The first bill Senate Bill 2576, will amend the state’s existing Workers Compensation Act, to require employees to provide more evidence that an injury was work related before claiming the benefit. If an employee is found to be on drugs or alcohol at the time of the injury they will risk losing their benefits all together if they file a workers compensation claim under the new rules.

The second bill S.B. 2934, will give businesses a larger tax credit when they pay their inventory taxes each year. The tax credit will increase each year over the next three years.

The third bill H.B. 1537 creates zones of tax incentives spread throughout the state. These zones will provide health care focused businesses with tax credits for bringing their companies to these areas.

The package of legislation covers a large portion of the Governor’s “works” agenda. Critics of the agenda have said that it will make it more difficult for workers to receive due compensation if injured on the job while additional tax incentives will take money away from an already tight state budget.

According to the Rockerfeller report, state tax collections remain low with more than half of the states reporting that total tax collections were still well below their peaks in 2011. Many states that levy personal income taxes have not yet seen revenue recover as unemployment remains high and wages have fallen significantly.

Economic indicators are showing evidence of a slow gradual recovery, but state revenues often trail the immediate effects of economic shifts. The 2008 financial crisis didn’t hit budget cycles until 2009. So any early recoveries may not be felt until the next budget cycle.

States have made massive cuts in the number of government employees, education budgets, social services and increased service fees in order to make ends meet. These moves have led to some high profile populist uprisings in state’s like Wisconsin and Michigan where Governors who are viewed as acting against average citizens in their austerity measures are now facing increased pressure. Governor Scott Walker of Wisconsin faces an historic recall action to remove him before the end of his first term. And in Michigan, a controversial financial management plan has been halted by the justice system.

Under the terms of the measure, businesses with over $10 million in assets will pay less corporate franchise taxes each year for the next five years until they eventually pay nothing. The bill is in-line with another passed last year which eliminated the franchise tax completely for small businesses in the state. At the end of the five year period Missouri will require no corporate franchise tax payments for any business located there.

Last year, Missouri collected approximately $87.5 million through this tax. For the first year of the phase out, businesses will pay only what they paid in Tax Year 2010. For Fiscal Year 2012, the state will lose nearly $24 million in revenue from the phase out.

“We applaud Gov. Nixon for standing with Missouri’s employers and signing this legislation that will help companies expand and create jobs in our state,” said Dan Mehan, president and CEO of the Missouri Chamber of Commerce and Industry. “This is a tax cut that will make Missouri more competitive and help bring new jobs and investment to the Show-Me State.”

Senator Robert Marshall, House Speaker Robert Gilligan are sponsoring the bill which will expand the number and types of industries that qualify for the tax credit. The bill will also increase the size of the overall incentive and pushes companies to hire now in order to foster immediate growth. All sizes of businesses will be eligible for the credit if they meet the job creation requirements.

Under the terms of the bill, the Blue Collar Jobs Tax Credit would become permanent instead of sunsetting after 10 years. The tax credit incentive will increase by $100 for every qualifying  job and qualifying business investment. In addition, the bill aims to diversify the state’s economy by encouraging the technology industry and sustainable businesses to take part in the program. Businesses that manufacture clean-energy systems will receive 50% higher income tax credits and a lower gross receipts tax rate through the new program.

“We want to support existing employers’ efforts to expand here in Delaware. We want to keep attracting more businesses to make our state their home. This proposal would provide some help with both,” Governor Markell said of the bill. “This effort comes from months of conversations with businesses about how we could be a better partner in building their workforce. We want what they want – more people being able to say to their families that they are back to work.”

During a special session meant to improve Wisconsin’s business climate, Gov. Walker has proposed draft legislation that would prohibit agencies from creating new rules based on general powers or duties. The draft also seeks to keep agencies from creating rules more restrictive than the regulatory standards or thresholds provided by the state legislature.

“We need to ensure that state agencies are focused on job creation,” said Gov. Walker in a statement. Additional measures would allow rule challenges to take place in the county circuit court where the plaintiff resides and require an economic cost/benefit analysis of rules. Additional actions sought by the new governor during the “Wisconsin is Open for Business Special Session” include eliminating the state tax on health savings accounts, reforming the Department of Commerce, and a requirement that a supermajority vote in the state legislature is needed to pass a tax increase.

