American at a polling booth

What the November 2021 elections indicate for state tax policy in 2022


Republican gains may sway some Democrats away from imposing or increasing taxes.


In brief

  • Virginia and New Jersey Republican Party gains may have significant state policy implications.
  • In Colorado, Texas, Washington and Louisiana, tax ballot measures were up for vote.

Republican Party gains in the November 2, 2021 elections in Virginia and New Jersey may have significant state policy implications beyond their meaning for federal politics. The result of last month’s elections coupled with the impending 2022 elections across 46 states are an indicator of what to expect from state tax policy in 2022.

From a business tax policy perspective, the victory of Virginia Governor-Elect Glenn Youngkin (R), along with the Republican takeover of the Commonwealth’s House of Delegates, is likely to further temper efforts to move the state to a mandatory unitary combined reporting regime and may bolster support for policies such as market-sourcing for targeted industries. However, Governor-Elect Youngkin’s support for eliminating sales tax on grocery sales could, if ultimately enacted absent revenue offsets, strain state coffers in future years, potentially leading to renewed focus on perceived revenue raisers despite a record $2.6 billion surplus at the end of the 2021 fiscal year.¹

The results of the New Jersey election may also impact state tax policy moving into 2022. While Governor Phil Murphy (D) secured a narrow victory for reelection, six-term Senate President Steve Sweeney (D) lost his seat to a Republican challenger that had little fiscal backing. This substantial political shakeup, coupled with narrowed Democrat majorities in the state Senate and Assembly, may discourage efforts to impose new tax regimes in 2022 that could be perceived as damaging the state’s standing for job creation.

Finally, there were tax ballot measures up for vote in Colorado, Texas, Washington and Louisiana. Interesting results came from Washington in a trio of non-binding citizen advisory votes triggered by 2021 legislation increasing taxes. Voters voiced their preference to repeal a new tax on telephone lines, a new 7% tax on capital gains above $250,000, and a new tax on captive insurance premiums by margins of 12.14%, 25.44% and 17.96%, respectively. While this will not trigger the repeal of these new taxes, it may discourage Washington legislators against additional tax creation and increase efforts towards repeal in advance of November 2022 elections. Finally, Louisiana’s November 13 rejection of centralized administration of local sales taxes has revived the debate over the limits of nexus over out-of-state taxpayers with litigation already filed² alleging the state’s uncoordinated local tax system violates remote sellers’ constitutional rights under the U.S. Supreme Court’s Wayfair decision.³

 

Overall, the state results of the November 2, 2021 elections are likely to have an impact on 2022 legislative sessions across the country. During next year’s elections, 36 states will hold gubernatorial elections and 46 will hold legislative elections with 88 out of the country’s 99 state legislative chambers holding elections with approximately 84% of the more than 7,000 state legislative seats up for vote nationwide. Though the November 2021 result is limited to two states, Republican gains may sway some Democrats away from unpopular measures to impose or increase taxes while emboldening preexisting trends in Republican-controlled states to reduce and repeal taxes of various regimes. Lawmakers’ appetite for tax legislation is also likely to be affected by the outcomes of ongoing redistricting processes in the states and whether partisan retrenchment during that process emboldens state lawmakers to pursue more hardline policy choices.

 

Between the finalization of state redistricting efforts, the results of the November 2021 elections, and the prospect of widespread elections in 2022, next year’s legislative landscape will continue to be dynamic with tax policy playing a critical role in state budgeting efforts.


Summary

The November 2021 election results and the impending 2022 elections in 46 states are drivers of what to expect from state tax policy in 2022.

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