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More States Woo Retirees With Tax Breaks

From Forbes.com:

Last month, even as they slapped a new tax on hospitals, raised dozens of user fees and eliminated a low-income tax credit, Georgia legislators passed income tax relief for one group: well-off retirees. For residents 62 or older, Georgia already exempts from its 6% tax all Social Security and $70,000 per couple of income from pensions, retirement accounts, annuities, interest, dividends, capital gains and rents. But in 2012, the exemption for couples 65 and older will rise to $130,000, and by 2016 all their retirement income will be exempt--a break Governor Sonny Perdue championed as a lure for well-heeled seniors.

If you're looking for a domestic retirement tax haven, Georgia is hardly the only place worth considering. Seven states--Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming--don't tax personal income at all. New Hampshire and Tennessee tax interest and dividends but not other income. The rest of the states have broad income taxes but give old taxpayers breaks, some quite generous. A recent study by Karen Smith Conway of the University of New Hampshire and Jonathan C. Rork of Georgia State calculates that retirees pay, on average, only half the state income tax of working folks with the same income.

That means the best tax locales aren't necessarily the same for retirees as they are for working stiffs. Some states, such as New Jersey, soak taxpayers of all ages (particularly affluent ones) with stiff income, real estate, sales and estate taxes. But others with a more moderate tax burden might compensate for having no income taxes with high real estate levies. New Hampshire, with no sales tax and a narrow income tax, has among the highest real estate burdens in the nation. Consider, too, the condition of local finances and prospects for tax hikes.

Income Taxes

The most common exemption among states with an income tax is for Social Security benefits; 27 states and the District of Columbia don't tax them at all while the rest provide a partial exemption, according to tax publisher CCH. Three states--Illinois, Mississippi and Pennsylvania--also exempt all private and public pension payouts, including withdrawals from individual retirement accounts. Kentucky exempts up to $82,220 per couple in pension and IRA income.

7 States that Still Owe their Citizens Refunds

Last week the Roni Deutch Tax Center – Tax Help Blog posted a great new article on the seven states that still owe their citizens refunds. The list includes Hawaii, New York, and North Carolina, among others. You can find a snippet of the article below, or read the full story here.

1. Iowa

Like many local governments, the state of Iowa has had their fair share of financial problems due to the recession. Fortunately, the largely agricultural state has managed to bounce back rather quickly compared to other struggling states. In order to get their budget in check, Iowa has used a number of tactics to cope with their financial problems, including a slight delay in the payment of tax refunds. The state’s revenue department is now assuring taxpayers that they have begun processing returns and will mail out refunds as soon as possible. If you are an Iowan taxpayer still awaiting the arrival of your tax refund, click here to check its status.

2. Rhode Island

Thousands of taxpayers in Rhode Island have been patiently waiting for their tax refund. When the residents were told their tax refund might not arrive until the end of the fiscal year, so many taxpayers became upset and the state legislators have introduced a bill that would move up the late-interest fee date—the taxpayers will now get compensated for the inconvenience.

3. Hawaii

Hawaii's economy was hit hard in the recession. The state’s unemployment rates are at the highest levels in over 30 years and personal bankruptcy rates have soared. Hawaii has long been considered one of the best vacation spots in the country, but tourism has slowed down since the recession began and the state government was forced to delay payment of state tax refunds due to a lack of revenue. Fortunately, the local economy is improving and the state government began sending out refunds at the end of May. Residents of Hawaii can visit this site to see the status of their refund.

Philly Says Tax Amnesty Has Raised $7 Million-Plus

Philadelphia has 2 ½ weeks left in their tax amnesty program, and it has reportedly been a major success. The city claims they have already collected over $7 million. As this article from Business Week explains, the program began May 3 and will end on June 25.

Under the terms of the program, all penalties and half the interest owed are being waived.

Officials said Tuesday they had received 9,400 applications from tax delinquents seeking to take part in the amnesty. When the program started, revenue commissioner Keith Richardson said officials hoped to bring in about $30 million.

A similar state tax amnesty program began April 26 and runs through June 18.

California Revenue Jumps, Tax Refunds Should Be Paid on Time

Last year, my home state of California had to delay refunds to taxpayers because of budget problems, and many have been worried that the same would happen again this year. However, State Controller John Chiang has put everyone’s worries to rest by announcing that the state’s revenue is higher than what the governor had predicted and that there would be no reason to withhold taxpayers’ refunds.

According to this Reuters article, California's revenue in February was $480 million or 8.7 percent above the estimate in Governor Arnold Schwarzenegger's state budget plan.

