Ernst & Young's State and Local Tax Weekly newsletter for January 10 and January 17 is now available. Prepared by Ernst & Young's State and Local Taxation group, this weekly update summarizes important news, cases, and other developments in U.S. state and local taxation.

TOP STORIES

New York climate change superfund act signed into law

On January 8, 2025, as part of an apparent agreement between bill sponsors and New York Governor Kathy Hochul, State Senator Liz Krueger introduced legislation (SB 824) to modify the Climate Change Superfund Act (the Act) (SB 2129 and AB 3351), which was signed into law by the Governor on December 26, 2024. The Act requires entities engaged in the trade or business of extracting fossil fuel or refining crude oil to remit a fee intended to reflect the purported damages of greenhouse gas emissions.

Climate change superfund fee overview: The Act applies to businesses that extract fossil fuel or refine crude oil and are determined to be a responsible party by the state, meaning they have generated at least one billion metric tons of attributable greenhouse gas emissions during the covered period (currently 2000–2018). The fee is determined based on a responsible party's pro rata share of total covered greenhouse gas emissions during the covered period and paid into a Climate Superfund.

Covered greenhouse gas emissions include "greenhouse gases resulting from the extraction, storage, production, refinement, transport, manufacture, distribution, sale, and use of fossil fuels or petroleum products extracted, produced, refined, or sold by such entity."¹ Emissions are determined on a set schedule defined within the Act.

The Act allows entities to make payments of the determined pro rata share of damages in 24 annual installments, with the first payment equal to at least 8% of the total liability and the remaining 23 payments equal to 4% of the total liability per year. Companies in a controlled group are jointly and severally liable for payment of the fee.

The Act excludes from the definition of responsible party subject to the new fee any company "who lacks sufficient connection with the state to satisfy the nexus requirements of the United States Constitution."

Proposed amendments: Among its provisions, SB 824, would:

• Extend the covered period from 2000–2018 to 2000–2024.
• Define "affiliate" to mean, "with respect to any specified entity, an entity that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the entity specified."
• Remove the 10% subsidiary ownership threshold
• Retain joint and several liability for payment of the fee for a controlled group
• Impose a 50% penalty plus interest on any responsible party who fails to make a required payment.
• Impose a new information reporting requirement on responsible parties, in place of the defined carbon dioxide equivalent emissions schedule under the Act, for amounts of coal, crude oil, and fuel gas produced by responsible parties.
• Require the enforcing agency, the New York Department of Environmental Conservation (NY DOEC) to develop and apply consistent factors to convert extraction and refining data into greenhouse gas emissions attributable to responsible parties.
• Require responsible parties to disclose "past practices, production, extraction, refining, emissions, or other historical information about such entity necessary or appropriate to enable the [NY DOEC] to determine whether such entity is a responsible party and, if so, the amount of such responsible party's covered greenhouse gas emissions."
• Delay the payment date to the fourth calendar year after enactment of the amendments and allow payment to be made in installments over 24 years, with the first payment equaling at least 8% of the total determined liability.
• Eliminate the Department of Tax and Finance's role in enforcing the Act, leaving administration to the NY DOEC and state's Attorney General.
• Require the NY DOEC to issue regulations to enforce the Act and the new information reporting requirements within 30 months of enactment.
• Require the NY DOEC to issue cost recovery demands to responsible parties by June 30 of the fourth calendar year after the amendments are enacted.

Other jurisdictions: Vermont enacted a similar superfund measure in 2024 (Act 122), the constitutionality of which is currently being challenged in federal court. In their December 30, 2024 complaint, the US Chamber of Commerce (Chamber) and American Petroleum Institute (API) argue Act 122 is:

• Generally preempted by the Supremacy Clause of the US Constitution and the general reservation to the federal government of regulating unique federal interests, such as greenhouse gas emissions
• Specifically preempted by the federal Clean Air Act

The Chamber and API also argue Act 122 violates:

• The US Constitution 14th Amendment due process clause limitation on state extraterritorial regulation by retroactively imposing a harsh and oppressive penalty
• The Commerce Clause by discriminating against and seeking to regulate beyond its borders both interstate and international business
• The 5th Amendment takings and the 8th Amendment excessive fines prohibitions.

