Voters in North Dakota, Oregon, South Dakota, and Washington are deciding ballot measures this November that could fundamentally alter their state's tax systems. While there are a few other tax questions on ballots this year, these four states are facing big choices on the future of capital gains taxes, corporate income taxes, grocery taxes, property taxes, and tax rebates.
As always, keep in mind that ballot measures are typically hyper attuned to each state’s particular economic and fiscal circumstances. For example, in 2022, California voters rejected a tax hike while West Virginia voters rejected a tax cut, and in 2020, Illinois said no to a tax hike, Arizona said yes, and Colorado supported both a tax cut and a tax increase.
North Dakota: The end of property taxes?
North Dakota’s ballot question is straightforward, if not simple. If approved, Measure 4 would essentially prohibit the state and local governments from taxing personal or residential property (with a small exception for bond payments).
Property taxes provide roughly 10 percent of North Dakota’s combined state and local general revenue (including federal transfers) and a quarter of its local government general revenue (including federal and state transfers). Both percentages are below the national average, and the state legislature enacted major property tax relief last year. Still, proponents of the measure do not mince words and say the property tax is “immoral.”
How would the state and local governments replace that revenue? That’s not part of the ballot measure, so state and local policymakers would have to fill the gap with tax hikes or spending cuts. And that’s why the Greater North Dakota Chamber, North Dakota AFL-CIO, and many other local groups oppose the measure. North Dakota voters overwhelmingly defeated a similar ballot measure in 2012.
Oregon: Business tax hikes for resident tax rebates?
If approved, Measure 118 would establish a gross receipts tax on businesses earning more than $25 million annually and then distribute the resulting revenue to Oregon residents as tax rebates.
The rebate plan is relatively direct. Anyone, including children who are dependents of tax filers, who spent more than 200 days in Oregon would be eligible for the rebate. The Oregon Legislative Revenue Office (OLRO) estimated an annual rebate of roughly $1,600 per beneficiary (i.e., $6,400 for a family of four).
The tax side is where this gets complicated. Advocates for Measure 118 argue that too many businesses are “dodging” corporate income taxes because they pay the state’s minimum tax—currently $150 to $100,000 depending on the company’s annual sales. Corporations pay the minimum tax when their deductible expenses are greater than their revenues. Notably, a large corporation can have no taxable income and pay the minimum tax.
But Measure 118 does not simply increase the corporate minimum tax. Instead, for businesses with more than $25 million in revenue, it would add a new 3 percent gross receipts tax on a business’s revenue above that threshold. As a result, the OLRO study found that a company with $70 million in Oregon sales that pays the minimum tax would see its tax payment rise from $50,000 to $1.4 million, and a company with $350 million in sales would see its tax bill climb from $100,000 to $9.85 million.
Overall, the new tax would be a massive tax increase, expected to raise $6.8 billion annually, or about a third of what Oregon currently collects in total taxes. And that is why the Democratic governor and both parties’ legislative leaders oppose the ballot measure.
South Dakota: End the grocery tax (and tobacco taxes)?
The lower Dakota has a trickier ballot question. Measure 28 seems like a simple up or down vote on the state’s grocery tax. And that would make sense, as the state debated lowering or eliminating its 4.2 percent sales tax on grocery food during the past few legislative sessions.
However, the actual ballot language does not say that. Instead, if approved, the measure would stop the state from “collecting sales or use tax on anything sold for human consumption.” That means it could also exempt cigarettes and other tobacco products from tax. South Dakota levies a $1.53-per-pack tax on cigarettes.
South Dakota’s Republican governor opposes the measure in part because of the problematic wording, but most of the state’s Democrats support it and argue the change would make the state’s tax system less regressive. South Dakota is one of 12 states that tax groceries.
Washington: Repeal the capital gains tax?
Washington does not levy a broad-based individual income tax, but in 2021 the legislature enacted a 7 percent tax on capital gains in excess of $250,000 from the sale or exchange of stocks, bonds, and other assets. If approved, Initiative 2109 would repeal the tax.
Washington’s capital gains tax faced legal challenges as soon as it was enacted, but the Washington Supreme Court upheld it last year. In addition to constitutional arguments, opponents say the tax makes the state less competitive in attracting high-income residents and businesses.
Opponents of the measure argue that the capital gains tax is the state’s only way to partially offset its highly regressive tax system. Repeal would also require Washington to replace roughly $450 million in annual revenue the tax now brings in.