There had been some talk in the state capital of Sacramento that tax refunds could be delayed, as they were temporarily last year, to help the state government preserve cash while Schwarzenegger and lawmakers tackle closing a state budget gap of $20 billion.

The state's cash position, however, is better than expected, according to Chiang's office.

"Revenues came in above projections for the third month in a row, continuing a positive trend that shows California is on the road to recovering from the recession," Chiang said in a statement.

"Given February's numbers and recent action from the Legislature to improve the state's cash flow, Californians should expect to receive their hard-earned tax refunds on time," Chiang added.

The controller, as he routinely does, urged a speedy budget agreement that balances the state government's books, something that Wall Street rating agencies, which have the state's credit rating just a few notches above "junk" status, would also like to see.

Continue reading Reuters.com…

Budget-Strapped States Avoid the Word “Taxes”

From Washington Times.com:

Faced with severe budget shortfalls after a steep economic recession, state legislatures and governors are trying to raise money without raising taxes — at least not technically.

A fee hike, an increased penalty or fine, the elimination of a tax exemption — none of these technically counts as a tax increase, as far as many state lawmakers are concerned. Fiscal conservatives argue that a tax hikes are exactly what they are, but their arguments are likely to fall on deaf ears for legislators and governors wrestling with some of the worst budget deficits since the Great Depression.

"There's a certain American antipathy to raising taxes, so even if these are tax increases, there's an incentive to call them something else," said Joseph Henchman, director of state projects at the conservative Tax Foundation. "It's a trend we always see, but it's certainly going to be one that's stronger this year."

The National Conference of State Legislatures found that 35 states and Puerto Rico are facing deficits for fiscal year 2011, despite the Obama administration's $787 billion recovery package, which pumped tens of billions of dollars into state coffers last year.

Schwarzenegger Wants More Federal Money for California

In an attempt to close the budget gap during his last year in office, or at least make a worthy attempt, California governor Arnold Schwarzenegger swore earlier today that he would request more money from the Federal government to help the indebted State government. According to Reuters.com, Schwarzenegger went on to say that the State is owed more funding, and that a national healthcare policy would make things drastically worth for his California’s economy.

In a state of the state speech, the governor said creating jobs was the top priority for his last year in office and proposed spending $500 million in worker training funded by part of the budget which is in surplus.

He also laid out ambitious reforms for the final year of his term -- almost certain to include months of budget battle.

Schwarzenegger on Friday will present his plan to close a budget hole that reflects the problems of the boom and bust California economy. The U.S. economic engine faces deteriorating finances as it tries to balance its budget and preserve social safety nets in tough times.

The outgoing Republican governor, stopped by term limits from seeking reelection in November, called for tax reform, protection for higher education spending -- and more money from the federal government.

"We no longer can ignore what is owed to us, or what we are forced to spend on federal mandates," Schwarzenegger told the combined state Assembly and Senate, which must support any budget plan by a two-thirds majority -- a bar that has forced months of acrimonious debate in previous years.

Continue reading at Reuters.com…

U.S. State Revenue Fell 16% in Fiscal 2008, Census Bureau Says

From Bloomberg.com:

U.S. state government collections fell 16 percent to almost $1.7 trillion in fiscal 2008 from a year earlier, while spending increased 6.2 percent, according to the U.S. Census Bureau.

The biggest drop came in so-called insurance trust revenue, which slid $377.7 billion, or 73 percent, the federal agency reported today. Such funds include public employee retirement systems, unemployment compensation and worker compensation funds, many financed with payroll taxes and other worker contributions, according to the bureau.

Spending exceeded $1.7 trillion for the combined states, according to the report. Education, at $546.8 billion, public welfare, $412.1 billion, and highways, $107.2 billion, consumed almost two-thirds of the outlays, the Census Bureau said. State records showed lottery sales rose 1.8 percent from the previous year, to $77.3 billion.

Eleven states spent more than one-fourth of their total expenditures on public welfare such as health care and assistance to the needy, led by Tennessee at 33 percent, Maine at 31 percent and Rhode Island at 30 percent.

California’s Budget Suffers ‘Major Blow’ as Debt Sales Loom

From Bloomberg.com:

California’s revenue collections trailed its forecasts by $1.1 billion during the first three months of the fiscal year, showing new deficits are emerging in the budget Governor Arnold Schwarzenegger signed July 28.

Revenue was 5.3 percent less than was assumed in the $85 billion annual budget during the three months ended Sept. 30. Income tax receipts led the shortfall, as unemployment reached as high as 12.2 percent in August.

