July gas tax increase: California, six more states

These increases, which took effect today, July 1, will likely impact your wallet as you fill up for road trips and summer activities.

But it's not all bad news. Gas tax rates were reduced a bit in a couple of places, offering some relief. Is your state one of them?

California gas tax increase 2024

California continues to lead the nation with the highest gas tax in 2024, which climbs to 69.8 cents per gallon as of July 1. This increase pushes the Golden State's average price for a gallon of regular gasoline to about $4.79. 

In other tax news, California also has a new gun and ammo tax effective July 1. Additionally, the state's Supreme Court just removed an initiative from the California November ballot that proposed to have taxpayers weigh in on state tax hikes.

Gas tax increase Illinois

Not far behind, Illinois is raising its gas tax to 47 cents per gallon, a 3.5% increase from its previous rate of 45.4 cents per gallon. For 2024, the Land of Lincoln again ranks among the country's most expensive states for gas taxes.

Illinois also has one of the highest sales tax rates in the U.S., but it's one of the states that doesn't tax retirement income.

Indiana gas tax increase

Indiana motorists will also see a bump in their gas tax as of July 1. Gas tax in the Hoosier State reaches 56.1 cents per gallon when additional fees are factored in. The per gallon gas tax rate rose from 34 cents to 35 cents.

Virginia gas tax rate

Virginia is implementing a modest gas tax increase to 30.8 cents per gallon from 29.8 cents as of July 1. While not as steep as some other states, this hike still contributes to the overall cost of driving a vehicle in the Commonwealth.

Missouri gas tax increase

Missouri is making a more substantial jump, with its motor fuel tax rising to 27.5 cents per gallon from 24.5 cents per gallon. This increase may come as a surprise to Show-Me State residents accustomed to lower gas taxes. The average price of a gallon of regular in Missouri is about $3.13.

Also, as Kiplinger reported, Missouri recently became more tax-friendly toward retirees. The state repealed its income tax on Social Security retirement benefits, effective for the 2024 tax year.

Colorado and Nebraska

Nebraska and Colorado are adjusting their gas tax rates, though less dramatically. Nebraska is adding a half-cent to its fuel tax (making it 30.5 cents per gallon). In addition to small road usage and environmental fee increases, Colorado's gas tax rate as of July 1 is 27.9 cents per gallon.

*It's important to note that state taxes are levied in addition to the federal gas tax of 18.4 cents per gallon of regular and 24.4 cents per gallon of diesel.

States lowering gas tax this summer

Not all states are increasing gas taxes. Starting July 1, you'll be paying a bit less at the pump in Kentucky, thanks to a decrease in the Commonwealth's gas tax. 

• The tax in the Bluegrass State will drop by 2.3 cents per gallon, bringing it down to 27.8 cents. 
• Savings for motorists are reportedly estimated to be about 32 cents per fill-up for a 16-gallon tank.

Maryland’s state gas tax decreases slightly on July 1, offering some relief at the pump. This adjustment is due to a law that adjusts the tax based on economic factors, sometimes resulting in reductions even when there is inflation. The average price for a gallon of regular in Maryland is about $3.56.

New gas tax: Bottom line

While gas tax increases may be unwelcome news for drivers, it's worth remembering that these taxes often fund infrastructure projects and environmental initiatives. 

Whether commuting to work or planning road trips, being aware of these tax changes can help you budget accordingly and consider more fuel-efficient alternatives (like states with low gas taxes) when possible.

Related

• States With the Lowest Gas Taxes
• Summer Activities That Can Impact Your Taxes
• Food Tax: Which States Still Tax Groceries?

But you don't have to reside in Nevada to take advantage of some of these benefits. At the Whittier Trust Company of Nevada, many of our clients live in California, but we serve as their trustee—because what matters is the state in which your trust is administered.

