Voters headed to the polls (or mailboxes) this Election Day not only to choose the next president of the United States but also to make decisions on a range of significant tax issues across the country.
Although voters in California and the Portland-Metro area struck down significant business tax increases and the voters of Illinois rejected a graduated income tax, San Francisco voters hammered the business community with a slew of new local taxes and changes to the City’s already existing taxes. In addition, high-earners taxes have been approved in the Portland-area and likely Arizona, and app-based rideshare drivers will remain independent contractors for certain purposes in California. These are just a few of the measures that were on the ballot this Election Day.
As of 9:00 PM EST here are the results and the potential fiscal impact of the significant state ballot measures for business:
ALASKA
Oil and Gas Taxes & Corporate Disclosure
Will likely fail. Alaska Ballot Measure #1 (190GTX) proposed a new oil and gas production taxes on the greater of an alternative gross minimum tax or an additional production tax per month for areas of the North Slope where a company produced more than 40,000 barrels of oil per days in the prior year and more than 400 barrels total. More notable, the measure, if passed, would have made all filings and supporting information provided by each oil or gas producer subject to the tax increase a matter of public record.
Result: will likely fail based on early reported results. Currently, 86.17% of precincts have reported the following results (approximately 56% total reporting):
- 34.83% yes votes (61,521)
- 65.17% no votes (115,123)
Fiscal Impact: proposed to boost state revenue by an estimated $1.1 billion.
ARIZONA
Personal Income Taxes
Will likely pass. Arizona Proposition 208 (Invest in Education Act) establishes an additional 3.5% personal income tax rate on annual taxable income above $250,000 for single filers or married persons filing separately, and on annual taxable income above $500,000 for married persons filing jointly or head of household filers. This additional personal income tax is effective for all taxable years beginning on or after December 31, 2020.
Results: will likely pass based on early reported results (approximately 86% of the vote reported)
- 52.56% yes votes (1,398,182)
- 47.44% no votes (1,262, 132)
Fiscal Impact: proposed to raise an estimated $940 million in new revenue each year to be used for educational programs and to compensate teachers.
CALIFORNIA
Property Taxes
Behind in early returns. California Proposition 15 proposed a split-roll property tax system by carving out commercial and industrial property worth more than $3,000,000 from the state constitution’s property tax limitations. The initiative would not have changed the way residential property is valued and assessed for property tax purposes. Commercial and industrial property, however, would have been reassessed at least once every three years at full market value (with certain exceptions) regardless of whether there was a change of ownership. Revenues generated by the measure would have been used to fund local governments and schools.
Results: may fail but too close to officially call. Currently, 99% of precincts have partially reported their vote (72% of the vote) with the results as follows:
- 48.3% yes votes (5,593,236)
- 51.7% no votes (5,993,478)
Fiscal Impact: proposed to raise up to $11.5 billion annually for local governments and schools and increase California property tax collections by about 20%.
| Eversheds Sutherland Observations: This initiative proposes to remove commercial and industrial properties from property tax limitations established by Proposition 13 in 1978, which essentially froze property taxes in place throughout the state until an owner sold their land or property. The measure is meant to apply to large commercial and industrial properties, as businesses with less than $3 million in aggregate real estate holdings in the state would not be subject to the new valuation method. In addition to the significant opposition this measure received from the business community, the California Assessors’ Association also opposed the measure (talk about strange bedfellows), stating that county assessors are not equipped to handle the change in methodology from the historic approach under Proposition 13 to valuing commercial and industrial properties at fair market value on a regular basis. |
May pass. California Proposition 19 amends the state constitution to allow California property owners who are over the age of 55, severely disabled, or victims of a wildfire or natural disaster to transfer their base-year value to replacement properties without regard for the replacement property’s location or value. The proposition also limits the parent-child and grandparent-grandchild exclusion from change-in-ownership reassessment, thus increasing property tax revenues in the state. The net revenue gain generated by this property tax increase is earmarked for fire services and reimbursement of counties with “negative gain” resulting from the amendment.
Results: may pass but too close to officially call. Currently, 99% of precincts have partially reported their vote (72% of the vote) with the results being as follows:
- 51.5% yes votes (5,850,160)
- 48.5% no votes (5,500,719)
Fiscal Impact: while some parts of the measure increase property taxes and others decrease property taxes, it is estimated that overall, the measure would result in a net gain and that property taxes for local governments and schools would increase by tens of millions of dollars each year and grow to a few hundred million dollars per year.
