State Tax Changes Taking Effect January 1, 2025

As 2025 approaches, thirty-nine states are set to implement significant tax changes effective January 1st. Here's an overview of the key adjustments:

Individual Income Tax Reforms

• Indiana: Reducing their Individual Income Tax Rate .05% from 3.05% to 3.00%

• Iowa: Reducing the top marginal individual income tax rate from 5.70% to 3.80%

• Louisiana: Reducing their Individual Income Tax Rate 1.25% from 4.25% to 3.00%

• Mississippi: Reducing their Individual Income Tax Rate 0.3% from 4.70% to 4.40%

• Missouri: Reducing their Individual Income Tax Rate 0.1% from 4.80% to 4.70%

• Nebraska: Reducing their Individual Income Tax Rate 0.64% from 5.84% to 5.20%

• North Carolina: Reducing their Individual Income Tax Rate 0.25% from 4.75% to 4.50%

• West Virginia: Reducing their Individual Income Tax Rate 0.3% from 5.12% to 4.82%

Corporate Income Tax Adjustments

• Nebraska: Implementing 60 percent first-year expensing. Reducing their marginal rate from 6.50% to 6.24%

• North Carolina: Reducing their Marginal Rate from 2.50% to 2.25%

• Pennsylvania: Reducing their Marginal Rate from 8.49% to 7.99%

• Ohio: Raising its Commercial Activity Tax gross receipts threshold

• Illinois: Raising the exemption for its capital stock tax

• New Jersey: Creating a tax credit for artificial intelligence investments

Sales Tax Developments

• Louisiana: Set to restore a 5% sales tax rate, up from a temporary 4.45% rate to help pay for reforms in other areas of the tax code. 

• Kansas: Exempting groceries from sales tax.

• Illinois: Broadening the sales tax by adding retail leases of certain forms of TPP.

• Georgia: Localities will receive authority to impose a new local option sales taxes to offset the cost of the new property tax relief program.

Illinois

Starting January 1, 2025, Illinois will implement a series of significant tax changes across various categories:

1. Franchise Tax Exemption Increase:

- The franchise (capital stock) tax exemption will double from $5,000 to $10,000.

- This change comes after a previously planned elimination of the tax was paused.

2. Sales Tax Reform:

- Expanded Tax Base: Sales tax will now include retail leases of tangible personal property (TPP), excluding motor vehicles, watercraft, aircraft, and semitrailers.

- Payment Shift: Sales tax on leased TPP will be paid over the lease term by the final lessee, aligning Illinois with most other states and ensuring the tax is borne by the final consumer.

- Destination-Based Sourcing: New rules require retailers with a physical presence in Illinois to remit sales taxes on out-of-state retail sales based on the destination of the sale.

- Retailer Discount Cap: Retailers can retain 1.75% of collected sales tax but will face a new cap of $1,000 per month.

3. Property Tax Study:

- The General Assembly has commissioned a comprehensive study of Illinois’ property tax system, with recommendations for improvement expected by July 1, 2026.

Minnesota

Minnesota is rolling out several key tax changes aimed at addressing infrastructure, property tax relief, and public health:

1. Motor Fuel Tax Increase:

• The state motor fuel tax will rise to 31.8 cents per gallon (up from 28.5 cents), consisting of a 28.3-cent excise tax and a 3.5-cent debt service surcharge.

• Alternative fuels will also see similar increases.

• Starting in 2025, the fuel tax will adjust annually based on the National Highway Construction Cost Index 2.0, with a 3% cap on yearly increases.

  2. Homestead Property Tax Relief:

• The homestead property exclusion threshold will increase, offering greater relief to homeowners.

• The maximum exclusion will rise to $38,000 (up from $30,400 in 2024) for homes valued at $95,000 or less, representing 40% of the market value.

  3. Cigarette Excise Tax Increase:

• The cigarette excise tax will increase from 73.9 cents per pack to 78.6 cents per pack.

Tax Competitiveness Rankings

According to the Tax Foundation's 2025 State Tax Competitiveness Index, the top-ranked states are Wyoming, South Dakota, and Alaska, noted for their favorable tax structures.

These changes reflect a broader trend among states to reform tax codes, aiming to enhance economic competitiveness and provide relief to taxpayers.

For a comprehensive analysis of these developments, refer to the Tax Foundation's detailed report.