A Glance in the Rearview Mirror: 2019 Tax Trends Part 1

By Savannah Gilmore

State capitols across the country come to life in January as lawmakers convene for their annual legislative sessions.

Debates unfold as legislation is introduced. Policy issues change. But taxes remain a constant focus.

Tax trends also emerge each year-sometimes they are anticipated changes to the tax code, but other times they are unexpected. A glimpse into last year's trends may provide insight on what to expect in 2020.

Marketplace Facilitator Collection Laws

States beefed up efforts to collect taxes on remote sales by requiring marketplace facilitators to collect on behalf of third-party sellers. In other words, platform hosts such as Amazon and eBay must collect sales and use taxes for all transactions on their sites, not just their own products.

Heading into 2019, only 10 states and Washington, D.C., had these requirements on the books. By the end of the year, 38 states and D.C. had enacted them. States moved quickly to adopt marketplace facilitator laws for two primary reasons. First, third-party sellers may make up a substantial portion of a marketplace's total sales. Second, it allows states to collect taxes on small sellers without placing an additional administrative burden on them.

E-Cigarette and Vaping Product Taxes

Despite all the media coverage around vaping, only nine states and D.C. imposed an excise tax on e-cigarettes and vaping products heading into 2019. That number more than doubled over the course of the year. Now, 21 states and D.C. levy taxes on e-cigarettes and vaping products in a variety of ways. Nine states and D.C. apply taxes as a percentage of price, eight states apply a flat rate per milliliter of e-liquid (the liquid smoked with these products), and four states combine these approaches.

Tinkering with Conformity to the 2017 Tax Cuts and Jobs Act

Tax conformity actions continue. Many states that conform to the Internal Revenue Code (IRC) on a static basis (meaning federal tax changes must be adopted into the state tax code as they occur), already responded to the Tax Cuts and Jobs Act (TCJA) in 2018.

However, states that enacted temporary provisions and those that did not take action, passed conformity measures in 2019. For example, the Minnesota Legislature enacted an IRC conformity package that updated the state's conformity date and responded to the TCJA. The California State Legislature also responded to specific TCJA provisions. Other states continued to adjust conformity actions they took in 2019. For example, Idaho and Florida adopted legislation to address some of the foreign income provisions in the federal law.

Motor Fuel Taxes

Amid declining federal assistance for transportation and the increasing costs of road construction, states have been forced to fill revenue gaps over the last decade. In many cases, this means raising gas taxes to fund transportation and infrastructure needs. The NCSL 2019 State Tax Actions report revealed that the motor fuel tax category experienced the largest revenue increase compared to other tax categories. However, it's worth noting that only five states raised revenue. Alabama, Arkansas, Illinois, Ohio and South Carolina raised motor fuel tax rates. The changes ranged from a 2-cent increase in South Carolina to doubling in Illinois, from 18 cents per gallon to 38 cents per gallon. These actions mirror changes over the last seven years. Since 2013, 31 states and D.C. have increased motor fuel taxes. Plus, many of those states have adopted a variable gas tax rate, which fluctuates with inflation.

Sports Betting

Thanks to the U.S. Supreme Court case in 2018 that paved the way, states have capitalized on their newfound authority to legalize and tax sports betting. According to the American Gaming Association, sports betting operations are currently up and running in 14 states-up from just Nevada prior to the court ruling. And going a step further to offer sports betting online became a topic for debate in many legislatures. Rhode Island took action last year to offer online betting and is estimating an additional $17.2 million in revenue in fiscal year 2020.

Savannah Gilmore is a policy specialist in NCSL's Fiscal Affairs Program.

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