FOR IMMEDIATE RELEASE
EAST LANSING, MI—January 4, 2018—Experts at Anderson Economic Group have identified ambiguities in the state laws of Michigan, New York, and Illinois that, together with the recently-enacted Tax Cuts and Jobs Act, could cause increases in state and local income taxes that exceed $2 billion per year, in these states alone.
In letters to state officials in Michigan, New York, and Illinois, and also to New York City, they have highlighted the ambiguity, and proposed an interpretation that avoids raising state and local taxes without formally changing state laws.
“We are asking these state officials to state publicly their intentions regarding this issue, and do so promptly to avoid taxpayer confusion, penalties on taxpayers, and the temptation to raise taxes without taking the public and formal steps of changing the law,” said Patrick L. Anderson, CEO of the company. “State officials have an obligation to be transparent with taxpayers,” he added.
How Federal Tax Reform Could Affect State Income Taxes
At least 30 states have income taxes that directly reference the internal revenue code. Many of these rely upon federal law for the definition and eligibility for tax exemptions under their state and city income taxes. While it has been popularly reported that the recently-enacted federal law “eliminated” personal exemptions, Anderson Economic Group experts have pointed out in the letters released today that these exemptions remain very much in place in federal law, and recommended that state officials declare that they will continue to be recognized for state income tax purposes.
Action in Michigan
In Michigan, the issue could result in a $1.4 billion increase in state income taxes this year. On December 29, 2017, Patrick Anderson, Principal and CEO of Anderson Economic Group, sent a letter to Michigan Treasurer Nick Khouri. The letter noted the issue, recommended that the exemptions should remain in place in Michigan, and requested a clarification. Treasurer Khouri responded promptly to the request. In his letter of January 3, 2018, he agreed the federal tax reform did not explicitly eliminate personal exemptions, but asserted that, due to certain details in Michigan statute, Michigan taxpayers would not be able to claim personal exemptions on their state tax returns. In the letter, Khouri called on the state Legislature to resolve this matter.
Action in New York, New York City, and Illinois
Today, Anderson Economic Group is sending similar letters to leaders in Illinois, the State of New York, and New York City, jurisdictions with similar language in their laws regarding state or local income tax exemptions. Like in Michigan, Anderson Economic Group analysts believe that these federal changes will not result in the loss of personal exemptions in their state or local income taxes. If state tax payers are unable to claim exemptions, it will result in an income tax increase of $500 million and $300 million in Illinois and New York, respectively. New York City’s income taxes will increase by over $50 million.
Call for Transparency and Responsibility
“We appreciate the willingness of the Michigan Treasurer to address our request promptly and transparently. We call on leaders in Illinois, the State of New York, and New York City to do the same,” said Jason Horwitz, Public Policy Director for Anderson Economic Group and the author of the letters to Illinois and New York. “Taxpayers deserve to know what their income taxes are. Legislators and state officials deserve to know what the effects of these reforms are so they can do their job,” he added.
About Anderson Economic Group
Since its founding in 1996, Anderson Economic Group has become a leading business consulting firm, specializing in public policy, strategy and business valuation, and market and industry analysis. AEG has assisted governments, universities, large corporations, and businesses across the U.S. and abroad. All of the firm’s work is based on its core values of Professionalism, Integrity, and Expertise.
Among the signature products of the company is their annual Business Tax Burden study, which has been prepared for over a decade. AEG is headquartered in East Lansing, Michigan, and has offices in Chicago, New York City, and Istanbul.
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