The complaint requests an injunction against enforcement of Act 122 not only because it violates the Constitution and is preempted by federal law, but also because of the burden and extreme costs imposed on taxpayers to defend allegations they have nexus with the state to be subject to Act 122.

Other states have proposed substantially similar legislation to enact climate superfund levies. These states include California (2024 SB 1497), Massachusetts (2024 SB 481), Maryland (2024 SB 958 and HB 1438) and New Jersey. While none of these proposals advanced during the 2024 legislative session, the Maryland proposal was reintroduced on January 8 as HB 128 and SB 149, the California proposal is expected to be reintroduced later this year, and New Jersey's SB 3545 and AB 4696 remain active as carryover bills from into the 2025 legislative session.

For more on this development, see Tax Alert 2025-0234.

GOVERNOR BUDGETS

The following is a summary of select governors' budget proposals and state-of-the state addresses.

Alaska: Governor Mike Dunleavy on December 12, 2024, released his FY 2026 proposed budget. The proposed budget includes $6.3 million for Alaska Energy Authority Renewable Energy Project grants.

California: Governor Gavin Newsom sent his 2025-26 budget plan to the legislature on January 10, 2025. Tax related proposals would (1) adopt a single sales factor for financial institutions beginning with tax year 2025; (2) extend of the elective pass-through entity tax provided that the federal limit on the state and local tax (SALT) deduction is extended (currently the federal SALT cap is set to sunset at the end of 2025); (3) increase the annual cap on the California Film and Television Tax Credit 4.0 to $750 million (from $330 million) for FY 2025-26 to FY 2029-30; and (4) exclude military retirement income from state income tax.

Colorado: On January 9, 2025, Governor Jared Polis gave his 2025 State of the State address. The governor noted that the state is working toward "digitizing government through Colorado Digital Services" and that "[w]e're working with Senator Weissman to … close tax loopholes." On November 1, 2024, the governor released his FY 2025-26 budget proposal. The governor's budget calls for "fiscal responsibility", with the goal of maintaining a 15% reserve level in FY 2025-26, and critical investments in economic growth and housing, among other priorities. Further, the budget contains "a fiscally neutral and responsible tax expenditure package that includes a variety of tax credits, closing loopholes, and policies." Specifically, the governor's budget would extend and expand the employee ownership tax credit, expand eligibility for the Advanced Industries tax credit, and provide a new contingent tax credit to promote film festivals in Colorado. The governor's budget also calls for: (1) the modification of the Regional Home office premium tax rate reduction to change eligibility requirements so that insurance carriers would have a higher fraction of employees in the state to qualify for the credit; and (2) the repeal of the sales tax exemption for sales of downloaded software.

Connecticut: Governor Ned Lamont gave his 2025 State of the State address on January 8, 2025. The governor did not mention any tax changes.

Idaho: Governor Brad Little on January 6, 2025, delivered his State of the State budget address. The governor highlighted that his administration had already provided $4.6 billion in tax relief via property tax cuts, a lower flat income tax rate and an increased grocery tax rebate. The governor is proposing $100 million additional tax relief.

Kentucky: On January 9, 2025, Kentucky Governor Andy Beshear delivered his State of the Commonwealth address. In discussing the "mandate to prioritize public education," the governor said, "let's stop the end-run through tax shelters."

Montana: Governor Greg Gianforte on January 13, 2025, delivered his State of the State address. His FY 2026-27 budget proposal was presented on November 13, 2024. The governor is seeking to reduce the income tax rate from 5.9% to 4.9%, increase the earned income tax credit, and reduce property taxes for homeowners' primary residence as well as for Montana small businesses. In addition, the business equipment tax exemption would be increased to $3 million (from $1 million).

Nebraska: In his January 15, 2025 State of the State address, Governor Jim Pillen said that "the work of making Nebraska a low-tax state is far from over," calling again for more property tax relief. He also noted the efforts of members of Congress who continue to work to eliminate the state's death tax.

Nevada: On January 15, 2025, Governor Joe Lombardo gave his 2025 State of the State address. The governor said his budget proposal is balanced and promised to not raise taxes on Nevada families.

