State and Local Tax professionals don't just predict events and trends for the coming year; they also weigh in on how their last year’s predictions fared. The following highlights our hits and misses for last year’s 10 predictions.
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Check out the predictions for 2015.
1. Contrast between 'red' and 'blue' states on income tax rates
Prediction: At least three “red” states will make broad reductions to corporate or personal income tax rates, and at least three “blue” states will make targeted increases to corporate or personal income tax rates applicable to high-income residents.
Outcome: Several red states enacted relatively minor tax rate reductions. But instead of a comparison of red state tax reductions and blue state tax increases, the emphasis was on tax reform efforts in a few of the blue states, including New York, Rhode Island and the District of Columbia.
2. Multistate Tax Compact decisions and consensus
Prediction: Four more states will legislatively modify or sever their relationships with the compact, and the California, Michigan, Minnesota, Oregon and Texas courts will reach vastly different conclusions on the applicability of the compact.
Outcome: Our legislative prediction side didn’t materialize, because Michigan was the only state that broke away. Our judicial prediction was technically correct to the extent that the IBM court in Michigan differed from Texas’ continued rejection of the election. California and Oregon failed to render decisions in Gillette and Health Net, respectively, however, making this result somewhat inconclusive.
3. Multistate Tax Commission Hearing Officer recommendations
Prediction: Where the Hearing Officer’s report and the Multistate Tax Commission’s model of the Multistate Tax Compact diverged, the commission’s model will largely stay unchanged, particularly in market-based sourcing of services and alternative apportionment.
Outcome: This prediction was generally accurate, at least related to market-based sourcing, because the commission finalized its own version of market-based sourcing. The commission made a second round of amendments to the compact, which have addressed some of the Hearing Officer’s concerns regarding alternative apportionment.
4. Incentives to create and maintain jobs
Prediction: Two states will call special legislative sessions to provide targeted tax incentive relief for one business or a very small number of businesses in those states.
Outcome: The Nevada legislature called a special session to approve Tesla Motors’ investment into the state, and incentives to other companies. Other states provided targeted incentives to particular companies, but the handful of states that called for special legislative sessions didn’t use them for this purpose.
5. D.C. Tax Revision Commission recommendations
Prediction: The District of Columbia City Council will follow several of the commission’s material recommendations and act to (a) implement a single sales factor for purposes of apportionment; (b) impose the $25-per-person “head” tax on District employees, with significant exemptions; and (c) increase the sales tax rate from 5.75% to 6%, with a modest expansion of the sales tax base.
Outcome: Results were mixed. The City Council passed tax reform legislation that implemented single sales factor apportionment and a modest expansion of the sales tax base to cover certain industry-specific services. The tax reform legislation didn’t impose the head tax or increase the sales tax rate.
6. Changes in New York
Prediction: As part of the 2014 budget deal, real property tax increases will be stabilized and the banking (Article 32) and business (Article 9-A) corporation franchise taxes will be merged at long last.
Outcome: This prediction was realized, as New York tax reform occurred and included a property tax freeze intended to stabilize real property tax assessment levels. In addition, the Article 32 tax was merged into Article 9-A for tax years beginning on and after Jan. 1, 2015.
7. Independent tax tribunals progress
Prediction: Alabama and one other state will adopt independent tax tribunals.
Outcome: Alabama did adopt an independent tax tribunal, but no other state joined this growing movement.
8. Individual taxes: residency audits
Prediction: At least two high-profile New York or California residency audits in which the resident moved (or purported to move) outside the state would be published by regulatory agencies or the courts.
Outcome: This prediction materialized, with several high-profile personal income tax decisions in New York alone, including the Gaied and Noto cases relating to residency matters.
9. Efforts to broaden the sales tax base to additional services
Prediction: At least two states will enact statutes expanding the sales tax base to at least one additional service industry and at least five states will attempt it.
Outcome: While the District of Columbia (not a state, to be sure, but a material jurisdiction to many) expanded the sales tax base, and North Carolina adopted a sales tax on certain service contracts, efforts to create sales taxes on new service industries didn’t gain traction.
10. Nevada initiative to pass a ‘margin’ tax
Prediction: Regarding the result of a state initiative on the ballot, Nevadans will reject the creation of the margin tax in a close vote.
Outcome: The Nevada tax was not adopted, as we had predicted, but the margin tax failed by a significant number of votes.
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