Important Tax Changes in 2018 & 2019—Is Your State Affected?
Significant tax changes haven't just happened at the federal level
Numerous states have made changes to their tax codes in 2018 and 2019, and federal law has had an effect on some state issues as well. Some of the changes are minor, but others are far more significant and will have more of an impact on taxpayers, for good and for bad.
These are some of the more notable changes within the last year.
Arkansas initiated low-income tax relief effective Jan. 1, 2019. The tax rate for those earning incomes from $12,600 to $20,999 drops a full 1%, from 4.4% to 3.4%. That might sound small, but it's pretty generous in the overall scheme of things.
You'll also receive a break if you earn from $21,000 to $75,000 and you live or work here, although in this case the cut is less than 1%. The rate drops from .9% to .75%.
Connecticut has launched a major effort to collect sales taxes from taxpayers who make purchases online. The state retroactively tagged consumers who weren’t charged sales tax by online vendors at the time of their transactions. This “round-up” was technically launched in February 2018 and it's now in full swing.
Connecticut consumers have always been required to report sales taxes they owed on their state tax returns if they didn’t pay them at the time of their purchases, but it’s something of an honor system and not many citizens obliged. Many weren’t even aware of the rule. The state figures it lost some $70 million in revenue annually because so few taxpayers were being honorable and reporting what they owed.
The state’s Department of Revenue therefore demanded data from approximately 150 retailers who commonly sold merchandise to consumers in the state and that had a “physical presence nexus” there—a facility, office, headquarters, property or employees located in Connecticut. The goal was to determine exactly who they sold to and who might be liable for these unpaid taxes.
Retailers were given a choice: Start collecting and remitting the state's 6.25 percent sales tax or turn over their sales records. Some have chosen to hand over their records and about 3,000 Connecticut taxpayers have received notice from the Department of Revenue as a result.
These residents must now pay what they didn’t pay then, plus interest and penalties. The state has indicated that it will waive the interest and penalties if you pay promptly upon receiving such a notice.
Georgia jumps on the Tax Cuts and Jobs Act (TCJA) bandwagon in 2019, cutting the top personal and corporate tax rates from 6% to 5.75% because the TCJA prompted additional revenue. It's not a huge amount, but every percentage point helps.
This change isn't permanent, however. It expires at the end of 2025 when the TCJA sunsets as well, although it might remain intact if the TCJA is resuscitated for another span of years at that time.
Hawaii adjusted its internet sales tax laws as well, although it hasn’t quite taken the draconian approach that Connecticut has.
The state passed an “economic nexus” law effective July 1, 2018, but that retroactively covers purchases back to January 1, 2018. The new law applies to all businesses that have gross incomes or proceeds in excess of $100,000 a year resulting from goods and services that are delivered to or consumed in Hawaii, or that engage in 200 or more sales transactions with Hawaiian residents. It no longer matters whether they have a physical presence there.
If you live in Hawaii, your days of tax-free internet purchases are pretty much over.
Indiana made a change, too, but it’s one that affects corporations rather than individual taxpayers. And it affects corporations in a good way. The state reduced its corporate income tax rate by 0.25 percent to 5.75 percent effective July 1, 2018.
This reduction is part of an ongoing endeavor that actually began in 2011. The goal is to reduce the rate to 4.9 percent by 2022.
Kentucky also tweaked its sales tax in 2018. It threw out a big legislative lasso to gather up certain service industries that were previously exempt. Effective July 1, consumers will pay a little more for indoor tanning, janitorial services, landscaping, limousines, dry cleaning, pet care, and a few other select services. Non-profits must also charge a sales tax for athletic and cultural events now. Kentucky’s sales tax rate is 6 percent.
But the state wasn’t done yet when it enacted this legislation. It also hiked its cigarette tax rather dramatically as of July 1 from 0.60 to $1.10 per pack. The idea, of course, is to convince residents to stop smoking and the new bill was staunchly backed by the Coalition for a Smoke-Free Tomorrow.
But if you don’t smoke and if you don’t use any of these affected services, you might actually come out ahead if you live or work in Kentucky. The state also dropped its income tax rate by 1 percent effective 2018.
Louisiana has been fiddling with its sales tax rate for a while now and the state implemented yet another change as of July 1, 2018. It had previously imposed a temporary 1 percent sales tax increase but it chopped this to just 0.45 percent. This puts the rate at 4.45 percent as of 2018.