New Hampshire: On January 9, 2025, new Governor Kelly Ayotte gave her inaugural address. In the address, the governor said that property taxes are a burden and challenges are ahead in the coming budget, noting the expiration of federal funding from the American Rescue Plan Act and lower business revenue. The governor said the state will have "to tighten" its belt. To further this effort, the governor created the Commission on Government Efficiency.

North Dakota: On January 15, 2025, new Governor Kelly Armstrong presented his executive budget recommendations for the 2025-27 biennium. Tax changes in the governor's budget would provide $483 million for property tax relief and reform. This relief, which was outlined in the governor's 2025 State-of-the-State address on January 7, 2025, would (1) increase the annual property tax credit for each primary residence to $1,550 in the 2025-27 biennium and to $2,000 in the 2027-29 biennium, (2) limit future increases in local property tax budgets to 3%, and (3) expand eligibility for the homestead tax credit program. These changes, the governor said, "will put the bulk of primary residences on a path to zero property taxes within the next decade." The proposed budget also would extend the five-year suspension of coal conversion taxes through the next biennium.

Oregon: On January 13, 2025, Governor Tina Kotek delivered her 2025 State of the State address. While she did not mention tax changes in her State-of-the-State, her 2025-27 budget recommendations (presented December 18, 2024) includes funds to extend personal income tax credits that are set to sunset in 2025-27. Such credits include, but are not limited to, the following: (1) the earned income tax credit, (2) certain retirement income credits, (3) brownfield development credits, (4) vertical housing development zone credits, (5) nonprofit low-income rental housing credits, and (6) new/rehabilitated multi-use rental housing credits. It would also impose the tobacco tax on synthetic tobacco products.

Rhode Island: Governor Dan McKee on January 16, 2025, delivered his FY 2026 budget. The proposed budget starting in 2026 would impose a 10% digital advertising tax on media companies with at least $1 billion in global revenues. Other tax-related provisions in the budget would (1) impose a 5% hotel tax to whole-home short-term rentals (currently tax is imposed on hotels, motels and partial home short-term rentals); (2) increase the real estate conveyance tax on properties over $800,000 to 1.25% (from 0.92%); (3) impose new registration fees on battery electric vehicles ($300) and plug-in hybrid vehicles ($150); (4) increase the per-pack cigarette tax to $5.00 (from $4.50); (5) extend the research and development (R&D) tax credit carryforward period to 15 years (from seven years); (6) eliminate various tax credits that are minimally used or obsolete, including the R&D property credit, the R&D facilities deduction, small business capital investment wage credit, jobs growth act, the specialized investment tax credit, small business capital investment modification/deduction, and the employment tax credit; and (7) allow the Division of Taxation to use a financial institution data match system.

The day before, on January 15, 2025, the governor presented his 2025 State of the State address. In it, he said that his budget "will provide a roadmap to close an approximately $250 million deficit without any broad-based tax increases."

Virginia: On January 13, 2025, Governor Glenn Youngkin delivered his 2025 State of the Commonwealth address. The governor noted how neighboring states have been growing, and that Virginia must push forward by, among other things, lowering the cost of living via tax relief. The governor wants to provide a car tax credit ranging from $150 for those earning less than $50,000 a year, up to $300 a year for joint filers making less than $100,0000 per year. He also wants to exempt tip income from tax. Additional tax changes mentioned in the governor's amendments to the biennial budget announced on December 18, 2024, include the adoption of market-based sourcing for sourcing sales from services.

INCOME/FRANCHISE

Massachusetts: The Massachusetts Department of Revenue adopted amendments to 830 CMR 62.5A.1: Non-Resident Income Tax, specifically the rules for non-resident members of pass-through entities on how to allocate and apportion income to Massachusetts. Adopted amendments incorporate the statutory change that effective for tax years beginning on or after January 1, 2025, adopts a single sales factor apportionment formula, unless otherwise required by Mass. G.L. c. 63, Section 38. The amendments also add new examples applying the single sales factor apportionment formula. Mass. Dept. of Rev., adopted regulation 830 CMR 62.5A.1: Non-Resident Income Tax (adopted Jan. 3, 2025).

