income tax rate reductions, modifications to net operating loss (NOL) provisions, expansion of the sales tax base, property tax relief, business-focused tax credits and administrative provisions.

Tax changes were not mentioned in Arizona, Alaska, Indiana, Kentucky, Maryland, Washington and Wisconsin.

Corporate income tax proposals

A handful of governors are proposing corporate income tax changes; most notably regarding NOLs. California's governor has proposed conforming in 2024 the state's NOL rules to the Federal 80% limit on NOL carryforwards, made law by the Tax Cuts and Jobs Act (TCJA) in 2017.1 (On February 22, 2024, the California Legislative Analyst's Office (LAO) recommended rejecting this proposed change, saying it "would result in a less equitable tax system and would not offer meaningful administrative efficiencies.") Rhode Island's governor has proposed extending the state's NOL carryforward period to 20 years, from the current five years, starting with tax year 2025 losses. Illinois's governor has proposed continuing to limit the corporate net loss deduction (NLD) but increasing the cap to $500,000 in allowable loss. (Under current law, the NLD limitation of $100,000 applies to corporations (excluding S corporations) for tax years ending on or after December 31, 2021, and before December 31, 2024.)

In addition to the proposed NOL change, Rhode Island's governor has also sought to decrease the corporate minimum tax to $350 (from $400). The California governor also proposes, beginning in 2024, conforming to changes made to the Federal charitable conservation easement rules by the Federal Consolidated Appropriations Act (CAA) of 2023,2 and eliminating the immediate deduction for (1) intangible oil and gas drilling costs, (2) the percentage depletion rules for fossil fuels, and (3) the enhanced oil recovery costs credit.

In Tennessee, the governor has proposed simplifying the state's franchise tax calculation, explaining the state became aware of the need to change the franchise tax and that "a solution that resolves the issue" has been crafted. The Tennessee legislature is currently considering bills, HB 1893/SB 2103, that would repeal the alternative minimum property measure and require the franchise tax be calculated solely using a taxpayer's apportioned net worth. The proposed bills would also authorize refunds of previously paid franchise tax calculated under the alternative minimum property measure, less the amount that would have been paid under the net worth measure. (See, Tax Alert 2024-0351.)

New Jersey's governor has proposed a Corporate Transit Fee, which would consist of reinstating the 2.5% surtax on top of the current Corporation Business Tax rate of 9% for corporations with income exceeding $10 million.3 The revenue generated from the Corporate Transit Fee would be earmarked for NJ Transit, which is currently running an annual deficit of over $100 million. The proposed surtax has been introduced in the legislature as A.4009.

Individual income tax proposals

Governors in several states are looking to reduce their individual income tax rate or eliminate the tax. Governors in Colorado, Oklahoma and Virginia have proposed cutting their state's individual income tax rate, with Oklahoma's governor saying he wants to get the state back on the path to zero. The governors of Georgia and South Carolina want to accelerate already planned individual income tax rate cuts, while Iowa's governor is seeking to reduce the state's individual income tax to a flat rate this fiscal year, with an additional rate reduction in 2025. North Dakota's governor has called for elimination of the state's individual income tax, while Mississippi's governor wants to immediately reduce the rate, and then gradually phase-out the rate by 2029.

The New York governor's budget proposal would make permanent the itemized deduction limit for individuals with annual gross income in excess of $10 million. Rhode Island's governor has proposed reducing the credit members of pass-through entities (PTE) electing to pay the PTE tax can claim from 100% to 90% (the same as the credit offered in Massachusetts). In Massachusetts, the governor has recommended updating the IRC conformity date for individual income tax purposes to January 1, 2024 (from January 1, 2022).

Governors in Hawaii, Illinois, Kansas, Missouri, Nebraska, New Jersey, Utah and West Virginia have proposed various state credits for childcare. Meanwhile, the governors in Kansas and West Virginia have called for the elimination of tax on social security income.

Sales and use tax proposals

A number of governors have proposed expanding their state's sales and use tax base, as well as targeted tax relief for individuals. The governors of Maine and Virginia have called for imposing sales and use tax on digital goods and streaming services in their states. Virginia's governor has proposed increasing the sales and use tax rate from 4.3% to 5.2% in his state. In California, the governor has proposed no longer allowing non-retailer lenders to claim the sales and use tax bad debt deduction beginning in 2025. By making this change, California would "[join] the majority of states in disallowing deductions for non-retailer lenders for sales tax paid on bad debts."4 (The LAO, noting the conditions of the General Fund, said this proposal "warrants serious consideration.")

