Tax breaks are always welcome, no matter where you live. As rare as tax cuts have been lately, residents in 10 states and one other jurisdiction will see some relief as 2017 begins. Below, we'll look at why these taxpayers have cause to celebrate.
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Income taxes come down in Tennessee, North Carolina
State income taxes are particularly onerous in many states, but a couple of states will see lower tax rates in 2017. In Tennessee, income tax is already limited to investment income like interest and dividends, and so many residents don't pay any state income tax at all. However, the government cut the tax rate last year from 6% to 5%, and lawmakers intended for the rate to continue falling by a percentage point each year, making the appropriate rate for 2017 4%. Even if that doesn't happen, the law eliminates the tax entirely as of 2022.
North Carolina, meanwhile, has a full-fledged income tax on all income, and its rate dropped from 5.75% to 5.499% as of Jan. 1. Further rate cuts are also seen as possible in future years, depending on how the impact on state government revenue affects provision of services.
In three states, gasoline taxes are bucking the trend and falling
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Many states have looked at gasoline tax increases as an easy source of revenue, especially given that prices at the pump remain near their lowest levels in years. Yet even as many states implement big increases to their gasoline taxes, motorists in Iowa, New York, and West Virginia will get some minor relief.
New York gasoline taxes will fall $0.008 per gallon in 2017, due to automatic adjustments in the way that taxes are calculated. Motorists in West Virginia and Iowa will see tax decreases of about $0.01 per gallon this year.
Nevertheless, most states can expect pressure for gas tax increases later in 2017. With roads needing plenty of work and relatively little funding for construction, gas tax increases are a natural place to turn for much-needed revenue.
California, New Jersey cuts sales taxes
A couple of major sales tax decreases will affect populous states. In California, a temporary sales tax increase came to an end in 2017, and that set the stage for state sales tax rates to fall from 7.5% to 7.25% as of Jan. 1. Meanwhile, in New Jersey, shoppers will see a smaller drop of an eighth of a percentage point, from 7% to 6.875%.
It's important to understand, though, that some localities will see overall increases in sales taxes. For instance, in California, some county and city governments added sales tax increases of their own, and in a few cases, the rises will more than offset the quarter-point drop in the state-imposed rate. As a result, you need to look closely not just at the statewide rate but also at the particular local taxes you pay to see if you'll actually reap any savings.
Corporate taxes head lower in four states and D.C.
Finally, many states are looking to the corporate tax front to bring relief. Arizona is reducing its rate from 5.5% to 4.9%, finishing a multiyear effort that will have cut the total rate by about a quarter. In the District of Columbia, a reduction from 9.2% to 9% will continue to phase in corporate tax reform, while New Mexico will do a cut from 6.6% to 6.2% as the latest in a series of cuts that will end in 2018. North Carolina is also cutting its corporate tax from 4% to 3%, finishing a larger multiyear cut that slashed the overall rate by more than half.
For Indiana, corporate taxes are also coming down, but taxpayers will have to wait until July 1 to see the impact. There, tax rates will fall from 6.25% to 6%, and eventually, future cuts will take the rate down further to just 4.9% by mid-2021.
Taxpayers like to save every penny they can. For those who are in these states, lower taxes are good news, but you'll want to keep your eyes open to make sure that state and local governments don't reverse course and start imposing new taxes on you in the future.
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