Advantages of irrevocable trusts

This geographical choice has the greatest implications when it comes to the benefits incurred through an irrevocable trust. Most people are familiar with revocable, or living, trusts, which are relatively simple to set up and can be modified at any time, changing beneficiaries and managing the assets within the trust as you like. Why, then, would anyone opt for an irrevocable trust, which can't be modified without legal action? 

The answer is that an irrevocable trust offers greater protection and tax benefits. It effectively removes your taxable estate assets, freeing them from estate tax after you pass. It also shields your assets from creditors in the event you are sued. This safeguard can be particularly important for attorneys, doctors, and other professionals at high risk of lawsuits. 

Because of these significant protections, irrevocable trusts can be difficult to set up. Our Whittier team includes qualified fiduciaries and expert investment advisers to help clients weigh all options. We consider not only state taxes but also other laws, such as privacy issues in regard to public record laws for trusts in different states. We take the time needed to understand each client's lifestyle and long-term goals, applying those objectives to the purpose and implications of the trust.

Nevada 1-2-3

Once a client has decided that an irrevocable trust is the best fit, we often suggest that we administer that trust from Nevada because of the three key benefits: no state income tax, no state estate tax, and no state inheritance tax. In short, you can accumulate wealth in Nevada and pass it to future generations with minimal taxation. In California, any income from your trust could be subject to state taxes. If, for example, you have a $10 million trust in California and it generates $500,000 in annual income, you could lose upwards of $100,000 per year to taxes. 

Nevada also allows for the appointment of a trust protector, in addition to a trustee, who can modify your trust terms if your circumstances change. What's more, in Nevada, you can start planning for 25th-century relatives because 365 years is the limit of the "dynasty trusts" offered in our state. 

Foreseeing complications

Estate and trust rules differ significantly from state to state, and it quickly gets complicated. Some states require that a trustee or beneficiary be a state resident, while others tax any trust set up by a resident of that state, no matter where the trustees or beneficiaries live. 

As much as I love California, I can't help but use their far-reaching tax laws for comparison (you pay a price to live in paradise!). If you set up your trust in Nevada or some other tax-friendly state, California may try to claim taxes if you use California employees to administer the trust. If a trustee dies and the successor trustee lives in California, the trust is now at risk of getting taxed in California. The bottom line is that it is best to work with your professional advisers to eliminate the possibility of exposing your trust to the long arm of the California Franchise Tax Board. 

Tax law is ever-changing as well. For example, beginning in 2024, California was able to tax trusts called Incomplete Non-Grantor Trusts (ING trusts), even when they were managed in Nevada (NINGs), but because we anticipated this change, our team was able to help clients pivot to lessen the impact of the new legislation. 

Few trust companies have more experience negotiating the finer points, financially speaking, of the California-Nevada relationship than Whittier Trust. Whatever state you choose, or even if you choose both—living in California with your trust based in Nevada—Whittier Trust will work to safeguard your family's financial future as we have for multiple generations of clients, protecting your assets and your legacy for beneficiaries for many years to come. 

In a release, Polis pointed out that under Colorado Promise, any public four-year college, community college, or trade school will be free for more Coloradans.

“This will strengthen Colorado’s workforce, provide new pathways for students to gain in-demand skills, and save Coloradans thousands of dollars — helping ensure that higher education is affordable for everyone,” Polis stated.

The initiative, which starts this fall, is designed to help more students from families with lower and middle incomes pursue higher education without the burden of significant debt.

Here’s more of what you need to know.

Is college tuition free in Colorado?

The Colorado Promise program will offer two years of tuition and fees at any public four-year college, community college, or trade school in Colorado for students whose families earn less than $90,000 annually. 

According to the Colorado Department of Education website, “the tax credit covers up to the first 65 credits a student takes, not counting any concurrent enrollment, AP/IB, military credit, or credit for prior learning.”

• To be eligible for this program, students must qualify for in-state tuition and complete either the Free Application for Federal Student Aid (FAFSA) or the Colorado Application for State Financial Aid (CASFA). 
• Additionally, they must enroll in college within two years of graduating high school to pursue a degree and have a semester minimum 2.5 grade point average (GPA).