Tennessee: In response to a ruling request, the Tennessee Department of Revenue (TN DOR) determined that for franchise and excise tax purposes an out-of-state manufacturer's sales of specialty products that are drop-shipped via common carrier to end users both inside and outside the state should be sourced to Tennessee when the end user is in Tennessee. When the end user is outside Tennessee, the sale is sourced outside the state. The TN DOR explained that Tenn. Comp. R. & Regs. 1320-06-01.33(d) allows drop shipped sales be sourced to the ultimate recipient when the purchaser directs its supplier to ship the merchandise ordered directly to the purchaser's customer. In this case, the manufacturer uses third-party merchants to sell its products to end users. The merchants inform the manufacturer of the end user's order and after the manufacturer validates the order, the manufacturer fulfills the order by having the products shipped to end users. The TN DOR found that the facts presented describe a drop shipment — i.e., the purchaser (the merchant) directs the supplier (the manufacturer) to ship the goods directly to the purchaser's customers (the end user). The TN DOR further said that key to the end user being considered the "ultimate recipient" in this drop shipment transaction is that the sale of the product to the merchant was not recorded until after the end user's order was placed with the manufacturer. The TN DOR noted that had the merchant purchased the product and held it at a facility until it received the end user's order, the sale from the manufacturer would have been considered a sale to the merchant instead of a drop shipment to the ultimate recipient. Tenn. Dept. of Rev., Revenue Ruling #24-12 (Dec. 19, 2024).

SALES & USE

California: In a recently issued notification letter, the California Department of Tax and Fee Administration (CDTFA) explained that motor vehicle dealers who sell motor vehicles to out-of-sate limited liability companies (LLCs) for use outside the state need to retain proper shipping and delivery documentation when claiming these vehicle sales are exempt sales in interstate commerce. Dealers may be responsible/liable for sales tax on these transactions if (1) they fail to keep proper documentation or (2) if they keep proper documentation but the vehicle is delivered in California. To qualify as an exempt sale in interstate commerce, the vehicle must be delivered to the customer outside the state using the dealer's delivery truck or by carrier, customs broker or forwarding agent. Documentation that should be retained includes delivery receipts, expense vouchers that support delivery outside the state, bills of lading and delivery transportation plans. The CDTFA noted that the transaction may be subject to tax if the delivery service hired by the dealer/customer to deliver the vehicle outside the state is not licensed for interstate transportation. CDTFA, Notification Letter: L-966 "Sales of Motor Vehicles to Out-of-State Limited Liability Companies (LLCs)" (Dec. 2024).

Louisiana: The Louisiana Department of Revenue adopted an emergency rule, LAC 61.III.1551 and 1552, regarding electronic filing and payment for dealers. For tax periods beginning on or after January 1, 2025, Louisiana law requires dealers providing telecommunications, cable television, direct-to home satellite, video programming and satellite digital audio radio services to electronically file their Louisiana sales and use tax returns and electronically pay their tax due. Failure to electronically file the return and pay tax due may result in the assessment of penalty and interest. The secretary may exempt a taxpayer from the electronic payment requirement, if the requirement creates an undue hardship for the taxpayer. This rule takes effect on January 1, 2025 and is effective for 180 days.

Michigan: New law (SB 237 and HB 4906) extends the state's sales and use tax exemption for data center equipment through December 31, 2050 (from December 31, 2035), and establishes the same sales and use tax exemptions for enterprise data centers through December 31, 2050. (The law defines "enterprise data center," among other terms.) If the enterprise data center is located on property in a brownfield redevelopment or a former electric power plant, the exemption is available through December 31, 2065. The exemption applies to sales of data center equipment to: (1) a qualified entity or its affiliates for assembly, use or consumption in the operations of an enterprise data center subject to a certificate; or (2) a person engage in the business of constructing, altering, repairing, or improving real estate for others to the extent the data center equipment will be affixed to or made a structural part of an enterprise data center subject to a certificate.

