2024 State Tax Updates

Before considering state tax credits and economic incentives, a corporation should first evaluate state and local tax regimes in determining where to locate or expand. As we move into 2024, Site Selection Group highlights some important state tax changes that corporations should be aware of while considering their operations and budgets.

Income tax changes take effect with more states lowering rates than raising them

Individual Income Tax

Effective for 2024, 14 states lowered individual income tax rates, while California and Michigan raised individual income tax rates. Georgia transitioned to a flat tax rate following suit with many other states which transitioned to this model in the prior year; moreover, Iowa intends to adopt a flat tax by 2026.

Corporate Tax

There were six states with traditional corporate income tax structures that reduced corporate income tax rates for 2024. Florida reduced its rate for business rental receipts and Ohio raised its Commercial Activity tax threshold. Finally, Louisiana repealed its “throwout rule” for apportioning income to the state leaving Maine as the only state in the U.S. that has a throwout rule. Note that many states still have throwback rules, but the trend to eliminate this rule will likely continue.

Texas, Colorado and Wisconsin make adjustments to reduce property tax burdens

Texas

Property taxes in Texas are high relative to other states due to a lack of an individual income tax. However, the Texas Legislature passed much-desired property tax measures to help reduce Texans’ property tax burden. Some of the key changes include:

• Increased homestead exemption: This exemption was raised from $40,000 to $100,000 for school district maintenance & operations (M&O) taxes
• Added an Appraisal Cap on non-homestead properties: Owners of second homes or commercial properties benefit from an annual appraisal cap of 20% for three years on properties valued below $5 million 
• Reduced school districts’ M&O property tax rates: This change included a public school tax compression which reduced school district M&O rates by 10.7 cents per $100 of a property’s valuation.

Colorado

Colorado further reduced property tax assessment ratios for certain nonresidential properties to 26.5% for 2024.

Wisconsin

Personal property is no longer subject to property tax in Wisconsin. Ad valorem tax on tangible personal property is typically imposed on property that can be moved or touched such as furniture, equipment, machinery and inventory. This exemption should help Wisconsin attract capital-intensive projects, especially since the state is located near other states that either do not have a personal property tax or have significant statewide exemptions.

Kansas and Georgia make changes to sales taxes

Kansas cut its grocery tax in half from 4% to 2% and plans to eliminate it by 2025 — only 13 states in the U.S. still tax groceries. 

Georgia started taxing specified digital products as of January 1, 2024. Taxation of digital products is becoming a trend throughout the U.S., which should be monitored as society becomes increasingly digital.

Connecticut and Colorado make the largest increases in state taxable wage bases

As of 2024, 26 states have flexible wage bases and the remainder have set wage bases. Approximately 23 of all states have raised their state taxable wage base. The largest increase is in Connecticut from $15,000 to $25,000 (approximately 66%), followed by Colorado from $20,400 to $23,800 (approximately 16%).

Gas and franchise tax changes

Gas Tax

Oregon and Utah increased gas tax rates while Pennsylvania reduced its rate. On the flip side, the increase of electric vehicles (EV) results in a reduction in state gas tax revenue, so multiple states are imposing EV registration fees. Kentucky adopted this fee for 2024 and Tennessee doubled its annual EV registration fee. In theory, these fees typically go toward highway infrastructure funds.

Franchise Tax

On the franchise tax front, Oklahoma eliminated its franchise tax for the 2024 tax year, and Texas increased its no tax due threshold to $2.47 million for 2024 and 2025.

Conclusion

State and local taxes are an important consideration in the site selection process. A state’s tax environment directly affects its ability to attract and retain business. To understand a more comprehensive analysis of each state’s tax climate, please refer to our prior blog: A Review of the 2024 State Business Tax Climate Index.