“Revenues more than $1 billion under estimates and recent adverse court rulings are dealing a major blow to a budget that is barely 10-weeks old,” Controller John Chiang said in a statement. “While there are encouraging signs that California’s economy is preparing for a comeback, the recession continues to drag state revenues down.”

The latest figures show that California is facing resurgent fiscal strains brought on by the U.S. recession. Since February, Schwarzenegger and lawmakers have cut $32 billion from spending, raised taxes by $12.5 billion and covered $6 billion more with accounting gimmicks and borrowing.

The budget news comes as the most populous U.S. state prepares to sell as much as $15 billion of bonds in the next nine months to refinance debt and fund public-works projects.

California, already the largest borrower in the municipal market, may offer as much as $4 billion of debt during the week of Oct. 26 to refinance the bonds used by Schwarzenegger to cover previous budget deficits. The budget enacted in July would allow the sale of as much as $11 billion more of general obligation bonds through the June 30 end of the fiscal year if financial markets allow, state Treasurer Bill Lockyer said. The exact sale amount hasn’t been decided.

States Feel The Pain On Auto Dealer Row

From CNNMoney.com:

Loss of dealerships, coupled with declining car sales, is hammering state and local budgets already thinned by the recession.

The downfall of the American auto industry is wreaking havoc on state and local budgets from coast to coast.

The decline in auto dealerships, coupled with the drop in car sales, is costing states and municipalities millions of dollars in lost sales taxes, not to mention lost income and property taxes and other fees.

Though exact numbers aren't available, car purchases account for about 12% to 15% of sales tax revenues in many states, estimates the Center on Budget and Policy Priorities. And sales taxes usually account for about one-third of a state's revenue.

As the recession deepens, state tax revenues have fallen off a cliff. This has opened up yawning gaps, forcing officials to scramble anew to balance their budgets.

The drop in sales taxes are the worst since World War II, and the plunge in car sales are a major reason for it, said Donald Boyd, senior fellow at the Nelson A. Rockefeller Institute of Government, a public policy group.

"The declines have been devastating," he said. "It comes at a time when the states can't afford it."

Take California, which has seen new car sales plunge 43% in the first quarter and 186 dealerships disappear since the start of 2008. The Golden State, which is struggling to close a $21.3 billion budget gap, is slated to lose 32 Chrysler dealerships and possibly 100 GM dealerships as part of the automakers' restructuring.

New car sales are the single largest component of the sales tax base, accounting for 10.6% in 2006, the latest year available, according to the state's Department of Finance. Municipalities also depend on the sales taxes, as well as other revenues such as property tax, to fund their operations.

"Many communities are having to let go firefighters and police because the sales tax revenues are down," said Peter Welch, president of the California New Car Dealers Association.

Fewer sales, deeper budget cuts

Indiana, which is wrestling with a $1 billion budget gap, saw auto sales taxes fall by 23% in the second quarter, said Chris Ruhl, the state's budget director. Car purchases are the third largest source of sales tax revenue, until recently accounting for about $550 million a year.

The state is now tightening its belt, Ruhl said, to deal with the lower revenues. On Monday evening, Gov. Mitch Daniels recommended cutting spending by 2.5% across-the-board and tapping into the state's $1 billion-plus rainy day fund to balance its budget.

New Jersey, meanwhile, is also feeling the effects of the auto industry meltdown. The Garden State has lost 170 dealerships since the start of 2007 and could lose 90 more in the cutbacks by Chrysler and General Motors (GMGMQ), which filed for bankruptcy on Monday. New car sales are down 33% for the first four months of the year.

This plunge has a drastic effect on state revenues, said James Appleton, president of the New Jersey Coalition of Automotive Retailers. He estimates that the state loses $10 million in revenue for every 1% drop in car sales. Incomes taxes also suffer when dealers close since each employs about 65 people.

State officials are now scrambling to close a $4.4 billion budget gap, exacerbated by an unprecedented decline in sales taxes.

"Until these markets come back, the state will continue to suffer," Appleton said.

California Cities Irked by Borrowing Plan

California cities are becoming increasingly fed-up with Governor Arnold Schwarzenegger’s budget plans, according the Wall Street Journal. You can find a snippet of their story below, or check out the full text and an accompanying graph here.

California Gov. Arnold Schwarzenegger, in his efforts to find funds to balance the state budget, has proposed borrowing $2 billion from municipal governments over the next fiscal year, a tactic that is rankling local officials up and down the state.