The law describes the requirements and the time frame for claiming the exemption, the process for an enterprise data center to obtain a certificate from the Michigan Strategic Fund that the property meets certain conditions, and the information required to determine if the facility continues to qualify as an enterprise data center. The Michigan Strategic Fund may revoke a certificate if it determines that the facility no longer meets the definition of an enterprise data center. The legislature, via the new law "encourages a person claiming an exemption … to take direct steps to adopt practices to mitigate negative environmental impacts resulting from expanded use of data centers … " Such mitigation includes using renewable energy and conserving, reusing and replacing water. The Michigan Strategic Fund may not issue new certificates for sales and use tax exemptions to qualified enterprise data centers after December 31, 2029. These laws take effect 90 days after enactment. Mich. Laws 2024, Pub. Act 181 (SB 237), signed by the governor on Dec. 30, 2024 and Pub. Act 207 (HB 4906), signed by the governor on Jan. 17, 2025.

New York: New law (SB 885) imposes the state's sales and use tax on occupancy of a room, or space, in a short-term rental unit, "a type of a hotel offered for rent through a booking service … regardless of whether it is furnished, limited to a single family occupancy, or provides housekeeping, food, or other common hotel services … " Booking services are required to collect the tax unless relieved of such obligation. Booking services will also need to register to collect the tax and retain records as required by the commissioner. A hotel operator is not required to collect the tax if they can show that (1) the occupancy was facilitated by a booking service register to collect the tax, (2) they accepted a properly completed certificate of collection from the booking service, and (3) the failure of the booking services to collect the proper amount of tax was not caused by the hotel providing the booking service with incorrect information. For sales and use tax purposes, the law amends the definitions of "hotel" to include short-term rental units and "rent" to include consideration received by a booking service, and adds definitions of "short-term rental unit" and "booking service." These changes take effect April 20, 2025. N.Y. Laws 2024, ch. 672 (SB 885), signed by the governor on December 21, 2024.

BUSINESS INCENTIVES

Michigan: New law HB 5100 and HB 5101 (enacted January 13, 2025) create a refundable research and development (R&D) tax credit that may be claimed against the state's corporate income tax and the withholding tax for flow-through entities (FTEs).²

Effective for tax years beginning on or after January 1, 2025, a taxpayer³ or an employer⁴ that is an authorized business may claim the R&D credit for expenses incurred in conducting research in Michigan during the calendar year. An "authorized business" includes corporations, insurance companies, financial institutions and unitary business groups (i.e., taxpayers) and FTEs subject to withholding requirements under MCL Section 703(2) (i.e., employers) that have increased their qualifying R&D expenses.⁵ A taxpayer/employer may not assign or transfer the R&D credit, and a member of an FTE that submits an R&D credit claim may not claim any portion of the R&D credit. Credit amounts that exceed a taxpayer's/employer's tax liability are refundable.

The credit available to an authorized business with 250 or more employees (hereafter "large business") is 3% of the taxpayer's/employer's qualifying R&D expenses incurred during the calendar year up to the base amount⁶ and 10% of those expenses exceeding the base amount. The total amount of credit that can be claimed by a large business taxpayer/employer is capped at $2 million per year.

The credit available to an authorized businesses with fewer than 250 employees (hereafter "small business") is 3% of the taxpayer's/employer's qualifying R&D expenses incurred during the calendar year up to the base amount and 15% of those expenses exceeding the base amount. The total amount of credit that can be claimed by a small business taxpayer/employer is capped at $250,000 per year.

Taxpayers/employers collaborating with a Michigan research university may be eligible to claim an additional R&D credit equal to 5% of the qualifying R&D expenses used to calculate the above credit. The additional credit is capped at $200,000 per year per taxpayer/employer.

The aggregate amount of all R&D credits available is capped at $100 million per year. For more on this development, including information on how to claim the credit and the annual report on the effectiveness of the credit, see Tax Alert 2025-0339.

