Close
Close

Ballot questions impact tax rates, sports betting

RFP
Contacts:

Jamie C. Yesnowitz
Washington, D.C.
T +1 202 521 1504

Chuck Jones
Chicago
T +1 312 602 8517

Lori Stolly
Cincinnati
T +1 513 345 4540

Patrick Skeehan
Philadelphia
T +1 215 814 1743
The 2020 general elections, held on Nov. 3, 2020, provided an opportunity for voters across the country to cast ballots on a variety of important state and local tax issues in addition to deciding the federal, state and local executive and legislative races.1 The major ballot initiatives in California and Illinois have received much attention, but ballot initiatives in several other states also merit consideration. Colorado and Arizona voters approved changes to income tax rates. Voters in three states authorized sports wagering, while voters in Nebraska approved gaming operations at racetracks and a corresponding tax. Voters in several states followed the trend of legalizing and taxing marijuana. Finally, Colorado voters approved a constitutional amendment that will allow residential property taxes to increase.

Income tax initiatives Colorado Proposition 116 Colorado’s Proposition 116, which was approved by approximately 57% of the voters, reduces the flat corporate and personal income tax rate from 4.63% to 4.55%.2 This change retroactively applies to tax years beginning on or after Jan. 1, 2020.

Arizona Proposition 208 Arizona voters enacted Proposition 208 with approximately 52% of the vote.3 Proposition 208 imposes a 3.5% tax surcharge on taxable annual income over $250,000 (single filers) or $500,000 (joint filers). Under existing law, the highest Arizona personal income tax rate is 4.5%. The surcharge will be imposed beginning with the 2021 tax year. The surcharge, which will be used to fund public education, must be collected regardless of whether the Arizona income tax rate brackets are changed, replaced or eliminated in the future.

Gaming taxes Voters in three states approved sports wagering. Louisiana voters in 56 of the state’s 64 parishes approved uniform local ballot initiatives to permit sports wagering activities and operations in the parish.4 Maryland’s Question 2, which was approved by approximately 66% of voters, allows the expansion of commercial gaming in the state to authorize sports and events betting for the primary purpose of raising revenue for education.5 South Dakota’s Constitutional Amendment B, which was approved by approximately 58% of the vote, authorizes the legislature to allow sports wagering in the City of Deadwood.6

Nebraska voters approved gaming operations at racetracks and a corresponding tax. Nearly 65% of voters in the state approved a proposal, Initiative Measure 430, which allows games of chance to be conducted by authorized gaming operators within licensed racetrack enclosures in Nebraska.7 Also, Initiative Measure 431, which imposes a 20% annual tax on gross gaming revenue from games of chance operated at licensed racetrack locations, was approved by nearly 69% of Nebraska voters.8

Other taxes Marijuana taxes In the 2020 elections, Arizona, Montana, New Jersey and South Dakota voters all approved legalization of marijuana sales. Under Proposition 207, Arizona legalized the retail sale of marijuana with a 16% excise tax, approved by nearly 60% of the vote.9 Montana’s Initiative No. 190, enacted with nearly 57% of the vote, allows the recreational use of marijuana and imposes a 20% tax on its sale.10 New Jersey’s Public Question 1, approved by approximately 67% of voters, authorizes a constitutional amendment that legalizes the recreational use of marijuana and subjects it to the state sales tax.11 Also, New Jersey municipalities may impose an additional tax not to exceed 2% on marijuana sales. South Dakota’s Constitutional Amendment A, which was approved by approximately 54% of the vote, legalizes the recreational use of marijuana and imposes a 15% tax on marijuana sales.12

Colorado property tax Colorado’s Amendment B was approved by approximately 57% of the voters.13 Amendment B repeals the Gallagher Amendment to the Colorado Constitution that required the ratio of residential property tax revenue to nonresidential property tax revenue to remain the same as when the Gallagher Amendment was adopted in 1982.14 As a result, the Gallagher Amendment limited the taxable value of residential property to 45% of taxable property in the state. Amendment B also removes the nonresidential property assessment rate of 29% from the Colorado Constitution. During the period following adoption of the Gallagher Amendment, residential property values generally have grown faster than nonresidential property values. Because the residential assessment rate was adjusted to maintain the ratio, the legislature gradually reduced the assessment rate on residential property from 21% to the current rate of 7.15%. The residential property rate was projected to further decrease in the future. Under Amendment B, the residential assessment rate will remain at the current 7.15% rate and the nonresidential assessment rate will remain at 29%. Amendment B is expected to increase property tax revenue over time for many local governments.

Alaska oil production tax Alaska voters rejected Ballot Measure 1 with nearly 65% of the vote.15 Alaska Ballot Measure 1 would have changed the oil and gas production tax for areas of the North Slope16 where a company produced more than 40,000 barrels of oil per day in the prior year and more than 400 million barrels total. For any areas that met these thresholds, the tax would be the greater of one of two new taxes: (i) the alternative gross minimum tax; or (ii) the additional production tax.17

Portland, Oregon payroll tax Approximately 57% of voters in the Portland, Oregon area rejected Measure 26-218, which would have authorized a 0.75% payroll tax beginning in 2022 on employers with more than 25 employees to fund transportation improvements.18

Commentary Many of the state ballot initiatives considered by voters at the 2020 general elections address changes to income tax rates, property tax structures, or the adoption of “sin” taxes, and most of the decisions made by voters comport with recent state tax trends. In many cases, these changes will be helpful from a revenue standpoint, which is especially important as states try to survive in and ultimately recover from the pandemic. Arizona is the latest state to subject high-income individuals to a substantially higher tax rate to increase state revenue, consistent with a growing movement to add progressivity to state income tax regimes via legislation. Likewise, the changes to the taxation of property in Colorado also should produce additional tax revenue.

