2022 State Tax Changes Effective July 1
While the majority of the 2022 state tax changes take effect at the start of the calendar year, some are implemented at the start of the fiscal year. Personal and corporate income tax changes generally take effect at the beginning of the calendar year to maintain policy consistency throughout the tax year, but sales tax changes and excise often correspond to the start of a fiscal year.
Fourteen states have notable tax changes that take effect July 1, which is the first day of fiscal year 2023 for all states except Alabama, Michigan, New York, and Texas. Among the highlights:
- New Mexico’s hybrid sales tax rate, which the state calls a gross receipts tax, will drop from 5.125 to 5.0 percent.
- Illinois will begin a one-year sales tax exemption on groceries.
- Indiana will begin levying a 15% wholesale tax on vaping products.
- Colorado institutes a “retail delivery fee,” which is effectively a tax.
Gasoline taxes are increasing in two states due to previously scheduled statutory rate adjustments, while gasoline tax rates will increase in seven other states due to inflation adjustments or other factors automatic. Several states have enacted new sales tax exemptions.
These and other tax changes taking effect July 1 are detailed below.
2022 State Sales and Use Tax and Gross Receipts Tax Changes
Indiana will implement a new sales tax exemption threshold for nonprofits starting in July. Instead of the previous benchmark of having less than 30 days of sales per year, these organizations must now see sales of less than $20,000 per year.
To address supply chain issues, Idaho will exempt qualified semiconductor projects from construction and building materials sales taxes after July 1.
While prescription drugs were already exempt from Louisiana state sales tax, the enactment of SB 129 will exempt a number of prescription drugs from local sales tax effective July 1. Local sales tax bases can vary widely from the state base, but this new law prevents these local bases from including certain types of prescription drugs.
Through a combination of bills, Maryland will begin exempting a number of items from its sales tax starting in July, including baby products like diapers, car seats and bottles, in addition to medical items such as thermometers, masks, diabetic care products and oral products. hygiene products.
Mississippi currently exempts health care facilities from paying sales taxes on building materials, machinery, and equipment purchased within three months of the completion of a facility’s construction. In HB 474, the legislature clarified that the category does not include medical marijuana establishments, effective July 1.
Through HB 163, New Mexico will become the first state in many years to reduce its statewide sales tax rate, which the state calls its Gross Receipts Tax. On July 1, the state rate will drop from 5.125% to 5.00%, with a further reduction to 4.875 scheduled for July 1, 2023.
This reduction comes with a contingency plan: if gross receipts tax receipts in a fiscal year from 2026 to 2029 are less than 95% of the prior year’s receipts, the rate will revert to 5.125% the following July 1. .
Additionally, the state will begin exempting all base feminine hygiene products at the same time.
With the signing of SB 1305, Oklahoma will provide a sales tax exemption to nonprofits dedicated to disaster recovery beginning in July.
Vermont previously exempted manufacturing machinery and equipment from its sales tax, but through H 738, lawmakers expanded the definition to specify that equipment used in an integrated process is also exempt, except from July 1.
Effective July 1, Virginia will exempt network equipment from sales tax, pursuant to H 1155, as long as the equipment is used for video broadcasting or by telephone carriers.
2022 State Tobacco and Vapor Tax Changes
Indiana’s tax on vaping products goes into effect July 1. The tax rate on e-cigarette cartridges was initially set at 25% on wholesale, but Senate Bill 382 lowered this rate to 15%, matching the tax rate on refillable vaping products, before the higher rate could come into effect.
2022 State Transportation Tax Changes
Last October, Missouri lawmakers signed into law a bill to increase the state’s gasoline tax by 12.5 cents by July 2025. Gasoline tax increased by 2.5 cents last October and will rise another 2.5 cents on July 1. Notably, lawmakers are allowing residents to claim a refund of the Oct. 1 markup if they produce their receipts.
Caroline from the south
In 2017, the South Carolina Legislature passed H 3516, which, among other changes, increases the gasoline tax by 2 cents each July from 2017 through 2022. The state’s gasoline tax will see its final increase of 2 cents on July 1, raising the tax from 26 to 28 cents per gallon.
Fuel taxes in California, Connecticut, Illinois, Indiana, Maryland, Nebraska and Virginia will be adjusted on July 1 due to inflation, changes in the average wholesale fuel price or other automatic factors.
Gasoline taxes were set to rise in Kentucky for similar reasons, but Gov. Andy Beshear (D) issued an executive order to freeze the gasoline tax at its current level until January 2023, when the legislature will determine future changes.
2022 State Sports Betting Tax Changes
When retail sports betting was first allowed in Louisiana last November, sports betting operators could deduct $5 million in promotional gambling expenses per application. This deduction was more generous than the legislature intended, and starting in July, operators will be limited to $5 million in promotional game deductions per license under SB 290.
Miscellaneous State Tax Changes in 2022
Starting in July, Colorado residents will be subject to a retail delivery charge, a 27-cent-per-sale tax that will be paid on all deliveries that include at least one item subject to sales tax. The levy is levied on the end consumer but will be collected by retailers and market facilitators. The 27-cent tax is made up of six separate charges that refer to air pollution mitigation, bridges and tunnels, clean public transit, and more. Although called a fee, it functions like a tax.
Beginning July 1, the state’s Family Relief Plan will go into effect. As a result, sales tax on groceries will be suspended for one year (returning July 1, 2023). Although the gas tax remains in effect, the planned increase will be delayed until January 1. The relief plan also includes sending rebate checks to eligible people in September, making permanent last year’s increase in the earned income tax credit, giving property tax rebates to eligible homeowners and maintenance of a sales tax holiday for school supplies in August.
House Bill 1002, a tax reform bill that will ultimately reduce Indiana’s personal income tax rate from 3.23% to 3.15% in 2023 and 2024, also repeals the service receipt tax state public as of July 1. The utility receipt tax was previously a 1.4% tax on the taxable gross receipts of a utility company if the gross receipts exceeded $1,000.
Under HB 918, Mississippi will allow food trucks to serve alcoholic beverages starting in July, as long as they also offer food and their food sales represent at least 25% of their revenue. The bill creates an accompanying privilege tax of $100 to be paid annually by each food truck wishing to sell alcohol.
Beginning July 1, in accordance with HB 1221, New Hampshire legislators will transfer a portion of the state budget surplus to local political subdivisions with the intent that these revenues be used to offset a one-time reduction in local property levies.
Notable changes to state tax rates retroactive to January 1, 2022
This legislative session, several states have reduced their personal or corporate income tax rates.
Although most of these changes took effect on January 1, Idaho’s rate changes are retroactive to January 1. Specifically, Idaho’s top corporate income tax and tax rates are now 6%, up from 6.5%. The state also consolidated five personal income tax brackets into four and cut the second-highest rate from 3.1 to 3 percent.
Additionally, legislation was passed in Utah in February that reduces personal and corporate income tax rates from 4.95 percent to 4.85 percent, effective in the 2022 tax year.
To note: This blog was expanded July 1 to include the Illinois Family Relief Plan and the Virginia Gas Tax Inflation Adjustment.