The New York governor's budget proposal would subject vacation rentals to state and local sales taxes and the New York City convention center hotel fee — thus imposing the same taxes on vacation rentals as are imposed on hotels. In Massachusetts, the governor would repeal the sales tax exemption for publications of tax-exempt organizations. In Nebraska, sales tax proposals would impose sales tax on various services, including accounting and legal services, and digital advertising. The revenue from expanding the sales tax base would help pay for the governor's proposed property tax reduction.

Maine's governor has proposed eliminating the requirement for businesses to pay up front sales tax on purchases of property to be rented to customers, such as equipment, and instead allow it to be paid over the use of the rental. The governor's budget proposal also would (1) simplify and broaden the sales and use tax exemption for durable medical and mobility enhancing equipment for home use, and (2) automatically exempt from Maine sales tax nonprofits that are exempt from Federal income tax under IRC Section 501(c)(3).

The New York governor's budget proposal would extend for three years certain sales tax exemptions related to the Dodd-Frank Protection Act and extend for one year the sales tax exemption for certain food and drink items sold in vending machine exemption, which is currently set to expire on May 31, 2024.

The governor of Illinois proposed permanently eliminating the grocery tax, while Kansas's governor would accelerate the elimination of the sales tax on groceries, diapers and feminine hygiene products to April 1, 2024, from January 1, 2025.

The governors of Kansas and South Dakota have each called for sales tax holidays in their states, while Florida's governor has proposed the continuation of four different sales tax holidays and the permanent exemption of over-the-counter pet medications. Florida's governor also wants to increase the sales tax collection allowance, which is intended to help small businesses, while Illinois's governor is looking to cap the sales tax retailers' discount.

Property tax proposals

Several governors, including those in Colorado, Idaho, Kansas, Nebraska, New Jersey and Wyoming, have proposed various forms of property tax relief for their residents. Nebraska's governor wants to cut property taxes by 40% and would pay for the reduction by possibly closing several tax loopholes created for special interest and expanding the tax base. One of the proposals being considered in Nebraska would repurpose existing property tax credits so all taxpayers benefit from them. Another proposal would create an additional $1 billion in new credits that would appear directly on a taxpayer's property tax statement.

Colorado's governor has called for the reduction of property taxes, urging the legislature "to do as much as you can to reduce property taxes." Proposals from the governors of both Idaho and Wyoming included additional funds for property tax relief, up to $150 million in new relief and $20 million in expanded relief, respectively. In Kansas, the governor wants to exempt from property tax the first $100,000 of appraised valuation of property used for residential purposes, and in Virginia, the governor wants to eliminate the personal property tax on vehicles.

Tax credit and incentive proposals

Several governors have proposed the creation of new or expanded credits and incentives for specific groups or activities. Specifically, Michigan's governor would (1) create a research and development credit, (2) establish an innovation fund for investment in high-growth startups, and (3) create the HIRE Michigan Fund, which would lower overall payroll taxes to attract small and second stage businesses to the state. Florida's governor would establish a new $1,000 per person credit against the state's corporate income tax for businesses that employ Floridians with "unique" abilities.

Nebraska's governor said he is working with the legislature to reform the state's current incentives package to make the state's incentives more competitive in the manufacturing sector. He also said legislation will be proposed to provide a credit to Nebraska businesses that bring new residents into the state. He added that the state would seek to take advantage of Federal resources designed to develop a new bioeconomy in the state. Virginia's governor proposed $100 million in incentives to grow high-wage, high-tech jobs in the biotechnology, life sciences and pharmaceutical manufacturing industries.

The New York governor's proposed budget laid out an economic development vision that would establish $150 million in new capital grants, $75 million in new Excelsior tax credits for projects coordinated and planned by the Regional Economic Development Councils, and $100 million for the FAST NY program, which develops shovel-ready sites to maintain New York's continued attractiveness to large employers. In New Mexico, the governor would establish an advanced manufacturing tax credit (a companion to the Federal Inflation Reduction Act incentives) and an infrastructure matching fund for communities to access federal grants that require a local match. The New Mexico governor also wants to set aside funds for investment in companies that develop advance energy technologies. Similarly, Michigan's governor is seeking $500 million in continued investment in the state's Strategic Outreach Attraction Reserve fund to attract new industries and manufacturers.