In recent years, the legalization of previously prohibited activities and the concurrent enactment of various “sin” taxes has become a popular subject that voters have been asked to decide. In response to the U.S. Supreme Court’s 2018 decision declaring the Professional and Amateur Sports Protection Act unconstitutional,19 many states began legalizing sports betting activity and enacted corresponding taxes. The sports gambling recently approved by voters in Louisiana, Maryland and South Dakota follows this pattern. States also have been legalizing the recreational use of marijuana and enacting tax on the marijuana sales. Voters in Arizona, Montana, New Jersey and South Dakota readily passed initiatives to legalize and tax the sale of marijuana. The imposition of these “sin” taxes has become a popular method of raising additional state revenue.

While tweaks to existing tax regimes and new taxes on activities that are now legal appear to be accepted by voters in many cases, developing support for new taxes is somewhat more challenging. For example, headcount taxes for specific needs have been considered by local jurisdictions, particularly in Western municipalities, but adoption of these taxes frequently is challenged by prominent employers that often would have the most to lose. Local voters in the Portland, Oregon area rejected a payroll tax to improve transportation, but Portland leadership has indicated efforts to fund the projects will continue.20

The resolution of numerous ballot questions clearly will affect the mix of revenues that many states will be able to generate in what might possibly be the most difficult financial circumstances that they have ever faced. It is interesting to note that in this precarious environment, where significant state-level political change may have been expected, the composition of state legislatures and governors looks to have remained remarkably stable.21 In this year’s elections, the only political changes in legislative control occurred in the New Hampshire Senate and House of Representatives. Both chambers will now be controlled by Republicans following a shift to control by Democrats in 2018. Overall, this is the least amount of change of state legislative control since at least 1944.22 The political composition of governors also was very stable. Montana was the only state where the governorship changed political parties, as the Democratic Montana governor left office due to term limits and a Republican was elected. Democrats continue to have a “trifecta” (control of the governorship and both legislative chambers) in 15 states, while Republicans hold full control in 23 states. The prevalence of many state trifectas, along with the growing economic challenges resulting from the COVID-19 pandemic, may increase the likelihood of significant state tax reforms being enacted in the coming year.



1 Please note that the voting percentages in this SALT Alert are the unofficial results as of the dates indicated in the footnotes. The results are subject to change as additional votes are counted. For a discussion of the proposed Illinois Fair Tax (graduated income tax) that was rejected by voters, see GT SALT Alert: Illinois Voters Reject Constitutional Amendment to Allow Graduated Income Tax. Also, Grant Thornton is planning to release a separate SALT Alert that discusses the major California ballot initiatives.
2 Colorado Secretary of State, 2020 General Election, Unofficial Results (updated Nov. 6, 2020).
3 Arizona Secretary of State, 2020 General Election, Unofficial Results (updated Nov. 5, 2020). This adds ARIZ. REV. STAT. § 43-1013.
4 Results: 56 out of 64 parishes approve sports betting, WAFB (unofficial results) (updated Nov. 4, 2020).
5 Maryland State Board of Elections, Unofficial 2020 Election Results (updated Nov. 6, 2020).
6 South Dakota Secretary of State, 2020 General Election, Unofficial Results (updated Nov. 6, 2020).
7 Nebraska Secretary of State, Unofficial Results: General Election – Nov. 3, 2020 (updated Nov. 4, 2020).
8 Id.
9 Arizona Secretary of State, 2020 General Election, Unofficial Results (updated Nov. 5, 2020).
10 Montana Secretary of State, 2020 General Election, Unofficial Results (updated Nov. 6, 2020).
11 New Jersey Election Results, THE NEW YORK TIMES (unofficial results) (updated Nov. 6, 2020). This adds N.J. CONST. art. IV, § VII, § 13.
12 South Dakota Secretary of State, 2020 General Election, Unofficial Results (updated Nov. 6, 2020).
13 Colorado Secretary of State, 2020 General Election, Unofficial Results (updated Nov. 6, 2020). This amends COLO. CONST. art. X, § 3.
14 2020 State Ballot Information Booklet, Colorado General Assembly, Legislative Council, Sep. 11, 2020.
15 Alaska Division of Elections, 2020 General Election, Unofficial Results (updated Nov. 4, 2020).
16 Oil production fields located above 68 degrees north latitude.
17 The alternative gross minimum tax would be imposed on the gross value at the point of production of oil at a rate of 10% when oil is less than $50 per barrel. The tax would increase to a maximum of 15% if oil is $70 or more per barrel. The additional production tax would be the difference between the production tax value of the oil and $50. The amount of the difference would be multiplied by the volume of oil, and this amount would be multiplied by 15%.
18 Oregon Secretary of State, 2020 General Election, Unofficial Results (updated Nov. 6, 2020).
19 Murphy v. NCAA, 138 S. Ct. 1461 (2018). The PASPA was a federal law that prohibited the expansion of sports betting beyond Nevada, Delaware, Montana and Oregon, which all had some type of sports betting or commercial casino gambling at the time of the law’s enactment in 1992. 28 U.S.C. §§ 3701-3704.
20 Portland-area voters decline Measure 26-218, Metro News, Oregon Metro, Nov. 3, 2020.
21 Tim Storey and Wendy Underhill, 2020 Legislation Results: It’s Status Quo in the States, National Conference of State Legislatures, Nov. 5, 2020.
22 Id.




This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.