Oregon: The Oregon Department of Revenue (OR DOR) has adopted a rule, Or. Admin. R. Section 150-315-0195, regarding the computation of the semiconductor industry research and development (R&D) tax credit. The credit is available in tax years beginning (or deemed to begin) on or after January 1, 2024. Taxpayers may elect the IRC Section 41(c)(4) alternative simplified credit method for purposes of calculating and claiming the credit. Taxpayers using this method must use the percentages specified in IRC Section 41(c)(4)(A) and (c)(4)(B) instead of those specified in ORS 315.518(2)(a). Electing or revoking the alternative simplified credit method is done in conformity with the federal rule in Treasury Reg. Section 1.41-9(b), with Oregon Schedule OR-RESEARCH 150-102-130 being substituted for the federal form. References to gross receipts means the taxpayer's total sales in Oregon and references to qualified research expenses means the in-house research expenses and contract research expenses for research conducted in Oregon and paid/incurred by a qualified semiconductor company during the tax year. Taxpayers claiming the semiconductor industry R&D tax credit are tasked with calculating the refundable portion of the credit. The non-refundable portion of the credit equals the total credit minus the refundable portion of the credit. The rule specifies the order in which the non-refundable portion of the credit is applied. Any portion of the non-refundable credit that is not used may be carried forward. The minimum tax obligations under ORS 317.090 may not be satisfied by the non-refundable portion of the credit, but it may be satisfied by the refundable portion of the credit. The refundable portion of the credit also may be used use to offset any taxes or other debt collected by the OR DOR under ORS 293.250. The rule was adopted on December 17, 2024.

PROPERTY TAX

Florida: The Florida Department of Revenue published the 2025 governmental leasehold intangible tax valuation factor table. Under Florida law, leasehold estates or related possessory interest in property owned by the government (i.e., the United States, Florida or any of its political subdivisions, municipalities, agencies, authorities or other governmental unit) are taxed as intangible personal property if the leased property is undeveloped or predominantly used for residential or commercial purposes and rent payments are due on the lease/possessory interest. The lessee of such property is required to file an intangible tax return, unless they qualify for an exemption. The valuation factor table, which is updated annually, is used to calculate the intangible tax due. Fla. Dept. of Rev., Tax Information Publication — TIP No. 25C02-01 (Jan. 2, 2025).

COMPLIANCE & REPORTING

Federal and California: The IRS has extended (IR 2025-10) the due dates for filing individual and business tax returns and making tax payments to October 15, 2025, for taxpayers affected by wildfires and straight-line winds that began on January 7, 2025. The extension applies to taxpayers that reside or have a business in the federally declared disaster areas in Los Angeles County, California. Taxpayers that are not located in the disaster area but have records there may also qualify for the extension. The postponement until October 15, 2025, applies to various individual and business filings and payments, including:

• Individual and business income tax returns and payments with an original due date of April 15, 2025
• Exempt organization returns with an original due date of May 15, 2025
• Quarterly estimated income tax payments normally due on January 15, 2025, and estimated tax payments normally due on April 15, June 16 and September 15, 2025
• Quarterly payroll and excise tax returns normally due on January 31, April 30 and July 31, 2025
• 2024 contributions to IRAs and health savings accounts for eligible taxpayers

The IRS will also abate penalties on payroll and excise tax deposits due on or after January 7, 2025, and before January 22, 2025, so long as payment is made by January 22, 2025.

The California Franchise Tax Board posted fire relief on its website detailing that Los Angeles County individuals and businesses impacted by the fires qualify for a postponement to file, and to pay taxes, until October 15, 2025. The postponement to October 15, 2025, applies to:

• 2024 individual income tax returns and payments normally due on April 15, 2025
• Quarterly estimated tax payments normally due on January 15, April 15, June 15, September 15, 2025
• Calendar-year 2024 partnership, limited liability company, and S corporation tax returns and payments normally due on March 15, 2025
• Calendar-year 2024 corporate and fiduciary income tax returns and payments normally due on April 15, 2025
• Calendar-year 2024 returns filed by tax-exempt organizations normally due on May 15, 2025
• Passthrough Entity Elective Tax payments normally due on March 15 and June 15, 2025

The California Department of Tax and Fee Administration (CDTFA) on January 13, 2025, announced that it would provide an automatic three-month extension to April 30, 2025, of the January 31, 2025 deadline for filing sales and use tax returns and making payments to Los Angeles County taxpayers whose last return was for less than $1million in tax. This includes sales and use tax, as well as most other programs administered by CDTFA.

