19 February 2025 State and Local Tax Weekly for January 24 and January 31 Ernst & Young's State and Local Tax Weekly newsletter for January 24 and January 31 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. Taxpayers should consider filing protective refund claims for Maryland digital advertising tax as expiration of three-year statute of limitations approaches Maryland's digital advertising services tax1 (DAT) applies to Maryland receipts derived from the provision of digital advertising services within the state. It went into effect in January 2022, with the first returns and estimated payments due on April 15, 2022. The tax currently faces challenges in federal court on grounds that it violates the First Amendment, and in state court on grounds that it violates the US Constitution and federal law — namely, the Internet Tax Freedom Act. The federal challenge is currently before the US Court of Appeals for the Fourth Circuit, and the state challenge is currently before the Maryland Tax Court. Neither case is expected to be resolved until late 2025 at the earliest. While the Comptroller has not yet specified the statutory refund period for the DAT, Maryland applies a three-year statute of limitations for most tax refund claims.2 Based on the language in the law,3 the three-year period appears to apply. Accordingly, the statute of limitations period for the first estimated payments is set to expire on April 15, 2025. If either the state or federal court ultimately declares the tax invalid, it is not clear to what extent refunds would be allowed retroactively for periods outside of the statute of limitations. As a general rule, the Due Process Clause of the Fourteenth Amendment requires states to provide "meaningful backward-looking relief to rectify any unconstitutional deprivation."4 This principle, however, often is weighed against a state's interest in maintaining fiscal solvency to prevent undue hardship to its citizens.5 Furthermore, the form of "meaningful backward-looking relief" may not necessarily take the form of cash refunds. Accordingly, any taxpayer that paid estimated DAT beginning in April 2022 should consider filing a protective refund claim before April 15, 2025, to retroactively preserve their rights to any refunds that may ultimately be determined. (See Tax Alert 2025-0286.) Calendar-year taxpayers that want to make a new Montana water's-edge election — or renew an existing election that expired at the end of 2024 — must file Form WE-ELECT by March 31, 2025. Montana corporate income tax law requires members of a unitary business to file returns on a worldwide combined basis, unless a water's-edge election is made to exclude foreign affiliates from the combined group. Taxpayers that make a Montana water's-edge election pay an elevated tax rate of 7% instead of the standard 6.75% rate. While many states require a water's-edge election to be made by the due date — or extended due date — of the return for the year for which it is intended to be effective, Montana is unique in that a water's-edge election must be made within 90 days of the beginning of the tax year in which it is intended to become effective. The water's-edge election is only effective if all affiliated corporations subject to Montana tax consent, with consent by the common parent of an affiliated group deemed consent by all members of that group. A water's-edge group generally includes corporations organized in the United States that have a unitary relationship and are eligible to be included in a federal consolidated return, except that Montana substitutes a greater-than-50%-ownership test for the 80% federal test. Other affiliated corporations that may be included are domestic international sales corporations (DISCs) and foreign sales corporations (FSCs), export trade corporations, foreign corporations that derive gain or loss from real property interests in the United States, corporations incorporated outside the United States that have more than 20% of their average payroll and property assignable to a location inside the United States. Timely filed elections, if approved, are binding for three years, absent Montana Department of Revenue (MT DOR) permission to change the filing methodology. Taxpayers wishing to continue the election for an additional three years must file Form WE-ELECT within 90 days of the beginning of the new three-year period for which the election is intended to be effective. After an election is filed, the MT DOR will send a letter confirming the election has been approved or explaining why it was denied. The MT DOR typically responds to these requests quickly. If a reply is not received within two weeks of submission or within two weeks of the deadline, taxpayers should contact the MT DOR to ascertain if there is a problem with the request. In our experience, the MT DOR will not waive untimely water's-edge elections unless the taxpayer can establish reasonable cause as defined in the Montana Administrative Rules. For additional information on this development, see Tax Alert 2025-0287. Arizona: Governor Katie Hobbs on January 17, 2025 issued her FY2026 Executive Budget. Her proposal would extend the State Low Income Housing Tax Credit for six years through FY2031 and provide $10 million to expand the credit. Governor Hobbs is also proposing a childcare tax credit for businesses that provide childcare to employees. This credit would sunset after