Who: The state operates on many levels. The Nation State at the top, the regional state, county, city, district, etc. These are generally geographic distinctions. The state has the power of rule of law and a lower level entity cannot supersede the authority of a higher level entity(usually).
What will our system look like for the state? Our system will drastically reduce the headache in collecting taxes from citizens. A portion of the demurrage will be automatically collected and sent to the state accounts.
Citizen accounts will be able to elect certain taxing authorities and in some cases may be required to do so by law.
For example, the state of Texas might make registering as a Texan a requirement for getting a drivers license or state ID card.
The state can also create agency accounts in the system and distribute tax collected funds to these agencies.
States can also continue to tax legal entities with additional taxes, but must at least tax them at the same rate of citizens.
It is not all roses for the state. The state is under a new obligation and threat of veto.
All citizen accounts wield the veto. The 'catch up' of state accounts can be blocked by negative vote of the citizens at any time. All citizens that pay taxes to a state account have a 'abstain', 'deny', 'override' vote on the operation of that account.
In order to protect the general operation of the state, the state will want to create agency accounts. Citizens can block these agency accounts individually instead of blocking the function of the entire state.
In addition to easier taxation, the state has the ability to profit from pref payments as well. As welfare payments are paid out and people climb out of poverty, the state may make back more than its investment. As the state buys services from companies and individuals it can generate revenue from their prosperity. Over time this should lead to lower tax rates on the demurrage.