Qualifying students initially pay tuition out-of-pocket and the reimbursement is for tuition and fees after accounting for any scholarships or grants. However, eligible students can claim reimbursement during tax season through a refundable income tax credit.

• For example, students starting their education in the fall of 2024 will claim their tax credit on their 2025 returns, filed in early 2026. 
• That means families cover tuition upfront, with reimbursement following the subsequent tax year. 

The lag between paying tuition and receiving the tax credit could be challenging for some. Still, long-term benefits of reducing student debt and enhancing access to education are potentially substantial.

Note: According to state officials, the program specifics may vary depending on the requirements of each educational institution. 

TABOR Colorado

Funding for the free tuition initiative involves reallocating state tax revenues to fund the educational costs for eligible students. The program leverages funds collected above the Taxpayer’s Bill of Rights (TABOR) cap. (TABOR requires that excess revenue be returned to Colorado taxpayers.)

TABOR payments/refunds are based on whether the state exceeds a surplus revenue threshold. For example, as Kiplinger has reported, 2024 TABOR payments will be flat or equal across the board. Current estimates are that single filers could receive about $847 and joint filers, $1,694.

Other Colorado tax relief

In addition to the Colorado Promise initiative, Gov. Polis recently signed other tax bills designed to support families and improve economic conditions. Meanwhile, Coloradans will also have the opportunity to vote on property tax proposals in November. 

Two proposed property tax measures on the state ballot would provide tax relief to homeowners facing soaring property values.

Related

• Colorado State Tax Guide
• Colorado EV Tax Credit Rises to $5,000
• Are Scholarships Taxable or Tax Free?

Fairfax County supervisors Dalia Palchik, Jeff McKay, and Kathy Smith are leading this initiative. They argue that the revenue generated from the meals tax could support local schools, which they say have been underfunded by the Commonwealth. The tax could also reduce the county's reliance on real estate taxes.

According to Palchik (D-Providence), who represents the Tysons area of the county, early estimates indicate potential revenue from a 1% tax of $33 million.

Here’s more of what you need to know.

Virginia meals tax?

• The proposed meals tax would apply to prepared meals from various outlets, including grocery stores, restaurants, and convenience stores in Fairfax County. 
• The Board of Supervisors has initiated a study to examine the benefits and drawbacks of implementing a tax of up to 6% (or as low as 1%) on these items.

Notably, the idea of taxing meals isn't new to Fairfax. In the past decade, voters rejected two attempts at a similar tax.  

However, proponents of the tax argue that relying solely on property taxes burdens homeowners. A recent budget increased yearly property taxes for homeowners in the county by about 3%, an average of $450. Currently, the county gets about 66% of its revenue from property tax.

One supporter argues that surrounding areas like Prince William County have adopted similar taxes and that Fairfax County attracts visitors for dining who don’t contribute to the county’s funds. The idea is that a meals tax could help the county capture some of that money. 

Another rationale for the tax is data showing that Virginia reportedly spends nearly $2,000 less per student than the national average, forcing county officials to spend millions more to support education.

However, the proposal has its critics. For example, supervisor Pat Herrity voted against the meals tax, arguing that residents have previously opposed such taxes (first in 1992 and most recently in 2016) and that the board should respect that fact. Herrity expressed concerns about adding another tax burden on local citizens.

“Residents have pretty strongly stated that this isn’t how they want to see us go,” Herrity (R-Springfield) said as the only “nay” vote.

Meanwhile, the County will proceed with research and public consultation to evaluate the meals tax proposal. A report is expected this fall.

Virginia budget deal

This discussion of revenue comes as Virginia lawmakers have recently agreed to a bipartisan budget that doesn’t contain tax increases or cuts. Gov. Glenn Youngkin had called for tax cuts last year, and Democratic lawmakers had proposed a digital sales tax — neither made it into this year’s budget.

Instead, the Virginia budget notably includes funding for a 3% salary increase for teachers and other state employees. 