five years. In her State of the State address (presented January 13, 2025), Governor Hobbs did not mention specific tax changes, but she urged the extension of Prop 123, which provides funding for public schools and teachers, to avoid having to raise taxes. Arkansas: Governor Sarah Huckabee Sanders on January 14, 2025 delivered her State of the State address. The governor said that she will work with the legislature to end the state's Grocery Tax. Georgia: On January 16, 2025, Governor Brian Kemp presented his 2025 State of the State address. The governor discussed income tax cuts enacted over the past two years, and proposed reducing the current 5.39% income tax rate down to 5.19% for 2025. This reduction, the governor said would save "Georgians another 7.5 billion dollars over the next 10 years!" On January 23, 2025, the governor delivered his AFY25 and FY26 budget proposal. In addition to the acceleration of the income tax rate reduction, the governor also proposed a one-time tax rebate to give back $1 billion to taxpayers for the 2024 tax year. Hawaii: Governor Josh Green on January 21, 2025, delivered his State of the State address. The governor did not mention new taxes or tax changes, but discussed tax cuts enacted in 2024 that will be phased in over the next few years. Indiana: On January 29, 2025, first-term Governor Mike Braun gave his 2025 State of the State address. The governor discussed his property tax relief plan, under which property taxes would be cut for families (with emphasis on new homeowners and seniors), annual property tax increases would be capped "to protect homeowners, farmers, and businesses" and the property tax system would be reformed though transparency. The governor also mentioned providing seniors with relief on their retirement income, relief for farmers via the creation of tax-advantaged Farm Savings Accounts as well as providing a tax credit to retiring farmers who pass their farms to the next generation. The governor has directed agency leaders to find cuts in their departments and that a quarter of government regulations be cut. In terms of economic development, the governor highlighted the need to build the skills of those already working to "match high value, high wage jobs that employers need to fill." To do this, the governor is promoting the Hoosier Workforce Investment Tax Credit and calling for the creation of the Office of Entrepreneurship and Innovation. On January 21, 2025, the governor presented his Fiscal 2026-27 biennial budget recommendations as HB 1001. The proposed budget includes tax relief mainly for individuals. The proposed budget would: (1) create two three-day back-to-school sales tax holidays to run in January and August and a seven day sales tax holiday to run in May for items such as bikes and supplies for fishing, hunting and hiking; (2) establish a personal exemption index factor for purposes of determining certain exemptions; (3) phase-in over a four-year period starting in 2025 a tax deduction for retirement benefits, with a 100% deduction by 2028; (4) exempt tip income for individuals employed in the service industry from income tax starting in 2025; (5) increase and expand eligibility for the health reimbursement arrangement income tax credit; (6) establish the rural fund capital investment tax credit for investments made after June 30, 2025, with the aggregate amount of credits available per calendar year capped at $15 million; (7) provide grants to eligible employers for reimbursement of training expenses to upskill Indiana employees; and (8) provide a temporary credit to retiring farmers who sell or lease farmland or sell livestock to qualified beginning farmers. Iowa: Governor Kim Reynolds on January 14, 2025 delivered her 2025 Condition of the State address. The governor highlighted the strength of the state's economy, tax reductions enacted over the past few years, and the streamlining of the state's government and its IT systems and other efficiency efforts. The governor said that she intends to launch s state DOGE "to find even greater savings and efficiencies in both state and local government." The governor noted that in order "to pass meaningful property tax reform, we also need to be lean at the local level." As for tax, the governor proposed to reduce the state's unemployment insurance payments by half, which would result in nearly $1 billion in savings. Kansas: On January 15, 2025, Governor Laura Kelly delivered her 2025 State of the State address, and followed the next day with her FY 2026 budget. In her State of the State address, the governor made clear that she "will continue to reject any attempt … to re-route public taxpayer dollars to private schools." An example of a non-starter is a proposal to reduce the state's corporate income tax rate to zero. The governor further said that while she prefers to defer discussions on taxes until next year, after they have a better understanding of the impact of the tax cuts enacted in 2024, she would consider changes to the tax structure that "pay for themselves and don't threaten our state's long-term financial health." The governor's budget proposal includes economic development aimed at enticing international businesses to the state. Maine: On January 10, 2025, Governor Janet Mills released her FY 2026-27 biennial budget. The governor noted that while the state's economy is strong, "our revenues are leveling-off." The governor's