The initial increase would have expired on July 1. It’s been extended at the lower rate so Louisiana consumers will get a little bit of a break this year. The flip side to this is that remote sellers must begin charging sales tax to Louisiana residents effective Jan. 1, 2019.
And then there’s Massachusetts. This state introduced a whole new tax in 2018 but it will only affect a certain demographic—those who enjoy a little recreational marijuana now and again.
The state passed a law legalizing recreational marijuana in 2016 and legislators subsequently recognized the opportunity to raise some revenue from the change. Consumers are charged a 10.75 percent excise tax when they purchase marijuana in the state as of July 1—plus the state’s regular 6.25 percent sales tax. Municipalities have the option of tacking on additional sales tax of up to 3 percent.
Yes, you did the math correctly. Recreational marijuana purchased in Massachusetts will cost you a walloping 20 percent extra over and above the sales price. Medical marijuana isn’t taxed, however.
This state has long been known for its budget woes, but—like Georgia—its revenues have rebounded in recent years. Beginning in January 2019, North Carolina has obligingly cut both its corporate and individual tax rates accordingly. The personal tax rate cut isn't huge, down from 5.499% down to 5.25%, but it's a step in the right direction.
Even bigger news is that some legislators have been making noise about repealing the state's income tax altogether. Stay tuned.
To say that North Dakota has been waiting to change its sales tax law for a while might be a bit of an understatement.
The state previously passed legislation to begin collecting the tax from online retailer––with a caveat. The change wouldn’t take effect unless or until the U.S. Supreme Court overturned its 1992 decision in Quill vs. North Dakota. This was the federal case that initially established all those physical presence nexus laws that restricted states from collecting sales taxes from businesses that weren't located there.
It finally happened on June 21, 2018 when the Court decided South Dakota vs. Wayfair, officially eliminating the requirement that retailers must have a physical presence in a state to be subject to the sales tax there. North Dakota's pending law subsequently went into effect.
Like Hawaii, North Dakota is targeting businesses with at least $100,000 a year in applicable sales or that engage in more than 200 individual transactions with consumers within the state. They have economic nexus even if that business is not physically present there.
Oklahoma ramped up its cigarette tax as of July 2018 by $1 a pack. The cigarette tax used to be $1.03. Now it’s $2.03. That’s a fair bit of change to pay for a nicotine fix.
You’ll have to pay more in the state to drive, too, at least if you purchase gasoline there. Oklahoma also increased its gas tax by 3 cents per gallon and by 6 cents per gallon for diesel fuel. As of 2019, you'll pay 20 cents a gallon.
The additional gas tax revenues are earmarked to support the Rebuilding Oklahoma Access and Driver Safety Fund. The cigarette tax will go to the state’s Health Care Enhancement fund, assuming both changes survive.
Challenges to these tax law changes were made by Oklahoma Taxpayers Unite and were already pending in Oklahoma’s Supreme Court when they officially went into effect on July 1. The goal is to put these taxes on the November 2018 ballot.
South Carolina has infrastructure issues and the state’s legislature is trying to raise money to rectify that situation. A bill passed in 2017 that provided for a five-year plan to gradually raise the gas tax in the state by 12 cents total up to 28.75 cents by 2022.
It’s getting there. As of July 1, 2018, the gas tax increased by another 2 cents to 20.75 cents per gallon, where it remains as of 2019. The good news is that this is still significantly less than what most other states charge. The gas tax is a hefty 35.35 cents per gallon across the state line in North Carolina as of 2019.
Revenue raised by the tax goes to the Infrastructure Maintenance Trust Fund.
Tennessee raised its gasoline tax rate effective July 1 as well, also in an effort to fund road repairs. The state is suffering a $10 billion impasse for completing road work in each and every one of its counties.
The gas tax went up 1 cent to 25 cents a gallon, then again in 2019 to 26.40 cents a gallon. The diesel tax increased by 3 cents to 24 cents per gallon. You can expect more increases in July 2019—they’re already approved and slated to go into effect. All the money raised will go to the Tennessee Department of Transportation, as well as to counties and municipalities to address their transportation needs.
So take heart the next time you visit the pump. That’s one less Tennessee pothole you should have to worry about dodging.
Are More Changes Coming?
The Supreme Court’s South Dakota vs. Wayfair decision is affecting internet sales nationally. Connecticut, Hawaii, and North Dakota were just the first states to take advantage of the change from physical presence nexus to economic nexus requirements. Others are making similar changes, including Illinois and Iowa. It might be safe to say that sales-tax-free internet purchases are soon to be a thing of the past.