Related

• Food Tax: States That Still Tax Groceries
• Virginia State Tax Guide
• Virginia Tax Rebates for 2023: Did You Get One?

As a result, the California Franchise Tax Board (FTB) has urged residents to activate their Middle Class Tax Refund debit cards to access this financial aid. 

Here’s more of what you need to know.

Unspent California inflation relief

The California Middle-Class Tax Refund (MCTR) was created to assist middle-class families with high housing costs, healthcare, and everyday necessities. 

• Eligible California residents automatically received relief payments between October 2022 and January 2023. 
• MCTR payments typically ranged from $200 to $1,050, with the exact amount based on income, filing status, and number of dependents.

California sent funds to residents through direct deposit or MCTR debit cards. FTB data indicates that 9.6 million debit cards were distributed, but millions in unspent benefits reportedly remain because many debit cards have yet to be activated. (According to a March 7 audit report, "more than one million debit cards, worth approximately $611 million in payments, had not yet been activated by their recipients as of January 2024.")

To address this, the FTB reminds residents to activate their MCTR debit cards. The agency also encourages those who haven’t received their cards to contact the agency to ensure they get their MCTR benefits.

Some residents might not know the funds on the cards can be transferred to a bank account of their choice. The FTB also points out that the MCTR debit cards are valid for three years from the date of issuance.

California Middle Class Tax Refund: What to Do

According to the FTB, if you received a Middle Class Tax Refund (MCTR) debit card and have not activated it, you may have received or will receive an activation reminder letter with instructions on how to do so. 

If you need assistance with activation, replacement, or lost or stolen MCTR cards, call 1-800-240-0223.

If you have not received your debit card and believe you are eligible, ensure your address is updated with FTB. Visit the FTB’s Help with the Middle Class Tax Refund page for instructions on updating your address.

Is California MCTR taxable?

The FTB says the MCTR payment is not taxable for California state income tax purposes. Also, as Kiplinger reported, the IRS announced last year that it would not tax California Middle-Class Tax Refunds at the federal level.

Related

• California Tax Deadline Extension: What You Need to Know
• California Just Became More Expensive for High Earners
• Are Big Changes Coming to California Taxes in November?

In a news release, DeSantis referred to the tax cuts as necessary, saying they will provide necessary tax relief for Floridians while the "D.C. political class shows no signs of reversing course on the inflationary policies of the federal government.”

Here's what tax cuts Florida residents can expect  — and when they take effect.

DeSantis' home insurance tax exemption

Florida typically imposes a 1.75% tax on property insurance policies, but eligible homeowners will soon enjoy an entire year of tax-exempt home and flood insurance premiums. 

The exemption only applies to residential policies with effective dates between Oct. 1, 2024 and Sept. 30, 2024. During this time, lawmakers expect Floridians to save more than $500 million.

2024 Florida sales tax holidays

Florida will run a two-week Back-to-School Sales Tax Holiday from July 29, 2024, through August 11, 2024. Like last year, the 2024 tax holiday will make several items, including clothing, computers, backpacks, and school supplies tax-exempt. 

While price limits apply, they are more generous than in many states. For example, eligible computer and computer software products can cost up to $1,500 and remain eligible for the exemption.

DeSantis also defined dates for three other Florida sales tax holidays this year:

• Freedom Month, which makes the purchase of certain recreational tickets, passes and admissions tax-exempt, will run from July 1 to July 31, 2024. (Admission to the events can be used from July 1 through the end of 2024.)
• The Skilled Worker Sales Tax Holiday, which makes certain tools, equipment and safety clothing tax-exempt, will run from Sept. 1  through Sept. 7, 2024.
• Florida will have two Disaster Preparedness Sales Tax Holidays this year (June 1 to June 14, 2024 and Aug. 24 –September 6, 2024). 

The Florida Disaster Sales Tax Holidays exempt items, such as generators and batteries, from sales tax to help Floridians prepare for natural disasters. But the tax holiday also exempts household items, such as toilet paper and trash bags. 