Individuals who lost their job or are unable to work because of the Los Angeles County wildfires may be eligible for disaster unemployment assistance or disability/paid family leave benefits.

For additional information on this development, see Tax Alert 2025-0248.

PAYROLL & EMPLOYMENT TAX

Multistate: State unemployment insurance (SUI) trust funds are largely financed by employer contributions. (Employees in Alaska, New Jersey and Pennsylvania also make contributions.) States are required to maintain an SUI taxable wage base of no less than the limit set under the Federal Unemployment Tax Act (FUTA). The 2025 FUTA wage limit of $7,000 has remained unchanged since 1983, despite increases in the federal minimum wage and annual cost-of-living adjustments over the last 42 years. 27 jurisdictions have a flexible SUI wage base, meaning that the wage base can increase each year. This is an increase from 26 jurisdictions in 2024. In the remaining jurisdictions, the wage base is set, requiring legislation to change it. Tax Alert 2025-0171 includes a list of the 2025 SUI taxable wage bases as of December 31, 2024 (as compared to 2024) and employee SUI withholding rates, if applicable.

Multistate: To assist you in reviewing your state and US territory income tax withholding rates for 2025, the chart in Tax Alert 2025-0150 contains hyperlinks to the most recent (1) income tax withholding formulas/tables published by the states and US territories, (2) information concerning their respective highest income tax withholding rates (based on their percentage method of withholding) or flat tax withholding rates, and (3) their supplemental withholding rates, if applicable.

MISCELLANEOUS TAX

Alabama: The Alabama Department of Revenue adopted new Rule 810-6-5-.22.01 "Collection and Reporting Requirements for Accommodations Intermediaries and Accommodations Providers." Alabama law requires accommodations intermediaries to collect and remit state and local transient occupancy taxes on room charges, effective with transactions occurring on and after January 1, 2025. An accommodations intermediary that facilitates the transaction for an accommodations provider may remit the collected taxes to the accommodations providers, if they have entered into a written agreement specifying the party responsible for remitting the tax. Accommodations intermediaries and accommodations providers must submit an annual report that includes information on the accommodations rented during the prior year as well as other information specified in the rule. The report must be electronically filed by April 20; thus, the first annual report is due April 20, 2026. Professional property management companies, destination marketing organizations, certain accommodations providers and hotels that collect and remit the transient occupancy tax are exempt from having to file the annual information report. The rule defines the following terms: "accommodations intermediary," "accommodations provider," "hotel," "professional property management company" and "room charge." Rule 810-6-5-.22.01 was adopted on December 18, 2024, and it takes effect on February 14, 2025.

Ohio: In Total Renal Care, Inc.,⁷ the Ohio Supreme Court (court) upheld a decision by the Ohio Board of Tax Appeals (BTA) that sourced certain healthcare service to Ohio, for purposes of the Ohio Commercial Activity Tax (CAT).

The taxpayer provided kidney dialysis services to patients in Ohio. The taxpayer, through an affiliated company, also performed laboratory and other back office administrative services outside of Ohio. The taxpayer conceded that the laboratory and administrative services were solely performed in support of its dialysis services to patients in Ohio. The taxpayer sought a refund of CAT on the portion of gross receipts relating to the laboratory and administrative services, citing Ohio Administrative Code 5703-29-17(C)(28), which provides that if healthcare services are provided partly within Ohio and outside Ohio, a reasonable allocation for the services performed in Ohio must be made. The Ohio Department of Taxation (Department) denied the refund claim on the grounds that Ohio Rev. Code 5751.033(I) requires the gross receipts for services to be sourced to where the purchaser receives the benefit of those services.

The BTA upheld the Department's denial of the refund claim. In upholding the BTA, the court rejected the taxpayer's argument that the administrative rule should control the legal analysis in the case, finding that there was no conflict between the statute and the administrative rule. The court observed that the taxpayer did not provide the laboratory or administrative service as a stand-alone service; instead, that service was "ancillary to and supportive of" the dialysis services provided to Ohio patients. For additional information on this development, see Tax Alert 2025-0310.