budget "rejects broad-based tax changes" (such as increases to the state's income or sales tax), and does not reach into the Budget Stabilization Fund. Rather, to close budget gaps, the governor's budget utilizes newly recognized revenues from the Revenue Forecasting Committee. The governor's proposed budget, however, would increase by $1.00 the state's cigarette excise tax as well as excises taxes on other tobacco and smokeless tobacco products. These proposed changes were also mentioned in the governor's State of the Budget address on January 28, 2025. Maryland: Governor Wes Moore on January 15, 2025 presented his FY 2026 budget proposal, an element of which focuses on "fixing what's broken in our tax system" and providing tax cuts targeting low and middle-income families. The governor's budget has been introduced as HB 352 and SB 321. Of interest to business taxpayers, the governor's proposal would: (1) gradually lower the corporate income tax rate from 8.25% to 7.99%, beginning in 2028; (2) adopt mandatory worldwide combined reporting, with the ability to make a water's edge election, effective for tax yeas beginning after December 31, 2027; (3) adopt a retail delivery fee of $0.75 on vendors that make $500,000 or more in retail sales in the prior calendar year, or a marketplace facilitator that facilitated $100,000 in a marketplace seller's retail sales in the prior calendar year; and (4) increase the tax rates for sports wagering to 30% (from 15%) and table games to 25% (from 20%). For individual taxpayers, the governor's proposal would: (1) impose higher tax rates on income exceeding $500,000 (6.25%) and $1 million (6.5%); (2) impose a 1% surcharge on capital gain income for high-income earners (starting in 2025); (3) double the standard deduction and eliminate the itemized deduction; (4) expand the child tax credit; (5) simplify the individual income tax rate schedule by consolidating the bottom four income tax brackets; (6) eliminate the inheritance tax; and (7) lower the estate tax exemption to $2 million (from $5 million). The governor's budget proposal also would phase out state funding for enterprise zone tax credits, while allocating $515 million for targeted investments in the state's economic growth, $27.5 million for the recently announced Capital of Quantum Initiative, and $25 million for "sunny day funds" that will be used to attracted certain business industries to the state. Massachusetts: On January 22, 2025, Massachusetts Governor Maura Healey presented her FY 2026 Budget, which has been filed as HB 1. Under existing law (G.L. c. 63 Section 38B), a financial institution or business corporation that qualifies as a security corporation is not subject to the corporate excise under G.L. c. 63 Sections 2, 2B, 32D or 39, but is instead taxed on gross income at a rate of 1.32%. The rate is reduced to 0.33% if the security corporation is a bank holding company. In addition, security corporations are not subject to the non-income measure of the corporate excise. Effective for tax years beginning on or after January 1, 2025,6 the governor's proposal would repeal G.L. c.63 Section 38B as well as references to Section 38B in other code sections, thereby subjecting financial institutions or business corporations that currently qualify as security corporations to the same corporate excise rules applicable to other financial institutions and business corporations. The proposed budget also would: (1) include affiliated captive insurance companies in a combined reporting group; (2) change the income tax treatment of gains from the sale of a trade or business conducted by a pass-through entity (PTE) for nonresidents, by treating the business of the PTE as the business of its nonresident individual owners, any gain would be allocated or apportioned; (3) limit state tax benefits to investments in federal opportunity zones to such zones located in the state; (4) cap the charitable donation deduction for individual income tax purposes at $5,000 for single filers, married filing separate and head of household, and $10,000 for married filing a joint return; (5) eliminate the sales and use tax exemption for candy and confectionery; (6) impose the room occupancy excise tax on the fair market value of hotel rooms offered on a complimentary or discounted basis; (7) impose the deeds excise tax on transfers or acquisitions of a controlling interest in an entity with an interest in real property; (8) subject products containing synthetic nicotine to the same excise tax imposed on tobacco products; (9) modify the estate tax by aligning the tax treatment of out-of-state property of resident and nonresident decedents; and (10) impose a penalty on drug manufacturers whose drug price increases are deemed excessive. (See Tax Alert 2025-0382.) Minnesota: Governor Tim Walz on January 16, 2025 presented his 2025 biennial budget. The tax-related provisions in the governor's budget would reduce the state's sales and use tax by 0.075% and would expand the sales and use tax base to services provided to individuals by investors, bankers and lawyers. The budget also would allocate funds for a new corporate franchise tax division that would focus on "audit[ing] complex pass-through entities and clos[ing] loopholes." The budget proposal would increase the health maintenance organization surcharge from 0.6% to 1.25% of total premium revenue. Further, the budget would expand the