Mr. Schwarzenegger is invoking a 2004 law that lets the state demand loans of 8% of property-tax revenue from cities, counties and special districts. Under the law, the state must repay the municipalities with interest within three years.

Administrators of already cash-strapped cities and counties said the loans would force even deeper cuts in services. Fewer cops and fire engines would be on the streets, they said, and parks and libraries would be closed more often. And some local governments would be forced to lay off workers to keep their budgets out of the red, they said.

Mr. Schwarzenegger's proposal "suggests that financing state government and state-government services are more important than these basic community services," said Chris McKenzie, executive director of the League of California Cities. "I think it's something most of the public would disagree with."

The governor said California's worsening fiscal woes forced his hand. California faces a $21 billion shortfall after voters on Tuesday rejected a series of measures to help keep the state solvent. Lawmakers dictate $92 billion of the state's $131 billion budget for the fiscal year beginning July 1. "I absolutely despise taking money from local government, but as I said, this is only under the worst-case scenario," Mr. Schwarzenegger said last week.

Mr. Schwarzenegger on Thursday announced he is seeking more cuts to avoid borrowing $5.5 billion from Wall Street, as he had previously proposed. On top of the $9 billion in spending reductions he had already called for, he is considering slashing an additional $750 million from prisons and $600 million from colleges and universities, an official in his finance department said. The state is also looking at cutting hundreds of millions of dollars from various social services, as well as eliminating Cal Grants, a college financial-aid program, the official said.

The governor's proposal of borrowing from local governments must still be approved by the legislature. If it does so, municipalities are worried the state won't be able to repay the loans, given the state's fiscal plight. "They're hijacking our dollars," said Don Knabe, chairman of Los Angeles County Board of Supervisors. "They don't have money to pay us back. It's a joke."

Los Angeles County could lose the use of up to $500 million for the next fiscal year, Mr. Knabe said. That would add to the county's projected $300 million shortfall in its $23.5 billion budget, of which supervisors can control $3.5 billion. That could mean cuts to services like parks and libraries.

The state could borrow about $25.6 million from Contra Costa County, said Contra Costa administrator David Twa. He says the county is in no shape to cut back more after slashing $156 million from its budget and laying off 600 workers.

San Francisco would be forced to lend the state up to $90 million under the governor's proposal, said city Controller Ben Rosenfield. With the city already facing a $438 million budget gap, officials would likely borrow funds if the state takes their property-tax revenue, he said. "It costs us money to borrow," Mr. Rosenfield said. "It'll end up falling on future fiscal years."

Lawmakers Consider $1.50-Per-Pack Cigarette Tax Hike

California lawmakers are considering a controversial new cigarette tax increase as a solution to bring in some much-needed state revenue. Check out the following article on the debate surrounding the issue courtesy of the LA Times.com.

For years tobacco companies have successfully fought off attempts by California lawmakers and health groups to increase the cigarette tax. But next month, as the state grapples with the worst financial crisis in recent history, that may change.

Lawmakers will consider a proposal to hike cigarette taxes by $1.50 per pack and raise $1.2 billion annually. During the last decade, cigarette makers have spent tens of millions of dollars to kill 14 straight attempts to make smokers pay more.

But with the state facing a staggering $21.3-billion deficit and due to run out of cash in July, the tobacco tax could have a better chance of passing the Legislature.

"Given the serious budget shortfall we face, this is the year to pass the tobacco tax," said Sen. Alex Padilla (D-Pacoima). "It is needed now more than ever."

Padilla wrote the current proposal with Senate leader Darrell Steinberg (D-Sacramento), but even with Steinberg's support, it faces an uphill battle. The tobacco industry sees California as a crucial market and a trendsetter for anti-tobacco ideas that can spread through the country, said Beverly May, regional director of Campaign for Tobacco Free Kids, a Washington anti-smoking group.

"The tobacco companies view California very much as a battleground state," she said. "California is a state that they look at as important to do everything they can to have influence in any way they can."

Frank Lester, a spokesman for Reynolds American Inc., said proposals to raise tobacco taxes in California have failed in part because the state's residents are compassionate and see the tax as unfair.

"When people realize who the burden falls on -- the tax tends to be one of the more regressive taxes, meaning it falls on people of lesser means and working families -- they tend to think twice about it," Lester said.

He also said California voters are "dubious" about how past tobacco taxes have been spent. He cited media reports about the use of Proposition 10 tobacco proceeds, approved by voters in 1998 for childhood development programs, to pay for political ads promoting another ballot measure.