And even items to help families safely evacuate pets are tax-exempt. These include pet food, cat litter pans, and even hamster substrate.

Florida tax cuts

DeSantis' $1.07 billion tax relief package also includes tax cuts for business, which may indirectly benefit families. For example, the bill creates a tax credit for companies who operate or support a childcare programs for their employees. This could result in more employers offering childcare assistance to workers.

Also included in the bill is a new corporate income tax credit for businesses that hire persons with disabilities and an increase to the cap for the Strong Families Tax Credit, which incentivizes companies to make charitable contributions to child welfare organizations.

Related Content

• Five Reasons People Retire in Florida
• Will Florida Property Tax Be Eliminated?
• 10 Most Tax-Friendly States for Retirees

Most states also impose taxes on long-term capital gains (typically, gains held for more than one year), some at a higher rate than others. So, you may want to familiarize yourself with these worst states for investors before purchasing that investment property or those high-growth stocks.

Worst capital gains tax states for investors  

To determine the worst states for investors, we considered each state’s top long-term capital gains tax rate. We did not compare state tax rates for investors with lower incomes. For that reason, the states on this list might not apply to those with nominal investment earnings. All investors should carefully consider possible tax implications when buying and selling assets.

California

High long-term capital gains tax rate: 13.3%

It’s probably no surprise to see California make this list. The Golden State is well-known for imposing high tax burdens on its wealthiest residents (and investors). 

California is the most expensive state for wealthy investors, with a capital gains tax rate of 13.3% on income exceeding $1 million. And high-earning employees should take note. A newly expanded payroll tax means California’s highest earners to pay an additional 1.1%.

New York

High long-term capital gains tax rate: 10.90%

New York comes in on this list as the second worst state for investors. The high New York 10.90% tax rate applies to capital gains and earned income. 

While this tax rate only applies if your income reaches $25 million, even lower earnings are often taxed at high rates. For example, in the Empire State, income that exceeds just $21,400 ($43,000 for joint filers) is subject to a tax rate of at least 6.21%.

Minnesota

High long-term capital gains tax rate: 10.85%

For the most part, Minnesota taxes long-term capital gains the same as it does short-term gains and ordinary income. 

However, high-earning investors in Minnesota are subject to an additional 1% tax on net investment income that exceeds $1 million. That makes the top tax bracket for capital gains in the North Star State 10.85%.

New Jersey

High long-term capital gains tax rate: 10.75%

New Jersey ranks just below Minnesota, with a high tax rate of 10.75%. The 10.75% rate applies to all taxable income of $1 million or more for single filers. The rate drops to 8.95% if your earnings don’t exceed half a million. 

However, investors with as little as $75,000 in gains will still pay more than 6% to the Garden State.

Washington DC

High long-term capital gains tax rate: 10.75%

The District of Columbia ties with New Jersey as the fourth worst state for investors when it comes to long-term capital gains tax rates. The high 10.75% tax rate in Washington DC applies to taxable income that exceeds $1 million. 

However, lower-earning investors can also experience high tax burdens. For example, the tax rate doesn’t fall below 9% unless you have less than $250,000 in gains, and even then, income that exceeds $60,000 is taxed at more than 8%.

Oregon

High long-term capital gains tax rate: 9.9%

Long-term capital gains tax rates fall below 10% in Oregon. However, the investment income brackets are far less generous than in many states on this list. 

Single filers with taxable income of $125,000 or more ($250,000 or more for joint filers) are subject to the 9.9% tax rate. And taxable income in the Beaver State that exceeds $3,750 ($8,100 for joint filers) is taxed at a minimum of 6.75%.

Massachusetts

High long-term capital gains tax rate: 9.0%

While the Massachusetts income tax rate is 5% for most people, millionaires can pay significantly more. That’s because a Massachusetts millionaire tax enacted last year requires investors and — other earners with taxable income — to pay a 4% surtax on earnings over $1 million. 

