1. The Tax Story Across the 50 States Texas Taxpayers and Research Association Annual Membership Meeting October 2, 2006 Council On State Taxation

2. 2 Overview Revenues & Business Taxes Federal Legislative Activity State Legislative Activity

3. Council On State Taxation 3 State Year-End Balances As a Percentage of General Fund Expenditures (Source: NCSL) Projected

4. Council On State Taxation 4 Percentage Change in FY 2006 Revenue Growth Estimated vs. Actual (Source: NCSL) 49 states reporting.

5. Council On State Taxation 5 Projected Percentage Changes in Revenue and Appropriations: FY 2007 (Source: NCSL) 49 states reporting.

6. Council On State Taxation 6 Net State Tax Changes By Year of Enactment, 1997-2006* (Source: NCSL) * 44 states reporting for FY 2006.

7. Council On State Taxation 7 Total Tax and Nontax Revenues in billions of dollars (Source: NCSL) * 44 states reporting for FY 2006.

8. Council On State Taxation 8 State Structural Deficits in FY 2007, FY 2008 and Beyond (Source: NCSL)

9. Council On State Taxation 9 Longer-Term Fiscal Pressures K-12 education Medicaid Pension obligations & OPEB Infrastructure

10. Council On State Taxation 10 Total State & Local Business Taxes Nationwide, businesses paid $497 billion in state-local taxes in FY05 Businesses paid 44 percent of total taxes collected by state and local governments State & local business taxes up by 25% - over $100 billion – between FY02 and FY05

11. Council On State Taxation 11 Federal Legislation on State Taxation Authorizing State Tax Incentives after Cuno Nexus for Business Activity Taxes; PL 86-272 Streamlined Sales Tax Legislation Withholding for Nonresident Employees State Taxation of Retirement Income Internet, Telecom, Pipelines…

12. Council On State Taxation 12 State Legislative Trends Gross Receipts Taxes Related Party Expense Addback (“anti-PIC”) Unitary Combined Reporting Sales Factor Trends Tax Shelter Disclosure SSTP, Property Tax Reform, Telecom Reform…

13. Council On State Taxation 13 Gross Receipts Taxes: Next Big Thing? History –Washington –West Virginia (repealed 1987) –Indiana (repealed 2002) Today –New Jersey (sunsets after 7/1/2006) –Kentucky –Ohio –Texas

14. Council On State Taxation 14 Gross Receipts Taxes: Next Big Thing? Tomorrow ? –Illinois –Michigan –IN, WV, NC… Concerns –COST Policy Position & Survey Results –Joint COST / Tax Foundation Study

15. Council On State Taxation 15 Anti-PIC: State of the States AK HI ME RI VT NH MA NY CT PA NJ MD DC DE VA WV NC SC GA FL IL OH IN MI WI KY TN AL MS AR LA TX OK MO KS IA MN ND SD NE NM AZ CO UT WY MT WA OR ID NV CA Key Not applicable (e.g., unitary or no corporate income tax) Anti-PIC statute (SC-Geoffrey; TN-No addback if disclosed) Anti-PIC legislation considered bin 2004 or 2005 or 2006 but not enacted (as of September)

16. Council On State Taxation 16 Trends in Expense Addback Proposals Scope: Royalties, interest, management fees? Safe Harbors Expansion of Sec. 482-type Powers MTC Model Language

17. Council On State Taxation 17 Unitary Combined Reporting Vermont Kentucky AMC: Nexus Consolidated Ohio CAT: Consolidated or Combined Texas Margins Tax: Unitary Combined MTC Model Statute & “Tax Havens”

18. Council On State Taxation 18 Increased Sales Factor: Recent Activity StateProvision ArizonaHB 2139 (enacted) allows an election to increase the weight of the sales factor (to 80% by 2009) CaliforniaHB 1037 (proposal) would phase in single sales factor for targeted industries GeorgiaHB 191 (enacted) phases-in a single sales factor by 2008 IndianaHB 1001 (enacted) phases-in a single sales factor by 2011 LouisianaHB 679 (enacted) establishes a single sales factor for taxpayers whose net apportionable income is primarily derived from manufacturing or merchandising MichiganSB 634 (enacted) increases weight of sales factor (to 95% by 2008) MinnesotaHF 138 (enacted) phases-in a single sales factor by 2014 SF 3326 (proposed) would accelerate phase-in New YorkAB 6845 (enacted) phases-in a single sales factor for most Art. 9-A and targeted Art. 32 taxpayers OregonSB 31 (enacted) accelerated the adoption of a single sales factor (by 7/1/05 instead of 7/1/08) PennsylvaniaHB 859 (enacted) increases the weight of the sales factor to 70% UtahHB 78 (enacted) allows an optional double-weighted sales factor Vermont2004 enactment double-weights the sales factor Wisconsin2003 enactment of phased-in single sales factor by 2008

19. Council On State Taxation 19 Tax Shelter Disclosure Enactments (in order of adoption) –California (2004) –Illinois (2005) –New York (2005) –Connecticut (2005) –Minnesota (2005) –Massachusetts (2005) –Utah (2006) –West Virginia (2006) MTC Model Statute & “51-State Spreadsheet”

20. Council On State Taxation 20 Other Issues SSTP Property Tax Reform –Real Property (ID, SC, TX) –Business Personal Property (CT, KS, ME) TABOR Telecom Taxation

21. Council On State Taxation 21 Questions? Joseph R. Crosby 202/484-5225 jcrosby@statetax.org