Late last year, both North Carolina and Washington state governors called for a moratorium on new regulations. A directive handed down by Bev Purdue suspended all rulemaking unless “absolutely necessary,” because many of the state’s rules no longer serve the citizens effectively.

Washington governor Chris Gregoire signed an executive order suspending the state’s rulemaking process so that local governments and small businesses could focus their limited resources on continuing the state’s economic recovery.

In both instances, each governor has made caveats for reasons of public health, safety and welfare risks. In North Carolina, Gov. Perdue set up a website intended to allow citizens to voice support or criticism for rules and regulations they believed burdensome or irrelevant.

Wisconsin’s overhaul does not prohibit any new rules, but the governor has indicated all proposed rules must be approved by his office before being enacted.

The governor hopes his bill will help bring 250,000 new jobs to the state over the next four years, but the Associated Press says that critics argue the bill will do little more than add $152 million to the state’s $3 billion budget deficit.

Hotel occupancy taxes, also known as transient occupancy taxes, are a major source of revenue for local governments. According to a 2008 hotel industry economic impact report, from American Economics Group, Inc, nearly $12.5 billion in occupancy and related sales taxes were collected that year. And a large portion of that money is redirected to fund tourism costs, such as convention centers, historic preservation, and visitor centers. The report also estimates 25 percent of all hotel taxes go directly to tourism marketing efforts, which can have powerful multiplier effects on a region’s economy. The official tourism website of Virginia, for instance, says every dollar spent on tourism marketing generates five dollars in tax revenue for the Commonwealth.

At issue is whether companies like Expedia, Orbitz or Travelocity, known as online travel companies – OTCs – are paying enough in state and local hotel occupancy taxes.

First defined in 2000, OTCs use what is referred to as “the merchant business model.” According to a June 2000 Securities and Exchange Commission filing from Expedia, the company “acquires inventory at discounted wholesale prices from preferred suppliers and then determines the retail price.” OTCs then collect funds from consumers that cover the wholesale price, the occupancy tax and a service fee at the time rooms are booked. They then remit taxes based on what it owes the hotel, rather than what it collected from the consumer.

A typical example involves a $100 hotel room and a 10 percent occupancy tax. If the room is bought through the Sheraton’s website, the traveler pays $110, $10 of which is remitted to the government as the hotel tax. But if the room is bought through Travelocity, for example, and the wholesale rate was set at $80, the customer still pays $110, but only $8 is sent to government, leaving Travelocity with $22 in profit.

Exact numbers are hard to estimate since estimates are used to calculate the number of rooms reserved through OTCs and by how much above the contracted wholesale rate is being charged. But this gap could be worth as much as $258 million to state and local governments per year, says one report by the Center on Budget and Policy Priorities.

After several years of litigation, states and municipalities are beginning to update their occupancy tax laws – many of which were written, or last updated, several decades ago.

“Some states have been on the offensive, like New York, proactively changing their laws,” says Randi Knott, Vice President of Government & Legal Relations of the California Hotel & Lodging Association, “because most TOT ordinances were written before internet was invented.”

But a spokesperson for the Internet Travel Services Association – a trade organization for online travel companies – says that’s irrelevant. Andrew Weinstein contends those laws, “were still drafted in an era where there were intermediaries who charged facilitation fees,” such as travel agents and tour operators, and that OTCs are one in the same.

“States who change statutes will find it is counter productive in the short-term and could be destructive to the travel industry in the long-term,” Mr. Weinstein said. “Some municipalities could be stepping over dollars to get to pennies on this issue.”

Such arguments have been made repeatedly across the country when the issue has reached full legislative tilt. And at times, it has worked. Local economies have suffered – two, nearly infamous, cases in Columbus, Georgia and South San Francisco, California pursued litigation and then found themselves “de-listed” from travel site search results. In Georgia’s case, most regional travelers were shifted across state lines into Alabama.

But these two cases are not the works of free-market ebbs and flows. Travelers who wished to stay in Columbus or South San Francisco did not consciously choose to stay in neighboring jurisdictions as a sign of protest. Nor did tour operators and travel agents coax would-be visitors away for fear of lost profit margins. These were both instances where OTCs, acting as one, created a self-fulfilling prophesy.