Forty-five states have raised tobacco taxes during the last decade, but not California.

Despite California's health-conscious image and laws that ban smoking just about everywhere, including bars and beaches, the state's cigarette tax of 87 cents per pack is lower than such taxes in other states. In Rhode Island, where tobacco taxes are highest, the levy is $3.46 a pack.

State Tax Credits Attract Homebuyers

The State of California is beginning to see the light at the end of the tunnel as more people are purchasing new homes. According to the Sacramento Business Journal much of the improvement is because of a $10,000 statewide tax. Check out the text of their article below.

The California Building Industry Association said Monday that the availability of new-home tax credits may have helped boost sales in the Sacramento region and statewide in March.

The association reported figures compiled by Hanley Wood Market Intelligence showed new-home sales in Sacramento during the month were up almost 50 percent compared to February, when 201 homes were sold region-wide. But the total homes of all types sold in the region, 297, was still well below sales of 538 in March 2008.

Since the state credit went into effect March 1, more than 5,600 buyers have taken advantage of the program statewide, which provides up to $10,000 in state tax credits to anyone who buys a newly constructed home or condominium.

The state has already received applications for $54.9 million of the $100 million allocated for the program, the association said, and called for the state lawmakers to expand the program beyond its current limits.

More States Look to Raise Taxes

From The Wall Street Journal:

A free fall in tax revenue is driving more state lawmakers to turn to broad-based tax increases in a bid to close widening budget gaps.

At least 10 states are considering some kind of major increase in sales or income taxes: Arizona, Connecticut, Delaware, Illinois, Massachusetts, Minnesota, New Jersey, Oregon, Washington and Wisconsin. California and New York lawmakers already have agreed on multibillion-dollar tax increases that went into effect earlier this year.

Fiscal experts say more states are likely to try to raise tax revenue in coming months, especially once they tally the latest shortfalls from April 15 income-tax filings, often the biggest single source of funds for the 43 states that levy them.

The squeeze is especially severe in states hit hardest by the recession, such as Arizona, where sales-tax revenue has fallen by 10.5%, income-tax collections are down 15.7% this fiscal year, and the government faces a $3.4 billion budget gap next year. But such shortfalls are likely to be widespread; federal income-tax receipts from individuals have dropped more than 15% in the past six months, according to Congressional Budget Office estimates.

While most states so far have managed to cope with dwindling cash by cutting spending and raising fees on things such as fishing licenses and car registrations, that is unlikely to be enough in the new fiscal years that generally begin July 1, many analysts said.

"Income taxes and sales taxes are the go-to taxes when you really need to raise a lot of money," said Donald J. Boyd, who monitors states' fiscal health for the Rockefeller Institute of Government in Albany, N.Y.

Sales-tax revenue has fallen more sharply than at any time in the past 50 years, Mr. Boyd said, and he expects income-tax collections to drop below levels state officials projected -- though the extent of the damage probably won't become clear until May.

Raising taxes is a perilous proposition for lawmakers, who must balance their states' budgets every year. Not only do they face political heat for increasing financial burdens during the recession, but added taxes risk worsening their states' economic problems by, for example, further hobbling consumer spending.

State Revenues Drop

According to the Center on Budget and Policy Priorities, states across the country are beginning to report their revenue data for the July through September quarter and things are not looking good. In addition to large revenue drops the following problems are also developing.

Of 15 mostly large and mid-sized states that have published complete data for this period, the majority collected less total tax revenue in July-September 2008 than was collected in the same period in 2007. (See Table 1.) After adjustment for inflation, total revenue collections are below 2007 levels in 14 of the 15 states. (See Table 2.)

Although state revenue collections have been slowing for at least a year, the new figures are the first to show steep declines in revenue across a variety of types of taxes across a range of states from all regions of the country. Of the 15 states surveyed here, the median state experienced a 5.5 percent decline in total tax revenue after adjustment for inflation. Only Michigan, which enacted a major tax increase, experienced revenue growth; revenues in all others declined.

Sales tax revenue has been particularly hard hit. Revenues are down in every one of those 15 states, with a median decline of 7.3 percent after adjustment for inflation. Although many states have been experiencing declining or flat sales tax revenues for some time, these figures are worse than in previous quarters.

Personal income tax revenues are also down sharply from previous quarters. Until recently, the personal income tax was growing in most states. Now it has declined 2 percent in the July-September period in the median state after adjustment for inflation. Each of the surveyed states except Michigan (due to the enacted tax increase) and Minnesota experienced declines.