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How the 2026 midterm elections may shape state tax policy

Governor races, legislative elections and ballot measures could spur tax changes

August 11, 2026
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Tax policy
State tax nexus State & local tax Election Policy

Executive summary

While significant attention will focus on which party controls Congress during the final two years of President Donald Trump’s second term, the 2026 elections will also significantly influence state and local tax policy. More than 70% of state governors and more than 80% of state legislative seats are on the ballot, raising the possibility of meaningful shifts in policy.

Although state and local tax policy is seldom a direct ballot issue, broad factors—including economic uncertainty, geopolitical developments, rapid advances in artificial intelligence and persistent inflation—will influence state policy decisions. Tax base expansion, rate changes, and credits and incentives activity are some of the headline items for the next policymakers.

Following the initial legislative responses to the One Big Beautiful Bill Act, the state tax policy landscape is as fragmented as ever, creating an imperative that taxpayers closely monitor the state and local elections and ballot measures.

This article highlights key election-related developments and considerations for taxpayers evaluating how shifting legislative and executive dynamics may affect state tax policy in the coming years.

State elections may shift legislative and gubernatorial control

Most state legislatures are on the ballot in 2026

Legislative elections will take place in 46 states, covering 88 of the country’s 99 legislative chambers. Louisiana, Mississippi, New Jersey and Virginia will not hold general legislative elections this year.

In 42 states, both chambers will be on the ballot, in addition to Nebraska’s unicameral legislature and the state houses in Kansas, New Mexico and South Carolina. Overall, more than 6,000 seats, or over 80% of all state legislative positions, are up for election, setting up potentially meaningful tax policy changes across multiple states if legislative control shifts.

Thirty-six governor races could influence state tax policy

Gubernatorial elections will be held in 36 states, with half of those governors either term-limited or not seeking re-election. This opens the possibility for significant departures from existing leadership. Of those 36 elections, 18 currently have Republican governors and 18 Democratic governors. Five of these elections are in states where the governor belongs to a different party from the one controlling the state legislature—Arizona, Kansas, Nevada, Vermont, and Wisconsin. Change of executive control in these states is likely to lead to quick and dramatic policy shifts.

How unified and divided state governments shape tax policy

Entering the 2026 midterms, there are 39 trifecta states, where both legislative chambers and the governorship are under control of the same party. Of these, 23 states have Republican trifectas (including Nebraska’s unicameral legislature) and 16 have Democratic trifectas. The remaining 11 states have divided government. In three of those—Michigan, Minnesota and Pennsylvania—control is split between the legislative chambers. Legislative control in those three states hinges on a handful of seats, resulting in some of the most closely watched state legislative races in the nation.

Unified control generally allows for more streamlined policy changes as most states require only a simple majority to enact new tax policy.  

 

Voters can directly influence tax policy in many states

Voters in multiple states will decide state tax-related ballot measures in November. Some proposals remain under review or subject to potential litigation and may be revised or removed. Additional measures may emerge in the weeks prior to Election Day. Several notable measures currently scheduled for the general election include:

  • California: One-time 5% net worth tax on billionaires
  • Iowa: Constitutional amendment requiring a two-thirds legislative majority to increase individual or corporate income tax rates
  • Missouri: Constitutional amendment requiring elimination of the individual income tax, prohibiting future individual income taxes and expanding the sales tax base
  • North Carolina: Constitutional amendment to reduce the maximum allowable individual and corporate income tax rate from 7% to 3.5%
  • Utah: Constitutional amendment requiring at least 60% voter approval for certain tax increases and changes
  • Wyoming: Ballot initiative to create a 50% property tax exemption for primary residences

 

These measures remain subject to change and may be modified, litigated or retracted prior to final ballot inclusion.

State tax policy trends to watch after the 2026 elections

While many states addressed the major business tax provisions of the OBBBA during 2026, states are expected to continue evaluating their conformity to federal tax provisions for several years. Additional conformity and decoupling legislation is likely as states balance revenue needs, budget pressures and economic policy objectives. For example, numerous states decoupled from section 168(n) bonus depreciation, while others adopted broad approaches to conformity with section 174A research credit expensing. Multistate taxpayers are certain to face increasing complexity in tracking and modeling state-specific tax consequences.

Why businesses and individual taxpayers should monitor the 2026 state elections

Multiple factors drive state tax policy. The most important include state budget conditions (expected budget surpluses or deficits), economic conditions, federal intergovernmental aid policy and political ideology. This year’s elections will be influenced by all those variables.

Businesses should be aware of the potential changes in the makeup of state legislature and governor offices for three important reasons.

Party control: First, party control shapes tax policy, with Democrats and Republicans traditionally maintaining distinct tax policy positions.

The economy is often paramount: Second, despite often broad philosophical differences among the states, economic and budget conditions can outweigh traditional or historical ideological approaches.

For example, in the aftermath of OBBBA, principally championed by President Trump, some Republican-led states have decoupled from new or revised federal tax provisions while some Democratic-led states conformed to portions of the federal law. Similarly, some states have recently paused or reconsidered tax reductions due to budget uncertainty and reduced federal funding expectations.

New tax policy ideas: Third, new governors and legislators often bring new tax policy ideas molded by other states’ actions, think tanks and advocacy organizations, or academia. It is not unusual for new legislators to pursue dramatically different tax policies.

State policy diffusion—borrowing policy ideas from proposals in other states—particularly appeals to new legislators. Recent examples include renewed interest in worldwide combined reporting, digital ad taxes and efforts to reduce property tax burdens.

Businesses should closely monitor the changes in political leadership in the states in which they operate. Most candidates have a record reflecting their beliefs on taxes and other policy issues. With many contested races, term-limited governors and narrow legislative margins, the likelihood of meaningful tax policy changes over the next two years remains high.

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