States are more likely to target high-income corporate and individual taxpayers when making revenue-generating policies, partner Alysse McLoughlin said at the Virtual Advanced State and Local Tax Institute at Georgetown University Law Center in Washington, D.C. Her remarks came during a previously recorded panel session.
"The states are really in a tough spot because they need money," McLoughlin said. "They also realize that businesses are in trouble, so I think they're trying to balance it."
McLoughlin, as an example, pointed to legislation signed by Louisiana Gov. John Bel Edwards that temporarily suspended a portion of the state's corporation franchise tax on small businesses with less than $1 million in capital. The new law suspended the first tier of the franchise tax — levied at $1.50 per $1,000 on the first $300,000 of taxable capital — for the tax periods of July 1 through June 30, 2021, for qualifying businesses. It also suspended the $110 initial corporation franchise tax on qualifying businesses for the same duration.
Taxpayers should also keep an eye out for mark-to-market taxes on both the state and federal levels. McLoughlin cited New York's proposed Billionaire Mark to Market Tax Act, S.B. 8277, introduced in the state Senate in May. Under that bill, New York would recognize gains or losses on billionaires' assets as if each asset were sold at fair market value and would require individuals to pay the tax that would be applicable on those gains in 10 equal installments. Each installment payment made after the year of the initial payment would be subject to an annual 7.5% charge.
Another easy way for states to raise revenue is by establishing or extending temporary surcharges, suspending or capping net operating loss suspensions or enacting alternative minimum assessments, gross receipts taxes or net worth taxes, McLoughlin said. She also said that states might turn toward different types of wealth taxes. Panelist Kimberly Krueger, a partner at PwC, noted that wealth taxes create a slippery slope because legislatures have the power to lower the threshold on those taxes.
While the need for revenue is imminent, states are likely waiting to propose revenue raisers because it is still relatively early in the pandemic, said panelist Karl A. Frieden, the vice president and general counsel of the Council on State Taxation. States may eventually look toward increasing taxes on foreign source income or passing broad-based advertising taxes, Frieden said.
While considering tax policies, Frieden said, lawmakers should focus on those that won't unnecessarily burden businesses, like temporary or excise taxes.
"Try not to do permanently damaging changes and things that are going to affect jobs and investment over the next few years," Frieden said.
--Additional reporting by Paul Williams and Abraham Gross. Editing by John Oudens.
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