Active state tax legislative session expected in 2025

Individual income tax, as in years past is top of mind for many lawmakers. This includes rate reductions, tax phaseouts and enhanced credits and deductions. Alternatively, states facing budget shortfalls are considering new and increased taxes on high-earning individuals. For instance, lawmakers in Washington have discussed imposing a new tax based on worldwide wealth exceeding $100 million as well as increasing their existing capital gains tax. Similar proposals have been considered, and are expected to resurface, in California, New York, Massachusetts and other jurisdictions.

Corporate income tax proposals will continue to be a focus as well, with states responding to any federal changes or extensions of TCJA provisions, such as changes to global intangible low-tax income (GILTI) or the deductibility of expenses for R&D and interest, and extension of the state and local tax deduction limitation, which is set to expire at the end of 2025. Worldwide unitary combination and other foreign income inclusion proposals, as well as single sales factor and sourcing modification proposals, are being heavily debated. Beyond these issues, federal policy proposals related to onshoring preferential rates, tariffs and other issues will require states to consider their own responses and revisions to conform to the federal tax code.

Sales and use tax base expansion to additional services as well as digital products and services will continue to be a focus of state legislatures, especially with non-governmental entities feeding discussion of these issues through the Multistate Tax Commission and the National Conference of State Legislatures. While many of the proposals on these issues will be stand-alone, the conversation around them often accompanies individual income tax rate reductions and property tax relief, with trade-offs between tax types a hot topic of debate.

Credits and incentives will continue to be scrutinized along with other tax expenditures. New York and Georgia in recent months have scrutinized the return on investment of various programs, and Louisiana in a late 2024 special legislative session eliminated or curtailed a broad swath of incentives and credits. 

Sustainability and environmental initiatives are also front and center in the state policy debate. For instance, Vermont and New York in late 2024 enacted climate superfund legislation targeting fossil fuel providers in Vermont and New York, and there are now similar proposals pending in at least five other states. along with proposals in at least five other states.