The first Tax Working Group meeting was convened Tuesday afternoon to present overviews of their respective bills and begin the expedited work of assembling a 2025 tax bill. Working group members for the House are Representatives Agbaje, Joy, and Co-Chairs Gomez and Davids. For the Senate, Senators Weber, Hauschild, Dibble, and Chair Rest.
The task at hand this year is complicated for three big reasons. First is the stress of a highly compressed timeline. Legislative leaders reiterated their committee deadline of 5 pm today although the tax committee, given its role in the process, is likely to have the slack.
Second, the late arriving global targets have forced each body to remake their respective tax bills -- at least to some extent -- on the fly. Offers are complicated by the lack of language and (as of today) no side by side usually facilitating these discussions.
Finally, and perhaps most importantly, it became quickly evident in the meeting that the House and Senate do not share the same understanding of what is and is not allowed in the global agreement, leading Chair Rest to describe a portion of the meeting’s discussion as an “exchange of misunderstandings” needing clarification.
The Basics (for FY 26-27)
- House: $95.4 million increase in tax revenue plus $18.8 million in aids and credits cuts
- Senate: $50.3 million increase in tax revenue plus $57.6 million in aids and credits cuts
- Both bodies are under the $118 target leaving room for negotiation
The global agreement accomplished a lot of the revenue raising work for the working group. The cannabis tax increase from 10% - 15% together with the repeal and recapture of local cannabis aid plus the elimination of the sales tax exemption of data center electricity purchases all combine to bring in about $135 million for the coming biennium.
However, other tax revenue and policy matters are complicated by differing interpretations of the global agreement:
- The Senate believes the agreement takes accelerated June sales tax shifts off the table. The House retains their accelerated collections for alcohol, cigarettes, and tobacco.
- The House believes the agreement concerning the $40 million per biennium for the expanded R&D credit is silent on policy. The Senate believes the agreement provides for refundability.
- The House believes the data center exemption sunset extension to 2062 violates the terms of the agreement with respect to off spreadsheet spending. The Senate disagrees arguing the ability to remove the sales tax exemption on electricity was based on a superseding condition concerning the extension of the sunset.
The walkthrough discussion also flagged what is clearly one of the primary areas of disagreement between the bodies: the treatment of local aids. The Senate reduces the LGA and county program aid appropriation by $15 million per year and also cuts local homeless prevention aid and statewide local housing aid by $5 million per year. Chair Gomez gave an impassioned argument for their protection. Chair Rest noted the Senate is not unsympathetic to these arguments but feels restricted by the global agreement’s limitations on tax increases.
The Senate made their first offer combining several shared provisions having larger budget implications along with a number of low/no cost exemptions and policy tweaks concentrated in the area of property taxation. Both bodies have a not insignificant number of these smaller items and it will be interesting to see if and how they get addressed under these unusual circumstances.
The Working Group reconvenes today at 11:00 am.