National Association of Counties
Washington, D.C.

 State, local tax issues stay hot in Congress

By Michael Belarmino

​Although there may be growing pessimism that the 113th Congress will achieve any significant legislative accomplishments, nothing has stopped either chamber from producing noteworthy developments in the world of state and local taxes.

First, in a positive development for state and local governments, a bipartisan letter to House leadership in support of the tax exemption for municipal bond interest led by Reps. Dutch Ruppersberger (D-Md.) and Randy Hultgren (R-Ill.), garnered more than 130 representative signatures. NACo worked closely with congressional staff to move this effort forward and commends counties for reaching out to their representatives on such a critical issue to state and local governments.

SpeedRead-taxes.pngThe letter, which will be sent to Speaker of the House John Boehner (R-Ohio) and House Minority Leader Nancy Pelosi (D-Calif.), urges them to support municipal bonds and to oppose proposals that would cap or eliminate the tax exemption for municipal bond interest. 

Next, in what can only be characterized as an interesting development, Senate Finance Committee Chairman Max Baucus (D-Mont.) and Ranking Member Orrin Hatch (R-Utah) announced their next step in the effort to reform the tax code.  Their plan essentially starts with a blank slate, meaning all tax preferences, including the exemption for municipal bond interest, and the deduction for state and local taxes, will be removed from the tax code. The committee leaders then requested their fellow senators to submit legislative language or detailed proposals that makes the case for tax preferences that should be included in a reformed tax code.

Both Sens. Baucus and Hatch acknowledge, however, that the blank slate should not be viewed as the end goal. But the question remains unanswered whether more revenue is expected from any potential reform or if any prospective revenue, instead, will be used to push down rates, reduce the deficit or perform a combination of both.  This issue still divides the two parties. 

Nonetheless, counties are urged to contact their senators to stress that the tax exemption for municipal bond interest is important to county government since it finances critical needs such as infrastructure.

Bullet A copy of the letter can be viewed by clicking here

Finally, moving us to the other end of the spectrum in a negative development, Rep. Zoe Lofgren (D-Calif.) has once again introduced a bill, the Wireless Tax Fairness Act of 2013 (H.R. 2309), that would preempt state and local tax authority.  Similar to legislation passed by the House in the 112th Congress, the bill prohibits states or local government from imposing any new discriminatory tax on mobile services, mobile service providers, or mobile service property for five years upon enactment of the legislation, essentially preventing counties from imposing rates that current state law may allow them to. Although the House passed the bill in the previous Congress, it never saw any action in the Senate.

Prior efforts were opposed by NACo, along with other state and local government groups. Opposition efforts will likely be revived again for the current legislation.

In addition to the preemption concern, opponents of the bill are also troubled by the lack of data demonstrating that this legislation, which would intrude on state and local authority, is even necessary. Furthermore, the bill would essentially create preferential tax treatment for the wireless industry and threaten the fiscal health of states and local governments as other industries will likely seek similar protections.

Sen. Ron Wyden (D-Ore.) is also leading similar efforts in the Senate with the introduction of S. 1235.