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8 States Making Tax Changes: Some Painful, Some Pleasant

proposition 30
California Gov. Jerry Brown a speaks during a rally in support of Proposition 30. Proposition 30 is raising sales tax and increasing income tax to provide funding to California's K-12 schools, state universities, community colleges and Police departments. (Photo by Kevork Djansezian/Getty Images)
As you prepare your tax returns for 2012, be warned: A number of states have made or are considering big changes to their state income taxes. With some of those changes already having taken effect, you need to know whether you're in the line of fire -- or in line for a tax break.

1. California

Last November, California voters approved Proposition 30, a measure that imposes two separate tax increases. A quarter-percentage-point increase in the sales tax will affect everyone who shops within the state, but the measure also included an income-tax increase for single filers earning more than $250,000 and joint filers with $500,000 or more in income. Proposition 30 will add 1 to 3 percentage points to the existing top tax bracket through 2018, sending the maximum tax rate up to 12.3 percent. And the tax hike was retroactive, so filers will have to pay higher income taxes on the returns they're filing now.

2. Kansas

Gov. Sam Brownback hasn't made a secret of the fact that he doesn't like the state's income tax. Last year, Kansas passed a law that took effect this year, reducing the top tax bracket from 6.45 percent to 4.9 percent. It also eliminated income taxes on small business income for hundreds of thousands of businesses. Now, Gov. Brownback is looking to send rates down even further, with the eventual goal of getting rid of income taxes entirely.

3. Louisiana

Gov. Bobby Jindal recently proposed a tax swap, offering to get rid of the state's income and corporate taxes in exchange for raising sales taxes. Critics argue that the shift could put too much burden on lower-income residents who can least afford it, but some policymakers argue that sales taxes promote savings and investment over consumption. One benefit from a higher sales tax: Louisiana's tourism industry would have visitors to the state paying a higher share of the overall burden.

4. Maryland

Last year, the state legislature passed a law raising tax rates on high-income residents. Effective for the 2012 tax year, the new rates apply to single filers making more than $100,000 and joint filers above $150,000 in income. Rates in various brackets rose between one-quarter and three-quarters of a percentage point, with a new top rate of 5.75 percent.

5. Massachusetts

Gov. Deval Patrick has proposed a plan that's the reverse of the Louisiana plan, offering to swap a one-percentage-point increase in the income tax rate to 6.25 percent, but lower sales taxes from their current 6.25-percent level to 4.5 percent. The move would bring Massachusetts more in line with other states within the region, with the governor saying that the net increase in tax revenue would help boost spending on education.

6. Minnesota

Along the same lines as Massachusetts, Minnesota Gov. Mark Dayton is trying to raise the state income tax rate to lower sales and property taxes. His proposal would reduce the sales tax rate from 6.875 percent to 5.5 percent and pay a $500 property tax rebate, but would add a new higher income tax bracket that would send the top rate up 2 percentage points to 9.85 percent. Recently, though, a lack of political support has raised the possibility that Gov. Dayton will drop at least part of his tax reform plans.

7. Nebraska

Like neighboring Kansas, Nebraska is considering getting rid of its income tax entirely. Gov. Dave Heineman has been promoting his tax-elimination plan, arguing that it's necessary in order to compete with border-states South Dakota and Wyoming, both of which have no income tax. Gov. Heineman would scale back on sales-tax exemptions in order to finance the income-tax reduction.

8. North Carolina

Legislators in the North Carolina Senate are also calling for tax reform, including the possible elimination of the state's income tax, where rates range as high as 7.75 percent. With nearby Florida having no income tax, North Carolina hopes that it can be more competitive both to individuals and businesses looking to relocate to the state.

Keep Your Eyes Peeled

Although many of these proposals are still in early stages of deliberation, you still need to keep watch on events as they develop. Otherwise, you could be in for a nasty surprise come tax time.

Photo Credit: Kevork Djansezian/Getty Images

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Sales taxes are breaking Americans. Most of them are hidden, or the amount shown seems a pittance. NOT SO. Further, many state any local authorities are allowed to add a "piggy back" tax. For instance, in South Carolina, if you eat in a restaurant, or buy "prepared food" in the supermarket are taxed 8.5%. If you go to a Restaurant in Charleston, you are taxed an additional 4.25%. These hidden taxes are killing us, and need to be stopped, NOW!