state's research and development tax credit and expand the state's sustainable aviation fuel tax credit. New Mexico: On January 21, 2025, Governor Michelle Lujan Grisham presented her 2025 State of the State address. The governor is seeking $20 million for qualified business that expand in, or relocate to, New Mexico. The governor also proposed a new tax rebate "to help businesses foot the cost of security personnel and equipment … " The governor presented her FY 26 budget recommendations on December 12, 2024. Her budget did not mention tax but listed clean energy as one of the governor's priorities. New York: Governor Kathy Hochul on January 21, 2025, kicked off the first step in New York State's budget process by putting forth her New York State (NYS) fiscal year 2025 — 2026 Revenue Legislation, filed as S. 3009 and A. 3009. Tax changes in the governor's budget would: (1) increase the estimated tax threshold for corporate taxpayers; (2) make various changes to the elective pass-through entity tax, including extending the election due date to September 15 (from March 15); (3) add new reporting requirements for federal partnership audit results intended to align New York State partnership reporting with the federal regime enacted under the Bipartisan Budget Act of 2015; (4) reduce personal income tax rates by 0.1 percentage points in tax year 2025 and again in tax year 2026 on income in each bracket up to $323,000 per year; (5) extend through 2032 increased rates on income earned in excess of $2,155,350; (6) extend the Empire State Film Production Tax Credit and create an Independent Film Production Credit; (7) establish the "CATALIST NY Program" to help cultivate NYS's innovation economy and support innovation businesses during the early stage of their growth; (8) extend the Excelsior Jobs program through 2039 (from 2029) and expand the program to the semiconductor industry, with enhanced benefits for semiconductor supply chain businesses and create two new programs — the semiconductor research and development project program and the semiconductor manufacturing workforce training incentive program; (9) amend the state historic property tax credits; (10) amend the New York City Relocation and Employment Assistance Program and create a new relocation credit program; (11) enhance credits for employing persons with disabilities and vets; (12) extend and double the low-income housing credits; (13) impose waiting period restriction before "covered entities" can "purchase, acquire, or offer to purchase or acquire one- or two-family residences and disallow depreciation and interest deductions for institutional real estate investors (and their partners) on "covered properties"; (14) extend the financial institution data match system until 2030 from its scheduled April 2025 expiration; (15) clarify taxpayer notification and protest rights; (16) improve the tax warrant process; and (16) provide a one-time $300 or $500 "Inflation refund credit" for tax year 2025 for certain individual taxpayers. (See Tax Alert 2025-0418.) Utah: Governor Spencer Cox delivered his 2025 State of the State address on January 23, 2025. Among his priorities is the elimination of the state tax on Social Security benefits. (This elimination was also recommended as part of the governor's FY 2026 budget recommendations (presented December 5, 2024)). Other tax-related recommendations in the governor's proposed budget include expansion of the child tax credit and targeted investments that support economic growth. Wisconsin: Governor Tony Evers on January 22, 2025, delivered his 2025 State of the State address. The governor highlighted previously enacted tax cuts and paying down the state's debt. This year, the governor has called for the removal of the state's sales tax on over-the-counter medications. Wyoming: On January 15, 2025, Governor Mark Gordon gave his 2025 State of the State address. In it he noted the state's low tax burden. The governor is seeking an additional $10.5 million to cover property tax refunds provided for in the prior year's budget. Idaho: New law (HB 3) updates Idaho's Internal Revenue Code (IRC) conformity date to the IRC as amended and in effect as of January 1, 2025. The change is retroactive to January 1, 2025. Idaho's previous IRC conformity date was January 1, 2024, for tax years beginning on or after January 1, 2024. Idaho Laws 2025, ch. 1 (HB 3), signed by the governor on January 27, 2025. Maine: On February 19, 2025 the Maine Revenue Services (MRS) will hold a public hearing on proposed amendments to Rule 801 "Apportionment." The proposed amendments would modify provisions regarding sourcing receipts from the performance of services for corporate income tax purposes. Receipts from the performance of services generally are sourced to the state where the services are received. A proposed amendment would provide that a service may be received by a person that did not pay, or contract, for them. The determination of where services are received would be based on all available facts including the books and records of the taxpayer and related parties. Another proposed amendment would make clear that there is a distinction between determining where the service is received and determining the amount of gross receipts from the performance of services in Maine. Proposed amendments also would add several examples of sourcing receipts from the performance of services under