In Massachusetts, investors with short-term gains (i.e., investments held for less than one year) can face even higher tax burdens, with rates that climb to 12.5%.

Vermont

High long-term capital gains tax rate: 8.75%

Long-term capital gains are taxed as regular income in Vermont. The rates range from 3.35% (on up to $42,150 for single filers and $70,450 for joint filers) to 8.75% (on more than $213,150 for joint filers and $259,500 for joint filers). 

However, Vermont offers a long-term capital gains tax exclusion of up to $5,000.

Hawaii

High long-term capital gains tax rate: 7.25%

While the long-term capital gains tax is higher in Hawaii than in most states, the Aloha state places lower tax burdens on investors than workers. 

All capital gains in Hawaii are taxed at a flat 7.25%, but the tax rate on earned income can reach as high as 11%. Even single filers with earned income of just $25,000 pay a higher tax rate than investors with the same earnings.

Maine

High long-term capital gains tax rate: 7.15%

Maine taxes long-term gains the same as earned income, which means investors with gains that exceed $58,050 ($116,100 for joint filers) are subject to the high 7.15% income tax rate. 

The Pine Tree State doesn’t favor taxpayers with lower investment income. The lowest tax rate in Maine is still a high 5.8% and applies to income up to $24,500 (up to $49,050 for joint filers).

Honorable mention: Washington

High long-term capital gains tax rate: 7.0%

Washington didn’t quite make the list of the top 10 worst states for investors. However, the Evergreen State deserves an honorable mention since it taxes certain long-term capital gains but not earned income. 

The good news is that the controversial Washington capital gains tax only applies to certain long-term gains that exceed $250,000, and there is no capital gains tax on real estate.

Related Content

• States With Low and No Capital Gains Tax
• Capital Gains Tax on Real Estate and Home Sales
• Biden Calls for Doubling Capital Gains Tax
• Capital Gains Tax Rates for 2024
  
  
  

According to Gov. Kemp, the new Georgia state income tax cuts, retroactive to January 1st of this year, are designed to keep more money in Georgian's pockets.

“As a result of conservative budgeting and our pro-growth, business-friendly environment, billions of more dollars will now be kept in the pockets of hardworking Georgians rather than being devoted to creating more government bureaucracy and red tape," Kemp stated in a release.

Notably, these tax measures garnered bipartisan support. Georgia lawmakers face an election in November in which all 236 state House and Senate seats are up for grabs.

In addition to income tax cuts. Georgians can expect an increased tax exemption for dependent care and, depending on voters in the November state election, a state cap on property taxes. Here is more of what you need to know.

Georgia income tax rate 2024

Georgia’s income tax landscape has already undergone recent changes. At the start of the year, Georgia transitioned to a flat tax rate of 5.49%, down from a tiered system that peaked at 5.75%. 

An acceleration in the newly signed legislation reduces the state income tax rate to 5.39% as of Jan. 1,  2024, a decrease from the previously scheduled 5.49%. The income tax cut could reportedly save Georgia taxpayers an additional $360 million. 

However, Georgia lawmakers went beyond income tax cuts. The new tax package also addresses corporate tax rates, aligning them with the decreasing personal income tax rate until both eventually reach 4.99%. 

The corporate tax measure is projected to cost $176 million initially and $210 million by 2029. 

Georgia dependent allowances

Gov. Kemp also signed HB 1021 into law, a bill increasing the Georgia state tax deductions for dependents. 

• The measure increases the state's dependent tax exemption by 33%.
• Each eligible Georgia taxpayer can deduct $4,000 per dependent rather than the previous $3,000. 

Note: Georgia currently offers a dependent exemption for unborn children. As Kiplinger has reported, taxpayers cannot claim a fetus as a dependent for federal income tax purposes. However, if you are a Georgia resident, your fetus qualifies as a dependent for state tax purposes as of July 20, 2022.

Georgia property tax rate

In November, Georgians can vote on a constitutional amendment to capping property tax increases. HB 581 enables counties to provide property tax relief through a homestead valuation freeze.

