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Tax law changes in 2020 at federal and state levels

Texans' map of the United States
How Texans see the United States.

Each new year brings hope.

A flip of the calendar pages, and the suddenly clean slate, at least metaphorically, means better things ahead are possible for us personally, professionally, financially and, of course, on the tax front (taxically, which spellcheck wants to change to toxically…).

When it comes to taxes, the goal every year is to pay less.

While we're still working under the Tax Cuts and Jobs Act (TCJA) changes at the federal level, we still see some changes in 2020.

Notably, especially when it comes to our always hoped for lower tax bills, the annual federal inflation adjustments help out here. Take 2020 vs. 2019 tax brackets, for example.

Last year, as a single taxpayer you could make up to $84,200 and be in the 22 percent tax bracket. In 2020, the 22 percent bracket tops out $85,525. Looking at this, it could be the first time you're not mad about the small raise from your parsimonious boss!

Plus, thanks to our progressive tax system, much of your earnings before you hit the 22 percent tax rate level (it starts in 2020 when you make $40,126) is taxed at 10 percent and 12 percent rates, which also have had the amount of income in each increased.

Federal effects on state tax law changes: Federal income taxes, however, aren't the only taxes that millions of us must deal with each year.

Forty-three states impose some sort of tax on income. Many local jurisdictions collect their portions, too.

Both individual and business taxpayers are affected by these state levies on earnings.

There also are state sales taxes, a variety of excise taxes and a handful of estate and inheritance taxes.

In recent years, state legislators have had to cope with two major tax matters that were out of their hands:

  • the aforementioned TCJA federal tax reform law that took full effect in the 2018 tax year and
  • the Supreme Court of the United States (SCOTUS) South Dakota v. Wayfair decision in May 2018 that opened up sales taxation of products sold by remote retailers.

The National Conference of State Legislatures (NCSL) has comprehensive reviews of the challenges TCJA and Wayfair have posed for states and what they've and are doing to deal with the implications of these federal actions.

2020's new state tax changes: The Tax Foundation recently took a more New Year focused look at state taxes, producing a Fiscal Fact paper on state tax changes as of Jan. 1, 2020.

Key findings by Katherine Loughead, a policy analyst at the tax think tank in Washington, D.C., include:

  • 34 states have major tax changes taking effect on January 1, 2020.
  • 3 states (Arkansas, Tennessee and Massachusetts) will each see reductions in their individual income tax rates.
  • 5 states (Iowa, Kansas, Maine, North Carolina and Ohio) will see notable changes to their individual income tax bases.
  • 1 state (Florida) has a general sales tax rate change (a reduction).
  • 5 states will see changes to their estate taxes. Four (Connecticut, Minnesota, Vermont and New York) will have taxpayer-friendly increased estate tax exemptions, while one (Hawaii) goes the other direction.
  • 2 states (Illinois and Louisiana) will implement new excise taxes on cannabis products.
  • 3 states (Maine, Nevada and New Hampshire) will begin applying excise taxes to vapor products.
  • 2 states (Connecticut and Virginia) will see notable changes to their sales tax base. (The Nutmeg State's sales tax base will broaden to additional consumer goods and services; the Old Dominion's base will become narrower.)
  • 8 states will make remote-sales related tax changes, ranging from
    • Hawaii, Illinois, Michigan and Wisconsin requiring marketplace facilitators to collect sales taxes to
    • Arizona, Georgia and Washington modifying the economic nexus threshold in their remote sales tax collection requirements and
    • Hawaii (again) and Pennsylvania on Jan. 1 using Wayfair-like standards to determine economic nexus for income tax purposes.

Didn't see your state's taxes mentioned in the above highlights? Then check out the full Tax Foundation state taxes 2020 paper.

Notable specific state taxes: Virginia this year will reduce its so-called Pink Tax, the sales tax that applies to feminine hygiene products, as well cut the sales tax on purchases of disposable diapers and incontinence pads.

The Old Dominion also will offer in 2020 tax credits to employees that telework.

In neighboring Maryland, there's now a new law establishes a state tax sale ombudsman in the State Department of Assessments and Taxation. This person will assist Old Line State homeowners with delinquent taxes. Maryland Homeowners who are low-income, at least 65 years old or disabled must be provided with information that is clear and concise if their properties are subject to tax sales.

Across the country, Washington state residents will see some real estate excise tax changes this year. The rate goes from a flat 1.28 percent of the sales price to a sliding scale that tops out at 3 percent for properties worth more than $3 million.

Specifics tax matters: Some people will welcome the new 2020 tax changes in their states. Others will not be happy.

Part of the reasons for the different reactions is that no cliché has ever been more appropriate to taxes than the devil is in the details.

Take, for example, the apparently good news for Georgians that on Jan. 1 their state's sales tax on cars was reduced.

Georgia's tax rate on all auto sales dropped from 7 percent to 6.6 percent for a savings of about $100 on a new car sold for $25,000.

But, and you knew it was coming, some used car buyers in the Peach State will have to pay more in taxes. That's because many used cars will be taxed on their sales price rather than lower, estimated value.

But, yes, another one, if the car dealer finances the used car sale, Georgia's sales tax then will be calculated based on the book value of the car.

My advice to Georgia car shoppers? Don't drive yourself crazy over the sales tax permutations. Just save as much as you can for your next car and either buy a used one outright or find a great financing deal if you must take out a loan.

More state tax changes on the way: And while there are many state tax law changes that went into effect at the start of this year, rest assured that more are on the way.

Many states operate on a fiscal year that runs from July 1 through June 30. So summer often is a prime time for law changes, taxes and otherwise, to appear.

Ohio residents won't have to wait that long. On April 1, the Buckeye State will repeal its Pink Tax, no kidding.

That's just one example of one tax in one state. We can expect even more, some not even thought of as yet.

"With states continuing to grapple with the taxation of international income, collections obligations for remote sellers and marketplace facilitators, and potential new tax regimes for marijuana, vapor products, and sports betting (no tax changes for the latter taking effect yet on January 1), to name only a few, the coming year is unlikely to be any quieter," notes the Tax Foundation's Loughead.

Happy State Tax New Year!

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