the general rule, including for: (1) in-person services; (2) services concerning real property; (3) services concerning tangible personal property; (4) services concerning teaching and training; (5) advertising and related services; (6) cable TV services; and (7) pharmacy benefit management services. Written comments are due to the MRS by March 3, 2025. Maine Rev. Services, Maine Tax Alert (Vol. 35, Issue 2, Jan. 2025 - #2). Michigan: New law (HB 5022) changes the date by which a flow-through entity (FTE) may make an election to pay tax at the entity level. For tax years beginning on and after January 1, 2024, an FTE may make the election with the Michigan Department of Treasury (MI DOT) on or before the last day of the ninth month after the end of the tax year. For years prior to 2024, the election had to be made by the 15th day of the third month of the tax year. Regarding FTE tax estimated tax payments, the law provides that for tax years beginning on or after January 1, 2024, interest and penalty will not be assessed if the taxpayer submitted four equal installments the sum of which equals at least 90% of its current year's tax liability or 100% of its prior year's tax liability. Interest and penalty will not be assessed for any quarterly estimated payment due before the taxpayer makes an election to pay the FTE tax due for the tax year. The law also changes the deadline to fund FTE tax credits. For tax years beginning on and after January 1, 2024, the member's share of FTE tax for the tax year must be paid on or before the date for filing the annual return, including any extension. For years before 2024, the tax must be paid by the 15th day of the third month after the end of the tax year. If an FTEs election to pay the FTE tax is denied, the law allows the FTE to file a written notice with the MI DOT within 60 days and be entitled to an informal conference. Mich. Laws 2024, PA 216 (HB 5022), signed by the governor on January 17, 2025. See also, MI Dept. of Treas., 2024 PA 216 Amends Flow-Through Entity Tax (Feb. 3, 2025). New Hampshire: The New Hampshire Department of Revenue Administration (NH DRA) announced that for tax periods beginning on or after January 1, 2025, taxpayers are no longer required to pay the state's 3% interest and dividends tax. Law enacted in 2023 (HB 2) repealed the tax starting in 2025. The NH DRA noted that the 2024 interest and dividends tax return needs to be filed by the due date along with any required payment of tax, interest and penalty that is due. N.H. Dept. of Rev. Admin., Press Release "Repeal of NH Interest and Dividends Tax Now in Effect" (Jan. 23, 2025). Virginia: In a recently issued ruling, the Virginia Department of Taxation (VA DOT) determined whether exceptions applied to a corporate taxpayer's intercompany intangible and interest expenses and costs subject to the state's add-back requirements. The taxpayer argued that royalties paid to Affiliate A included research and development (R&D) expenses that were not "intangible expenses and costs" required to be added back. The VA DOT rejected this argument, finding that the taxpayer "did not actually incur" the R&D expenses. Rather, the expenses were incurred by Affiliate A, which paid Affiliate B for certain R&D services. Accordingly, the VA DOT adjustments to add-back to include all royalties paid by the taxpayer to Affiliate A, without adjustment for R&D expenses Affiliate A paid to Affiliate B, were correct. The VA DOT also rejected the taxpayer's argument that under the "subject-to-tax" exception it was entitled to exclude 100% of the royalty payments from add-back. Rather, the VA DOT said that this exception is limited, applying only to the portion of the taxpayer's intangible expense payments to its affiliates that correspond to the portion of the affiliate's income subject to tax in other states. This portion of tax is "evidenced by the apportionment percentages shown on the affiliate's tax return filed with the other states." (This exception, the VA DOT said applies on a post-apportionment, not a pre-apportionment, basis.) The VA DOT noted that this exception may also apply to the extent the taxpayer was required to add-back the royalties in any other state and pay tax on them. Lastly, the VA DOT found that interest the taxpayer paid to certain affiliates for intercompany cash advances were not related to intangible property and, therefore, such interest expense is not subject to add-back. Va. Dept. of Taxn., Rulings of the Tax Comm'r No. 24-125 (Nov. 18, 2024). Colorado: On February 20, 2025, the Colorado Department of Revenue (CO DOR) will hold a workgroup meeting to discuss a draft rule — Special Rule 46 — on the sales tax treatment of mainframe computer access, including sourcing taxable sales, distinguishing between mainframe computer access and computer software, and the taxability of mixed transactions.7 Under the draft general rule sales of mainframe computer access would be: (1) considered a lease or rental of computer equipment for the purpose of storing or processing data; (2) sales of tangible personal property for Colorado sales tax purposes; and (3) subject to Colorado and state-administered local sales tax if sourced to a location in Colorado. A short-term contract for mainframe computer access would be a retail sale subject to state and state-administered local sales taxes unless the provider paid the applicable taxes upon their acquisition