If approved, this amendment would limit annual increases in property value assessments in Georgia to the inflation rate, offering homeowners protection against skyrocketing property taxes fueled partly by rising home values.

Also, though not related to property tax, SB 496 is included in the package. It expands the criteria for historic home certification and extends tax credits for rehabilitation projects. The measure is designed to help preserve Georgia's architectural heritage and support economic activity in the state.

Related

• Georgia Abortion Law Changes Tax Deductions
• Property Tax Caps: Does Your State Have One?
• Georgia State Tax Guide
• Taxes in Retirement: How All 50 States Tax Retirees

The Taxpayer Protection and Government Accountability Act, which would have limited future state and local tax increases, had obtained sufficient signatures (about 1.4 million) to be included on the November ballot.

Opponents of the proposal, including California Gov. Gavin Newsom, feared that the measure requiring voter approval of tax increases could negatively impact vital public services and infrastructure funding and water down state legislative power to tax and spend. 

Late last week, in a June 20 ruling, the California state Supreme Court essentially agreed, blocking the measure from appearing on the Nov. 5 ballot. Writing for the unanimous court, Justice Goodwin Liu stated the following as a rationale for the decision.

“The proposed changes “are within the electorate’s prerogative to enact,” but because those changes would substantially alter our basic plan of government, the proposal cannot be enacted by initiative. It is instead governed by the procedures for revising our Constitution”

Here's more to know.

California state tax increases

The Taxpayer Protection and Government Accountability Act was championed by a group sponsored by California homeowners, taxpayers, and business organizations.

“California is becoming too expensive for working families and family businesses. We need to give Californians the final decision on raising their taxes and better accountability for how state and local governments spend their money,” Robert Rivinius of the Family Business Association of California said in a statement.

However, the tax measure had its critics. Officials from state and local governments and labor unions expressed concerns about the potential negative impact on public services, program funding, and infrastructure maintenance. 

Gov. Newsom and legislative leaders asked the California Supreme Court to remove the initiative from the Nov. 5 state ballot. Several organizations, including the ACLU and the California Farm Bureau Federation, and former California Gov. Jerry Brown had filed briefs supporting the removal from the ballot, arguing the measure would have an unprecedented impact on the state’s power to tax and spend.

After hearing arguments in the case in May, the state Supreme Court on June 20, struck the initiative from the ballot, saying it was essentially an amendment to the state’s constitution that requires legislative approval.

Tax in California

The Taxpayer Protection Act website describes the California Supreme Court’s ruling as “the greatest threat to democracy California has faced in recent memory.” The statement adds,” Governor Newsom’s lawsuit has effectively erased the voice of 1.43 million voters who signed the petition to qualify the Taxpayer Protection Act for the November ballot.”

Notably, while some Californians advocate for higher taxes in exchange for enhanced government services, data show most residents are concerned about the state’s fiscal issues. 

• California gas taxes are among the highest in the United States. 
• The Golden State is also known for high sales and income tax rates. 
• Housing costs and availability of affordable housing in California continue to be significant concerns.

Proponents of the taxpayer protection initiative say they “will continue to explore legal options and fight for your right to hold your government accountable through direct democracy.”

California exit tax?

This taxpayer protection initiative controversy comes as other California taxes have made news. 

• As Kiplinger reported, there are questions about whether the state’s new $20 minimum wage for food workers is a way to raise taxes. 
• California recently removed the wage cap on its 1.1% employee payroll tax for State Disability Insurance (SDI).  While the payroll tax is not new, it was previously imposed only on wages up to $145,600. As of January 1, 2024, those earning more than $145,600 also pay this tax.
• A proposed wealth tax that would have imposed an additional 1.5% on California residents' net worth exceeding $1 billion failed to advance. That proposal included an exit tax that would have applied to some wealthy taxpayers who left California.

Data show taxpayers are fleeing high-tax states, including California, for lower-tax states and states with no income tax, like Florida and Texas. However, California residency and income-sourcing rules are an issue for some. 