Worker Classification
Passed. California Proposition 22 considers app-based drivers for rideshare and delivery companies to be independent contractors and not employees or agents and adopts labor and wage policies specific to app-based drivers and companies, including requiring rideshare and delivery companies to provide minimum hourly earnings guarantees, healthcare contributions, and occupational and accident insurance for drivers. This initiative was proposed in response to legislation passed last year that extended employee classification to gig workers.
Results: passed. Currently, 99% of precincts have partially reported their vote (72% of the vote) with the results being as follows:
- 58.4% yes votes (6,720,240)
- 41.6% no votes (4,780,140)
Fiscal Impact: the initiative’s analysis states that there will be “[m]inor increases in state income taxes paid by rideshare and delivery company drivers and investors.”
Local Ballot Measures
Passed. San Francisco, California Proposition F repeals the City’s Payroll Expense Tax and increases the Gross Receipts Tax rates applicable to various business activities. The proposition also creates two “backstop” taxes, which would be imposed if pending judicial decisions invalidate certain taxes enacted by ballot initiative in 2018. The proposition also amends the Charter of the City and County of San Francisco to reduce the annual registration fee for businesses with $1,000,000 or less in gross receipts. Lastly, the charter amendment also expands the small business exemption to include businesses with $2,000,000 or less in gross receipts, but increases the registration fee for businesses with $1,500,000.01 to $2,000,000 in gross receipts who benefit from the small business exemption.
Results: passed (100% reporting)
- 68.27% yes votes (219,205)
- 31.73% no votes (101,885)
Fiscal Impact: estimated to generate approximately $97 million annually once fully implemented.
| Eversheds Sutherland Observation: San Francisco is currently litigating the validity of two local ordinances passed by a simple majority in 2018 – the Homelessness Gross Receipts Tax Ordinance and the Early Care and Education Commercial Rents Tax Ordinance. See our prior coverage here. In the event the City loses these law suits, the backstop taxes under Proposition F are meant to provide sufficient additional general fund revenue for the City to refund businesses as necessary and provide ongoing revenue. One backstop tax would increase the gross receipts tax on certain taxpayers for 20 years if the Homelessness Gross Receipts Tax Ordinance is invalidated in court. The other backstop tax would impose a new general tax on the gross receipts from the lease of certain commercial space for 20 years if the Early Care and Education Commercial Rents Tax Ordinance is invalidated in court. |
Passed. San Francisco, California Proposition I amends the Business and Tax Regulations Code to double the real property transfer tax rate from 2.75% to 5.5% on transfers of property with a consideration or value of at least $10,000,000 and less than $25,000,000. The initiative also doubles the real property transfer tax rate from 3% to 6% on transfers of property with a consideration or value of at least $25,000,000.
Results: passed (100% reporting)
- 57.97% yes votes (187,900)
- 42.03% no votes (136,233)
Fiscal Impact: estimated to generate tax revenues of approximately $196 million a year.
Passed. San Francisco, California Proposition J repeals the parcel tax included in the Living Wage for Educators Act of 2018 (Proposition G) – which is the subject of pending litigation – on July 1, 2021 and replaces it with a $288 parcel tax to be spent by the San Francisco Unified School District for educators’ compensation and educational improvements.
Results: passed (100% reporting)
- 74.97% yes votes (239,977)
- 25.03% no votes (80,100)
Fiscal Impact: estimated to generate tax revenues of approximately $48.1 million a year.
Passed. San Francisco, California Proposition L (CEO Tax) amends the Business and Tax Regulations Code to impose an additional gross receipts tax (between 0.1% - 0.6% of gross receipts) or an administrative office tax (between 0.4% to 2.4% of payroll) on businesses with a greater than a 100:1 ratio of the compensation of the business’s highest paid managerial employee to the median compensation paid to the business’s employees based in San Francisco. Additionally, the ordinance increases San Francisco’s appropriations limit by the amount collected under the additional tax for four years beginning November 3, 2020.