According to Marlene Colucci, executive vice president of public policy for the American Hoteliers & Lodging Association, the issue is gaining interest from their members – and that consensus is building about how they feel.

“The whole sentiment has changed, particularly from hoteliers,” she continued. “There’s a level of frustration with OTCs, with their behavior and with their activities in the states.”

California’s backdoor budget

California’s perennial budget crisis was particularly difficult to iron out this year. Lawmakers in the Golden State went one hundred days past the deadline to enact a budget for the next fiscal cycle this fall. And as one might expect, a rash of budget trailer bills were introduced at the last minute. Budget trailers, or budget implementation bills, are pieces of legislation, which necessitate changes to existing law in order to implement the new budget.

One such bill, SB848, introduced as a tax preference for online travel companies. According to Ms. Knott, the bill was voted on nearly 25 times, never receiving more than 12 of the needed 54 votes to go to a full floor vote.

“When legislators understood what the bill was going to do, they were absolutely incensed,” she said. “And we were opposed to the end-run without any input or consultation from lodging industry. It was politically unacceptable.”

So the California Hotel & Lodging Association joined with the California League of Cities and a few other advocacy groups to stop passage of SB848. “Hoteliers feel that they’re in a bind to support municipalities and OTCs – for fear of retribution. Major tourist destinations don’t worry, but small towns do.”

New York, New York

In 2009, New York City passed an ordinance that forced OTCs to collect occupancy taxes on the full amount paid by occupants. Additionally, it made OTCs responsible for taxes on money collected above the hotel contract rate (the $22 in the earlier example). OTCs and a group of tour operators took the city to court in late 2009, but a ruling in October of this year found that NYC had not violated the state’s constitution in amending its hotel occupancy tax laws. Additionally, the NY state legislature included language that clarified the matter as part of its budget bill earlier in 2010, saying that room remarketers are required to collect sales and New York City occupancy taxes. NYC estimates this will generate upwards of $20 million annually in additional tax revenue.

But Mr. Weinstein contends that NYC’s law was too broad in grouping online and offline intermediaries. He said a survey of travel agents and tour operators indicates they have or are planning to shift business “across the river” to New Jersey because of the laws.

A bipartisan issue?

Last month two red states, Oklahoma and Montana, initiated lawsuits against a number of online travel companies. Their claims mirror the dozens of other suits already being waged, but neither administration could be characterized as activist or even politically friendly towards the litigation process.

Despite the right-leaning bend of many incoming governors and legislators, these suites are just further evidence that lines continue to be drawn by state and local tax administrators, treasurers and legal councils. And with the economic plight of local governments expected to yield prolonged revenue shortages, no one should be too surprised to see this issue remain atop legislative agendas into the future.

So far, the state has mailed out more than 800 notices to fraudulent filers. The notices give people 60 days to make payment or prove that they do not owe the money. After 60 days, the debts are referred to the U.S. Department of the Treasury for collection under a new federal authority, the Treasury Offset Program (TOP).

The money recovered will be put back into the state’s Unemployment Trust Fund and will benefit employers by reducing the amount of federal borrowing needed to keep the fund solvent. The state’s Benefit Payment Control Unit (BPCU) is using a software matching system to help identify those fraudulently collecting benefits. Using a national cross-matching system, state employees look at quarterly wage data and compare it against those collecting unemployment checks. The state then compares this data to a “new hires” file of new employees that is submitted by employers. From these two records the state can identify potentially fraudulent filers.

“When you cheat the system you cheat the state, our taxpayers and the thousands of men and women who are unemployed through no fault of their own. Our intent is clear – the state of Connecticut will come after these fraudulent individuals and recover these much-needed funds,” Governor Rell said. “They will have an opportunity to pay back what they owe or risk losing their federal income tax refunds.”

Statements released the governors of Florida, Kansas, Vermont, Pennsylvania, and Wisconsin applauded President Obama for reaching out to Republicans on a deal that is projected to inject $900 billion into the US economy over the next two years. The breaks touted in the proposal include: extending the earned income tax credit for low-income Americans; extending the college credit; adding 13 more months of unemployment benefits; adding a 2-percent payroll cut for average working people making less than $100,000; and helping small businesses by allowing them to write off investments.