If you are leaving the state, evaluate whether you are considered a resident of California and, for example, whether you have real estate or income that can subject you to California tax, despite your move.

Related

• California Gun and Ammo Tax: What to Know
• California State Tax Guide
• California Just Became More Expensive for High Earners
• Is California's Minimum Wage Hike a Way to Increase Taxes?

State lawmakers have not yet weighed in on the new wage's potential impact on California’s budget. However, projections for previous minimum wage increases documented by California’s Legislative Analyst's Office (LAO) shed some light on what could happen.

In a fiscal outlook report, the LAO determined a “higher minimum wage will affect General Fund revenues, primarily due to its effects on the personal income tax and the sales and use tax, the two largest state revenue sources.”

Higher tax revenue for California isn’t the only potential impact of a higher minimum wage. The same LAO report also shows that increasing the minimum wage could save the state money. Since eligibility for some state-funded programs is income-based, higher wages could disqualify some fast food workers from those programs.

So, while some Californians might benefit from the minimum wage increase, data indicate there may be a bigger beneficiary of the wage hike.

Fast food workers' minimum wage increase 

More than 500,000 Californians received a $4 raise on April 1 when California’s new minimum wage for fast food workers became effective. Some are celebrating the new $20 per wage, but considering companies are not likely to eat those costs, Californians can expect to pay more at the drive-through. 

Fast food won’t be the only expense that will increase. That’s because while groceries are tax-exempt in California, fast food is not. And the higher the cost, the more sales taxes the state can collect. 

• California’s statewide sales tax rate is 7.25%, which is higher than in most states.
• Even if fast food meal prices only jump by $1 over the next year, California will collect an additional 7.25 cents for every meal purchased.
• That might not sound like a lot of money, but billions in fast food revenue could mean millions for the state in sales tax revenue.

The higher minimum wage also means employees will pay more payroll taxes, and employees will pay more income taxes. So, the state of California can expect a significant increase in income tax revenue this year, especially if higher incomes disqualify some workers from claiming certain tax credits. 

For example, the state’s earned income tax credit (CalEITC) is only offered to working families with incomes at or below $30,950, and the new minimum wage increase could push some families over that limit. 

California minimum wage  

The $20 per hour wage could also push several California families over the income threshold for other programs, such as CalFresh (sometimes referred to as food stamps or SNAP). That’s due to the fact that while hourly wages increased by 25%, the income limits for the state’s food assistance program did not. 

• At $16 per hour, a family of four with two adults each working 130 hours a month would gross $4,160. This family would qualify for food assistance.
• At $20 per hour, that same family would gross $5,200 and no longer qualify for CaliFresh.

If fewer California families qualify for income-based programs, California can save money. Even though CalFresh benefits are paid by the federal government, California spends millions each year to implement the program. Additionally, California spends even more on other income-based programs, such as Medi-Cal, the state’s Medicaid program.

Raise for healthcare workers in California 

Fast food workers were not the only Californians on track for a minimum wage increase this year. California Gov. Gavin Newsom signed a bill last year that would increase the minimum wage for healthcare workers to $25 per hour over the next few years. However, while California doesn’t pay fast-food employees wages, it does employ certain healthcare workers. So, raising the minimum wage for these workers could cost the state money and that wouldn’t be good for California’s already underfunded budget.

The first minimum wage increase for healthcare workers is scheduled for June, but Gov. Newsom has requested that state lawmakers make the raise subject to available general funds. That means healthcare workers might see a reduced wage increase or none if the governor’s request is granted.

As of now, the minimum wage for California healthcare workers is $16 per hour. That’s significantly less than the $20 per hour fast food workers make. So, is the newest wage increase really all about lifting Californians out of poverty? You be the judge.

Related Content

• California Just Became More Expensive for High Earners
• California Tax Deadline Extension 2024: What You Need to Know
• Minimum Wage Is Now $20 an Hour for California Fast Food Workers
• 10 Cheapest Places To Live in California