Results: passed (100% reporting)
- 65.18% yes votes (212,464)
- 34.82% no votes (113,510)
Fiscal Impact: estimated revenue between $60 million and $140 million a year. The revenue impact varies due to the volatility of the tax (e.g., narrow base of expected payers, fluctuations and variances in executive compensation, etc.).
| Eversheds Sutherland Observations: In addition to increasing a business’ tax liability, this measure is likely to create significant compliance challenges as it involves calculating a compensation ratio required for no other state or local tax filing. Consequently, businesses affected by this tax likely will question their presence in San Francisco and evaluate the benefits of relocation. Even the San Francisco Controller’s analysis for Proposition L notes the risk of potential relocation by businesses associated with the tax increase from the CEO Tax. Considering the compliance burden and based on how the additional tax ultimately impacts business, legal challenges are also possible. |
COLORADO
Property Tax
Passed. Colorado Amendment B repeals several constitutional provisions regarding property taxes, commonly referred to as the Gallagher Amendment. Specifically, it repeals the 29 percent assessment rate in the Colorado Constitution for most nonresidential property, the calculation of the target percentage, and the requirement that the General Assembly adjust the residential assessment rate to maintain the target percentage.
Results: passed (88% reporting)
- 57.39% yes votes (1,62,717)
- 42.61% no votes (1,204,137)
Fiscal Impact: the measure maintains the existing residential and nonresidential assessment rates. However, it is projected that the measure will result in a higher residential assessment rate.
| Eversehds Sutherland Observation: The Gallagher Amendment requires that the proportion of taxable value for residential and nonresidential property remain constant between each assessment cycle. This proportion is known as the target percentage, and is adjusted for any new construction and mineral production that occurs during the reassessment cycle. The residential assessment rate is adjusted to achieve the target percentage. Over time without the measure, the residential assessment rate was projected to continue to fall due to the relative growth of residential versus nonresidential property values. |
GEORGIA
Passed. Georgia Constitutional Amendment 1 would authorize the Georgia State Legislature to pass legislation requiring that taxes or fees collected for a stated purpose be used as intended.
Results: passed (99% reporting)
- 81.56% yes votes (3,764,694)
- 18.57% no votes (850,939)
Fiscal Impact: because the measure is permitting the legislature to dedicate tax and fee revenue, there is no expected increased state funds projected by this measure.
| Eversheds Sutherland Observation: With the passage of Amendment 1, the General Assembly will now be able to dedicate funds from revenue raising measures (taxes or fees) for special purposes through enacted legislation (subject to various conditions and other safeguards). Historically, such “dedicated” taxes/fees (e.g., hazardous waste or tire recycling fees) could only be achieved through constitutional amendment, which arguably incented the legislature to divert those fees into the general fund. Stay tuned to Eversheds’s www.stateandlocaltax.com for additional thoughts on Amendment 1. |
ILLINOIS
Personal Income Tax
Failed. Illinois Proposed Amendment to the 1970 Illinois Constitution would have granted the State the authority to impose a graduated income tax and would have removed the portion of Revenue Article of the Illinois Constitution that is sometimes referred to as the “flat tax,” which requires all taxes on income to be at the same rate.
Results: failed (98% reporting)
- 45% yes votes (2,237,103)
- 55% no votes (2,735,485)
Fiscal Impact: switching to a graduated tax rate was project to raise about $1.5 billion for the rest of the current budget year and $3.4 billion over a full twelve months.
| Eversheds Sutherland Observation: Most states (32 of 50) have a graduated personal income tax system, with different tax rates applying to different levels of income. While the measure did not itself propose to change Illinois’ tax rate, it would have permitted the imposition of a graduated tax rate system. Legislation enacted back in 2019 (Senate Bill 687) switched the state’s flat 4.95% personal income tax rate to a graduated tax with rates ranging from 4.75% to 7.99% beginning January 1, 2021, which now will not be effective due to the ballot measure failing. |
LOUISIANA
Property Tax
Passed. Louisiana Amendment 2 permits the presence or production of oil or gas to be included in the methodology used to determine the fair market value of an oil or gas well for the purpose of a property tax assessment.
Results: passed (100% reporting)
- 58.34% yes votes (1,158,709)
- 41.66% no votes (827,491)
Fiscal Impact: the Fiscal Note for the bill that proposed this constitutional amendment (HB 360) did not score the measure, stating the Louisiana Tax Commission would be required to promulgate regulations providing an income basis approach to the valuation of oil and gas wells and the effect on local tax bases is speculative.