Governor Mark Parkinson said the deal would assist more than 38,000 unemployed Kansans. And Florida’s Charlie Crist said, “I commend President Obama for working to secure an agreement that will give our economy the support it needs to continue on the path to recovery.”

Some Democrats in Washington have voiced their anger at the proposal, however, saying the president conceded too much in allowing Bush-era tax cuts to the rich to be extended for another two years. “I don’t think the president should count on Democratic votes to get this deal passed,” Representative Anthony Weiner, Democrat of New York, to the Times Tuesday.

Meanwhile Wisconsin Governor Jim Doyle said, “Rather than engage in political posturing over tax policy, President Obama has made the practical and sensible decision to protect middle class Americans from a tax increase.”

Of the governors throwing their support behind the proposal, none of them will be around next year to see if the measure has its intended effect. Three were term-limited, Mr. Parkinson did not seek reelection and Mr. Crist lost his bid for the US Senate.

In their annual, “City Fiscal Conditions” survey, NLC found that 87 percent of cities report being worse off in 2010 than they were in 2009. And the report found that various measures are being taken to address declining revenues. Seventy-nine percent of cities have experienced forced layoffs, and 69 percent report delayed or canceled capital infrastructure projects. A quarter of cities report across-the-board cuts in services as well as another quarter making cuts to public safety – usually a measure of last resort, the report noted.

“This historic recession has forced city officials to make difficult decisions that impact the social and economic fabric of their communities,” Ronald Loveridge, mayor of Riverside, CA and president of NLC, said in a statement. “This recession is making city officials fundamentally rethink and repurpose the provision of services in their communities.”

Mr. Loveridge said while some cities were innovating, most officials are confronting continued financial stress and will likely have to continue cutting services without added resources.

The lagging housing market and associated housing assessments will ensure lasting pain for cities through 2011, the report says, and depending how quickly the national economic recovery is, cities may have several more rough years. Lowered consumer spending, higher unemployment rates and cuts in state aid have converged in a sustained manner that will make the climb harder, says Christopher Hoene, director of the Center for Research and Innovation for the National League of Cities.

“Unfortunately,” Mr. Hoene said, “because of the loss in revenue, cities will face even more difficult circumstances in the months, if not years, to come.”

In the report, “NCSL Fiscal Brief: Projected State Revenue Growth in FY 2011 and Beyond,” a survey of legislative fiscal directors found that state revenues are beginning to trend upwards, and 40 states expect total tax collections to be higher than they were last year. This differs from a year ago when the same question was posed, which resulted in more than half the states expecting collections to be lower than the previous year.

Across broad tax categories of personal, sales and corporate income, a majority of states surveyed expect increases over last year – however modest those increases may be. For the biggest share of revenue in most states, personal income taxes, 35 states project collections will grow in FY 2011. The greatest projected increases come from Oregon (15.3 percent), Delaware (14.3 percent) and Louisiana (11.2 percent), the report found, though 20 of the 35 states forecast collections will rise between 1.2 and 4.9 percent.

Sales and use taxes bring in nearly 32 percent of revenues for states, and 34 or 43 responding states expect them to increase. Most respondents, again, said they expect modest increases between 1.2 and 4.9 percent over last year’s figures, with four states projecting lower levels – including Nevada, Rhode Island, Virginia and West Virginia.

The third category surveyed was for corporate income taxes. Although corporate taxes represent the smallest of the three, they represent the biggest turnaround in year-over-year collection projections. Of the 34 states forecasting year-over-year growth, 25 project the increase to exceed 5 percent, with 18 projecting double-digit growth, the NCSL report said.

Despite the general gains projected in most states, the figures will be far from peak collection levels. Of the 28 states who have long-term projections, most of them expect to return to peak levels in FY 2013, with a little under half expecting a return sometime next year.

Still, these projections are just that: projections. And the report is cautious to point out that data coming in over the next few months will be key in understanding if estimates are in line with reality.

For a copy of the full report, click here.