• Midterm Elections Guide Tax Issues in Various States
  • November 24, 2015 | Authors: David H. Godenswager; David M. Kall
  • Law Firm: McDonald Hopkins LLC - Cleveland Office
  • Last week, we wrote about Ohio’s failed marijuana legalization initiative, voted down by 64.14 percent of those casting a ballot. A handful of other states also had tax-related issues on their ballots; here is a rundown of those measures:

    Texas

    In the Lone Star State, voters approved of two homestead exemption propositions and a tax- based highway funding plan.

    Passed by large majorities, Propositions 1 and 2 (Prop 1 and Prop 2), the Texas Homestead Exemption for School District Property Taxes Amendment and the Property Tax Exemption for Surviving Spouses of Disabled Veterans Amendment, respectively, help homeowners.

    Approximately 86 percent of voters approved of Prop 1, which increases the homeowner’s exemption from $15,000 to $25,000. This means that homeowners will save, on average, between $120 and $130 per year, depending on where they live. Prop 1 would have cost Texas about $1.2 billion in tax revenue for school districts over two years, but other legislation makes this up by entitling school districts to additional state aid from the Foundation School Fund. This fund is made up of revenue from land property rights income and fuel taxes.

    Prop 2 corrected previous legislation that granted a homestead exemption to surviving spouses of deceased veterans, but which inadvertently left out spouses whose partners died before Jan. 1, 2010, the date that the enabling legislation for Prop 2 went into effect.

    Texas law defines a homestead as a structure, manufactured home, or condominium that the individual living in the home owns. Texas currently has five types of homestead exemptions:
    1. School taxes
    2. County taxes  
    3. Age 65 or older and disabled exemptions
    4. Optional percentage exemptions  
    5. Optional age 65 or older or disabled exemptions  
    With respect to highway funding, 83.7 percent of voters approved of Proposition 7 (Prop 7), the Texas Sales and Use Tax Revenue for Transportation Amendment. Prop 7 allows revenues from sales and use taxes, and state motor vehicle sales and rental tax, to be funneled into the State Highway Fund when Texas collects more than $28 billion of sales and use tax revenue in one year. These funds can only be used to build, maintain, and restore non-tolled public roads, and to repay transportation-related debt.

    Prop 7 also gives lawmakers the flexibility to respond to changes in funding needs. It does so by way of a provision that authorizes them to reduce the amount of revenue that is put into the State Highway Fund by up to 50 percent per fiscal year in the event of an economic downturn or some other change.

    Approval of Prop 7 constitutes the largest single increase in transportation funding in Texas history.

    Colorado

    Approximately 69 percent of voting Coloradans gave the state permission to keep the marijuana tax revenues that have been collected this fiscal year, via Proposition PP (Prop PP). As we explained in September, a constitutional quirk stemming from Colorado’s Taxpayer Bill of Rights obligated the state to refund taxes if the amount raised exceeded estimates, in the absence of voter approval allowing the state to keep the revenues.

    The ballot language sought voters’ permission to use the $66 million marijuana revenue windfall to “provide $40 million for public school building construction and for other needs, such as law enforcement, youth programs, and marijuana education and prevention programs, instead of refunding these revenues to retail marijuana cultivation facilities, retail marijuana purchasers, and other taxpayers.”

    The state estimated $12.08 billion of total revenue, but it came in slightly higher at $12.35 billion. In light of the overage, Prop PP requires $40 million to be used for school construction, and $12 million on youth programs, marijuana education and prevention programs, law enforcement services, substance abuse programs, poison control services, and the local government retail marijuana impact grant program. The remainder will likely go into the General Fund.

    Washington

    Washingtonians had the chance to vote on five unrelated measures last week. For the first one, Initiative 1366, 52.95 percent voted yes, thus forcing lawmakers to decide whether to let a sales tax decrease take effect, or to stop it by changing how taxes are approved through a ballot amendment. The amendment would ask voters whether it should take a two-thirds vote in the legislature, or voter approval, to raise taxes. The result of Initiative 1366’s approval is that the sales tax will drop from 6.5 to 5.5 percent on April 15, 2016, costing the state $1 billion in tax revenues, if the legislature declines to act.

    The remaining ballot questions were advisories, pursuant to which the public’s votes hold no legally binding effects. Instead, the results advise lawmakers on how the public feels about the tax matter at hand.

    The 50.04 percent “no vote” for the second measure, Advisory 10, means that voters approved repealing the oil response and oil spill administration taxes imposed on crude oil or petroleum products transported by railroad. The transport tax was initially implemented after the 2013 shale oil boom in North Dakota, which led to the conveyance of nearly 700 million gallons of oil through Washington’s rail system. The tax was created to ensure that oil is transported safely through the state, and its repeal would cost $17 million for government spending.

    Advisory 11’s language asked voters whether they wanted to repeal or maintain the marijuana excise tax on medical marijuana that lawmakers imposed without voter approval. The tax was in the form of a $1 fee for each initial and renewal marijuana recognition card. Voters passed the repeal.

    Voters also advised that they wanted to repeal a gas tax increase of 11.9 cents, by way of Advisory 12. The gas tax was estimated to bring in $3.7 billion in the first 10 years.

    In another repeal vote, 64.82 percent of voters said they did not want to expand the business and occupation tax to copyrights, patents, licenses, franchises, trademarks, and the like, along with sales of goods that originate outside of Washington. According to the ballot language contained in Advisory 13, “[t]he legislature increased business and occupation tax revenues, and excluded certain software manufacturers from a retail sales tax exemption, without a vote of the people, costing $1,449,000,000 for government spending.”

    Mississippi

    Finally, two competing Mississippi Public School Support Amendments, Initiative 42 and Alternative 42, asked voters first to choose between "either measure" or "neither measure" becoming law, and then to weigh in on each measure individually.

    With respect to the first question, 52 percent voted for neither measure. This majority position means that neither Initiative 42 nor Alternative 42 became law.

    Voting for Initiative 42 would have required the state government to establish, maintain, and support "an adequate and efficient system of free public schools," enforced by the state's judicial system. The amendment's stated purpose was "to protect each child's fundamental right to educational opportunity.”

    Voting for Alternative 42 would have required the state legislature to establish, maintain, and support "an effective system of free public schools" at the legislature's own discretion. On the other hand, Alternative 42 would not have empowered the judiciary to enforce the amendment's mandate, provide for an adequate and efficient system of free public schools, or inscribe a fundamental right to educational opportunity for each child in the Mississippi Constitution.