Failed. Louisiana Amendment 5 proposed amending the Louisiana Constitution to authorize local governments to enter into cooperative endeavor ad valorem agreements to receive payments in lieu of ad valorem taxes from new or expanding manufacturing and energy businesses. Exempted property, however, must be listed on the assessment rolls and the information concerning those properties must be submitted to the Louisiana Tax Commission.
Results: failed (100% reporting)
- 37.33% yes votes (727,344)
- 62.67% no votes (1,221,197)
Fiscal Impact: the measure is not anticipated to have any direct material effect on government expenditures.
Unclaimed Property
Passed. Louisiana Amendment 7 amends the Louisiana Constitution to create the Louisiana Unclaimed Property Permanent Trust Fund to be used solely for the payment of claims made by owners of abandoned property. Monies from unclaimed property are to be deposited into the fund until the balance equals the state’s potential liability for all unclaimed property claims. Any monies received beyond that liability, as well as annual investment earnings, net of administrative expenses, are to be deposited into the state general fund.
Results: passed (100% reporting)
- 64.32% yes votes (1,267,362)
- 36.68% no votes (702,900)
Fiscal Impact: because the measure is moving unclaimed property funds from the general fund to a separate account, there is no expected increase to state funds generally. The Fund is anticipated to have accumulated earnings, including equities, of $1 million by fiscal year 2023.
OREGON
Payroll Tax
Failed. The Portland Metro Council Measure 26-218 proposed authorizing a payroll tax on employers for workers in the metropolitan Portland areas to fund transit improvements and transportation programs along transit corridors in portions of Clackamas, Multnomah, and Washington counties. The measure proposed allowing the Metro Council to set the payroll tax at a rate not to exceed 0.75% for employers with over 25 employees beginning in 2022. Employers with 25 employees or less would have been exempt from this payroll tax.
Results: failed (81.63% reporting)
- 46.16% yes votes (195,543)
- 53.84% no votes (228,068)
Fiscal Impact: it was projected that the payroll tax would have raised approximately $250 million each year for the proposed transit improvements and transportation programs using current employment numbers.
Personal Income Tax
Passed. Multnomah County, Oregon Preschool for All Program Measure 26-214 imposes a new personal income tax at a rate between 1.5% and 3.8% on residents of Multnomah County. Beginning January 1, 2021, the measure imposes a 1.5% income tax on single filers with taxable income derived within the county over $125,000 and an additional 1.5% on taxable income over $250,000. For joint filers, the measure imposes a 1.5% income tax on taxable income derived within the county over $200,000 and an additional 1.5% on taxable income over $400,000. Beginning in January 1, 2026, the base income tax rate imposed by the measure increases from 1.5% to 2.6%. Revenue generated by this measure would be used to fund tuition-free preschool and compensate teachers.
Results: passed (81.63% reporting)
- 64.14% yes votes (278,533)
- 35.86% no votes (155,720)
Fiscal Impact: estimated to raise $133 million each year.
Property Taxes
Passed. City of Portland, Oregon Measure 26-213 imposes a property tax at a rate of $0.80 per $1,000 of assessed value for a five-year period beginning in 2021. Revenue generated by this measure would fund parks and recreation services.
Results: passed (81.63% reporting)
- 64.01% yes votes (229,110)
- 35.99% no votes (128,810)
Fiscal Impact: estimated to raise $45 million in the first year, with an estimated average of $48 million each year for the five-year period. For a home with an assessed value of $200,000, the City estimates that the cost is about $13 per month.
| Eversheds Sutherland Observations: Local businesses and individuals are also still preparing to absorb tax increases imposed through past ballot measures. During the May primary, Portland Metro voters approved Measure 26-210, which supports homeless services and imposes a business profits tax beginning in 2021 on the net income of each person doing business in the Portland Metro District (which combines three counties in the greater Portland area) that have total annual gross receipts over $5 million. This measure also contained a personal income tax component, imposing an additional one percent personal income tax on taxable income over $200,000 for joint filers and over $125,000 for single filers on income over these thresholds. With the passage of the new County-wide personal income tax, Multnomah County, which includes Portland, will have a combined state and local personal income tax rate in the country of 14.6%. These tax increases are in addition to the new state Commercial Activities Tax that businesses also face. |
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