June 06 2013 at 1:15 PM Report abuse rate up rate down Reply

taxes are for Federal Employees only! not the common person

March 16 2013 at 11:22 PM Report abuse rate up rate down Reply

Income taxes are fairer to the working class and poor than sales taxes, which are regressive. Figures the dumb states would be eliminating them in hopes of scavenging the businesses from the more sane ones up north.

March 16 2013 at 5:48 PM Report abuse +1 rate up rate down Reply
2 replies to gopispoison666's comment

Everyone needs to pay taxes. If not income, then sales tax. Do you really think it's fair that someone has a bunch of kids (their choice) and gets deductions because it costs money to raise them? Are you part of the 47%....the 1% that you dont like pay the most taxes in this country. We need a fair tax now.

March 16 2013 at 5:54 PM Report abuse rate up rate down Reply

I agree with Freddie. EVERYONE needs to pay taxes. Through sales tax. Income taxes are not "fairer" to the working class and poor. I know people who pay no income tax and actually get a refund back for more than was taken out of their paychecks to being with. It's called the "earned income credit." It's a scam!

March 16 2013 at 8:39 PM Report abuse rate up rate down Reply
Jo Lavender

Welcome to California. Just sign over your paycheck to the state, who knows so much better than you do on what to spend your money.

After all, the poor and the illegals need to eat and have good housing and better medical care than your health benefits permit. The pathetic education system needs your constant cash flow to perpetuate itself.

You don't need your money--the state does.

March 16 2013 at 11:31 AM Report abuse rate up rate down Reply
1 reply to Jo Lavender's comment

12% for those making over 500 thou.. wow, those crocodile tears surely engender compassion. What a total crock. While I disagree for sure with the sales tax increase, having the stinking rich pay a little more isn't going to hurt anyone and it SOLVED California's financial problems. Sorry you actually have to pay something for government services, but then I know "conservatives" are all about getting something for nothing.

March 16 2013 at 5:52 PM Report abuse +1 rate up rate down Reply
1 reply to stopgoptreason7's comment

The problem is having the "rich" pay a bit more just because they're rich. If I worked my ass off to make over $500k per annum, you can bet that hell will freeze over and turn into vanilla flavored skittles before I pay 1 cent more taxes than anyone else! I don't use the fire, police, or public school system anymore than anyone else, so I'm not going to pay more just because I may make more.

Same with car registration. Some guy with a 4,000lb suv pays one rate, but if I drive a smaller, more fuel efficient, and much lighter Ferrari, then I'm suppose to pay several thousand just to register my car? Kiss my pa-toot-toot ! I'll continue registering cars in a more favorable state, Keep the bulk of my business online, and strategically do what I have to do to legally reduce my property taxation to a minimum.

An idiot could figure out that if taxes were actually fair, municipalities and states would be putting much more tax money into their coffers. Until governments wake up and smell the coffee, and curb their gross waste of tax monies before putting their hand out for more, they aren't getting a damn dime!

March 16 2013 at 6:22 PM Report abuse +1 rate up rate down

california 's legislature is controlled by the donkey party dolts who are in turn controlled by the government simple service unions . . . both of which never saw a tax they didn't like. the unions know their investment in the dolt politicians will pay back in the form of more government jobs with wages, benefits, and retirements far in excess of those paying the bills.

March 11 2013 at 11:51 AM Report abuse +1 rate up rate down Reply

The CA state tax was a total crock of BS. It was suppose to "save" teachers jobs and help fund schools... instead our school is losing 3 teachers, and we're getting LESS money. (class sizes are over 36). Our district decided to "fund" $500,000 for our "Human Resources" positions. UGH. As long as we have idiots in charge of the state dollars, who have NEVER been in a classroom, we will continue to have MILLIONS of dollars wasted on "non-school" costs with financially struggling schools.

March 11 2013 at 9:33 AM Report abuse rate up rate down Reply