VALUE ADDED TAX

International - Czech Republic: An amendment to the Czech VAT Act, which was published in the Collection of Laws at the end of 2024, introduces a new obligation for taxable persons that are established outside of the European Union (Foreign Entities) who are registered for VAT in the Czech Republic. Foreign Entities registered for Czech VAT will be required to appoint a representative with an established Czech data boxin accordance with Czech law. This representative will be responsible for receiving correspondence from the tax authorities that is addressed to the Foreign Entities. Each Foreign Entity may appoint only one representative. Alternatively, Foreign Entities may establish their own Czech data box, although this could be a complicated process in practice. For more on this development, see Tax Alert 2025-0218.

International — Italy: On December 30, 2024 the Italian Parliament approved the 2025 Budget Law (Law n. 207 of 2024), which was published in the Official Gazette of December 31, 2024. The Italian Parliament had approved other relevant legislation in November 2024. Specifically, Law no. 166 of November 14, 2024, converting Decree-Law no. 131/24 (so called Save-Infringements Decree), was published in the Official Gazette of November 14, 2024, and Legislative Decree No. 180 of November 13, 2024, implementing EU Directive 2020/285 and EU Directive 2022/542, was published in the Official Gazette of November 30, 2024. Tax Alert 2025-0187 summarizes the key VAT measures that entered into force from January 1, 2025: (1) extension of reverse charge in the logistics sector; (2) VAT chargeability for training services provided by qualified training entities; (3) small businesses VAT scheme; (4) VAT on online events; and (5) secondment of staff.

International — Slovakia: The Slovak Government is taking the first steps in the field of value-added tax (VAT) digitization, issuing preliminary information in late December 2024 on the introduction of electronic invoicing for VAT payers and the mandatory real-time reporting of invoice data to the Financial Administration. The proposal comes at a time when the European Union (EU) has approved the obligation for EU Member States to introduce mandatory real-time reporting of cross-border transactions by 2030. For more information on this development, see Tax Alert 2025-0238.

International — Uzbekistan: At the end of 2024, numerous international companies operating in e-commerce, information technology, and entertainment (Internet Companies) reportedly received notifications from the tax authorities of the Republic of Uzbekistan regarding the payment of value-added tax (VAT) on electronically supplied services (Electronic Services) provided to individuals and individual entrepreneurs in Uzbekistan. These notifications have been issued to both foreign companies registered as VAT payers for Electronic Services and those that have not been registered. For more on this development, see Tax Alert 2025-0247.

UPCOMING WEBCASTS

Tuesday, February 18, 2025. State & local tax issues impacting the real estate industry: Changes impacting income tax compliance, real estate transfer tax trends and IRA. (2:00-3:00 pm ET / 11:00-12:00 pm PT). Join us for an insightful webcast as we delve into state and local tax developments impacting the real estate industry. This session will provide a comprehensive overview of state and local tax trends specific to real estate and essential considerations for 2025 and beyond. During the webcast the following topics will be discussed: (1) income tax compliance season reminders; (2) New York State and NYC regulations; (3) the shift away from property-based franchise taxes; (4) sunsetting of the TCJA and the implications for states; (5) recent real estate transfer tax updates and trends with distressed debt; and (6) the state tax impact of the IRA. Register.

Tuesday, February 25, 2025. Financial Services — State Tax Navigator quarterly series: a focus on state tax matters for banking, capital markets & insurance industry members (1:00-2:00 pm ET / 10:00-11:00 am PT). Please join us for this installment of our financial services quarterly webcast, which will focus on navigating complexities in state tax, with a specific focus on issues that are top of mind for tax professionals in the banking, capital markets & insurance (BCMI) sectors. In this webcast, panelists will: (1) provide an update on state fiscal conditions, pending legislation of interest and policy watchlists; (2) hear from our state tax desks on specific issues of particular relevance for the BCMI sector, this quarter featuring California, Pennsylvania and Ohio; and (3) share an artificial intelligence/technology tidbit featuring a use case for BCMI sector members. Register.

Because the matters covered herein are complicated, State and Local Tax Weekly should not be regarded as offering a complete explanation and should not be used for making decisions. Any decision concerning matters covered herein should be reviewed with a qualified tax advisor.