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Question of the Month ~ June/July 2018


Q. Do any states in the Midwest have a constitutional ban on an income tax, or require super-majorities to raise any state taxes?

by Jon Davis ~ June/July 2018 ~ Question of the Month »
To the first question, no. In fact, quite the opposite: 10 of 11 Midwestern states have income taxes and the other, South Dakota, allows for the possibility in two different parts of its Constitution. However, since the early 1940s, South Dakota has had no individual income tax. Outside the Midwest, Alaska, Florida, Nevada, Texas, Washington and Wyoming also don’t have one. (New Hampshire and Tennessee don’t tax earned income, but they do tax investment interest and dividends at 5 percent and 6 percent, respectively.)
The Texas Constitution specifically acknowledges that incomes may be taxed, but also requires that the imposition of any new tax (or any increase in existing rates) be approved by voters through a referendum.
In some states, too, any or most kinds of tax increases by the legislatures require super-majorities. For example, Delaware, Kentucky, Mississippi and Oregon require a three-fifths vote of each house to raise taxes, while Arkansas and Oklahoma require a three-quarters majority. Arizona, California, Nevada and Louisiana require a two-thirds vote of each house.
In South Dakota, while the Legislature has the power of taxation, a two-thirds vote in the House and Senate is required for increasing existing taxes or imposing new ones; the other alternative is a direct vote of the people to raise taxes.
Other states in the Midwest also operate under constitutional limits on taxation. For example, a flat income tax must be imposed on Illinois’ residents and businesses, and the corporate rate cannot be greater than the individual rate by more than a ratio of 8:5.
Michigan’s Constitution limits the total amount of taxes that can be imposed in any fiscal year; under the 1978 “Headlee Amendment” (named for Richard Headlee, who spearheaded the initiative), the state’s total revenue is limited to no more than 9.49 percent of personal income in Michigan.
That limit cannot be changed except by a voter-approved constitutional amendment, or a gubernatorial request that the Legislature declare an emergency. Such a request must state the emergency’s nature, dollar amount and method of funding, and the Legislature must declare the emergency by a two-thirds vote of each house.
In addition, Article IX, Section 3, of the Michigan Constitution requires a three-fourths majority of both houses to increase the state property tax, which is used to support school funding. That tax was created in a successful 1994 referendum that revamped how Michigan’s public schools were funded. Wisconsin has a statutory requirement for a two-thirds majority of both houses to raise the state sales tax and income or franchise tax rates.


Question of the Month highlights an inquiry sent to the CSG Midwest Information Help Line.