Housing availability and affordability has been a priority for several governors, including those in Colorado, Connecticut, New York, North Dakota and Wisconsin. Colorado's governor has proposed the expansion of the State Affordable Housing Tax Credit, stating that "[t]ax relief is the best mechanism to relieve cost of living pressures and spur economic growth for everyone in our state." The New York governor's proposal includes tax incentives to help increase the supply of new housing in New York City and encourage affordable housing in office-to-residential conversions.

Other tax proposals

Illinois's governor has asked the legislature to increase the sports wagering tax rate from 15% to 35%, Hawaii's governor wants to impose a $25 climate impact fee on visitors to the islands, and New Mexico's governor is seeking to enact a hospital provider tax. Pennsylvania's governor has called for the legalization and taxation of adult-use cannabis sales (imposing a 20% tax on the wholesale price), as well as the imposition of a 42% tax on the daily gross revenue from regulated electronic gaming machines that involve an element of skill. Other gubernatorial proposals include an increase to Pennsylvania's minimum wage, an expansion of paid family leave in Wisconsin, and the elimination of various nuisance fees and the increase in certain cigarette taxes in Rhode Island.

The governors of Hawaii and Massachusetts have proposed tax "amnesty" programs in their states. Hawaii governor's proposed housing plan includes an exemption from capital gains, conveyance and general excise tax to short-term rental owners who sell their properties to a local resident or convert the property to a long-term rental for a local resident. The governor of Massachusetts has proposed a more traditional amnesty program that would give the revenue commissioner the authority to conduct a 60-day tax amnesty program during FY25. The proposed amnesty program would apply to returns due on or before December 31, 2024, and would waive penalties, with some exceptions. The commissioner would have the authority under the program to apply a limited look-back period.

The New York governor has also proposed making the tax shelter provisions permanent, closing the amended return "loophole" for personal income and corporate franchise taxes by changing the limitation period on petitions filed with the New York Division of Tax Appeals, and clarifying amended sales tax returns are subject to similar limitations as other tax filings.

The Oklahoma governor has also asked the state's legislature to follow Delaware and Texas in establishing "a system of courts specifically designed to address business disputes."

The Rhode Island governor's proposals would "increase proactive tax collection" by the Division of Taxation through new staff, increased overtime and contracting with vendors to leverage new sources of tax data and analysis.

Lastly, while not a proposed tax law change, the governors of Idaho, Michigan, South Carolina and Tennessee have each recommended bolstering their states' "rainy day" funds.


Over the next few months, state legislatures will be considering these gubernatorial budget proposals among other legislative initiatives and priorities. While some of these budgets could be enacted as proposed or with some modifications, many will not be adopted or may be dropped in favor of different proposals advanced by state legislatures or recommended for further study and later reintroduction. With the 2024 primary and general elections approaching, quick legislative action on state budget and tax proposals is expected over the next few months.

EY will continue to monitor these developments and provide additional updates as conditions warrant.

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1 Draft language being circulated in a trailer bill would provide that "[f]or taxable years beginning on or after January 1, 2024, the amendments made by Section 13302(a)(2) of the [TCJA] to [IRC] Section 172(b)(2) … relating to the amount of carrybacks and carryovers, shall apply." This change also would apply for personal income tax purposes.

2 The CAA of 2023 modified the charitable conservation easement by limiting the deduction for pass-through entity owners to two and a half times the value of the taxpayer's investment and disallowed the deduction for participants who previously engaged in fraud.

3 The prior 2.5% Corporation Business Tax surtax was imposed on New Jersey taxable net income over $1 million, effective for tax periods beginning on or after January 1, 2018 through December 31, 2023.

4 Cal. Gov., Governor's Budget Summary — 2024-25, pg. 146 (Jan. 2024).

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Contact Information

For additional information concerning this Alert, please contact:

State and Local Taxation Group

Published by NTD’s Tax Technical Knowledge Services group; Chris DeZinno, legal editor