of such equipment. If the provider paid the taxes, the short-term contract would be exempt from Colorado and state-administered local sales and use taxes. Payments for mainframe computer access would be sourced to the location of the computer equipment accessed for purposes of storing or processing date. The draft rule includes specific provisions for leases or rentals that require periodic payments and those that do not require period payments. The draft rule would provide guidance on the application of tax to a mixed transaction that includes mainframe computer access and either electronic computer software delivery or use of computer software hosted by an application service provider. Specific rules would be provided for mixed transactions that are separable transactions (with a definition of separability and provisions for separately and non-separately stated charges) and inseparable transactions. Purchases of mainframe computer access for the primary purpose of resale would be a tax-exempt wholesale sale; if, however, the reseller uses a portion of the mainframe computer access for its own purpose, the entire purchase would be subject to sales or use tax. Short-term contracts to resell mainframe computer access would be exempt if the seller paid state sales or use tax on the acquisition of the mainframe computer access. The draft rule also would provide guidance on the application of tax to purchases of (1) computer equipment to provide mainframe computer access, under long-term and short-term contracts, and (2) electricity to provide mainframe computer access. Comments on the draft rules are due by February 20, 2025. Additional information on the meeting and how to attend is available on the CO DOR website. Indiana: In response to a letter ruling request from an out-of-state video game publisher, the Indiana Department of Revenue (IN DOR) determined the state's sales and use tax does not apply to the company's sales of (1) monthly online subscriptions that allow the player to play the game in an online, multi-player setting; (2) in-game items such as costumes or weapons or time saving boosts; and (3) virtual currency that allows the purchaser to acquire in-game items or pay for the monthly subscription. The IN DOR found that these sales are not sales of tangible personal property or specified digital products. Ind. Dept. of Rev., Revenue Ruling # 2024-04-RST (Jan. 7, 2025). Louisiana: Following the enactment of tax reform in December 2024, the Louisiana Department of Revenue (LA DOR) posted to its website a chart listing sales and use tax exemptions that were retained by Act 11 (2024 Third Extraordinary Session) and a chart listing the sales and use tax exclusions and exemptions that were repealed by Act 11. The LA DOR has posted additional information on tax reform related changes on its website. Tennessee: In response to a ruling request from a company that offers its customers various services to assist them in providing employee recognition incentives, the Tennessee Department of Revenue (TN DOR) determined that the state's sales and use tax does not apply to services associated with the creation of customer employee recognition solutions including consulting regarding specific needs for employee recognition incentives, startup services, website design fees, and training for customer's employees on how to use the website. The TN DOR found the true object of the transaction was the administration of the employee recognition program, which is not an enumerated taxable service. The TN DOR also said that sales and use tax does not apply to transaction fees the company charges when customers are issued reward certificates. The reward certificates are not tangible personal property or an enumerated taxable service; rather, issuing the rewards certificate is more akin to an administrative service. Lastly, the TN DOR found the company's sales of merchandise under the employee recognition program are subject to sales and use tax as sales of tangible personal property, but its sales of gift cards are not taxable as they transfer an intangible value. Tenn. Dept. of Rev., Letter Ruling #24-10 (Nov. 26, 2024). Federal: Treasury and the IRS released final regulations (TD 10024) on the IRC Section 45Y clean electricity production tax credit and the IRC Section 48E clean electricity investment tax credit established by the Inflation Reduction Act. To qualify, an eligible facility that generates electricity must have a net-zero or negative greenhouse gas (GHG) emissions rate. The final regulations, which largely adopt the proposed regulations, detail how to determine rates of GHG emissions resulting from producing electricity, petition for provisional emissions rates and determine eligibility for these credits. Revenue Procedure 2025-14, which is effective January 15, 2025, lists in the first Annual Table the technologies that are described in the final regulations as non-combustion and gasification facilities that have a zero or negative GHG emissions rate. The final regulations are effective on the date of publication in the Federal Register (i.e., January 15, 2025). For additional information on this development, see Tax Alert 2025-0343. New Jersey: New law (S. 1323) makes various changes to the New Jersey Aspire Program, which is administered by the New Jersey Economic Development Authority. Changes to the Aspire Program, among other things, do the following: (1) reduce the period in which a credit can be used after it is approved (e.g., eligibility period) to 10 years (from 15 years) for developers of mixed use and commercial redevelopment projects (residential projects were already subject to a 10-year eligibility period) and allow a developer to elect a period not to exceed five years for projects located in a government-restricted municipality or for a special mission non-profit project; (2) expand the definition of "aviation district" eligible for tax credits under the Aspire program to include the Trenton-Mercer Airport and the area within a one-mile radius of the outermost boundary of the airport terminal; (3) expand the definition of "government-restricted municipality" to which special rules apply to include additional municipalities that meet specified population thresholds and are designated as a county seat; (4) increase to 85% (from 80%) the total credit award for projects in a government-restricted municipalities that were designated as such prior to the effective date of this law — projects in newly designated government-restricted municipalities are allowed 80% of the total tax credit; (5) expand the tax credit eligibility to certain non-property affordable housing projects, i.e., special mission non-profit projects; and (6) amend the definition of "eligible project cost" to include land costs in an amount not to exceed 20% of the eligible project costs. The law increases the state's minimum purchase price of unused Aspire tax credits to 85% (from 75%) of the minimum price of the tax credits, provided certain criteria is met, and it allow the New Jersey Director Division of Taxation to purchase unused tax credits under the Cultural Arts Incentives program. S. 1323 took immediate effect. N.J. Laws 2025, ch. 2 (S. 1323) signed by the governor on January 23, 2025. California: Governor Gavin Newsom has issued an order providing property tax relief to taxpayers affected by the wildfires. In addition to the relief issued by the Governor, the Los Angeles County Assessor's Office published an informational packet, containing frequently asked questions (FAQs) on tax relief available to property owners impacted by disasters, including the wildfires. The Governor's order suspends penalties, costs and any interest accrued on late property tax payments until April 10, 2026, and extends the business personal property filing deadline from May 7, 2025, to April 10, 2026, without penalty for Los Angeles communities affected by the wildfires. The FAQs detail the process for claiming disaster-related property tax relief. The LA County Assessor's Office is planning to survey damage and flag properties affected by the recent wildfires and straight-line winds that began on January 7, 2025, but recommends that affected property owners file a Form ADS-820 (M&C Form), Application for Reassessment of Property Damaged or Destroyed by Misfortune or Calamity. Filing the M&C Form will create a record of the request to revalue the property damaged or destroyed by the calamity and allow the Treasurer and Tax Collector to defer the current-year property taxes for taxpayers who pay property taxes directly to the county (i.e. not through an impound account), without incurring penalties. The M&C Form can be filed for both real property and business personal property. The deadline to file the M&C Form is 12 months from the date the property was damaged or destroyed. For additional information on this development, see Tax Alert 2025-0344. California: Commonly overlooked California local business tax filing deadlines are quickly approaching in San Francisco, Los Angeles, and other localities throughout the state. As the federal and state tax filing season approaches, taxpayers should be aware of the below information on reporting and paying local business taxes. 2024 San Francisco Annual Business Tax (SF ABT) returns are due on or before Friday, February 28, 2025. The SF ABT return includes reporting and payment of Gross Receipts or Administrative Office Taxes, Homelessness or Homelessness Administrative Office Taxes, Commercial Rents Taxes and Overpaid Executive Gross Receipts Taxes. Taxpayers can request a 60-day filing extension by submitting a written request and paying at least 90% of taxes due by the filing deadline. SF ABT returns and tax payments must be filed electronically using the city's 2024 ABT Payment Portal. In addition to filing SF ABT returns, taxpayers must also file or renew their business registration and submit payment of the city's Business Registrations Tax by May 31, 2025. The deadline for filing tax year 2025 Los Angeles Business Tax (LABT) renewals is Friday, February 28, 2025. The city provides copies of forms for download and completion in writing and allows filing of renewal forms and payment of taxes through its electronic filing system. Both the downloadable forms and the electronic filing system are accessible through the city's website. To be considered timely filed, a taxpayer's forms must be postmarked or electronically submitted no later than 11:59 PM PST on Friday, February 28, 2025. Taxpayers can apply for a maximum filing extension of 45 days by submitting a written request, accompanied by payment of at least 90% of the total tax due, by the February 28, 2025, filing deadline. For additional information on San Francisco, Los Angeles, and other localities filing deadlines, see Tax Alert 2025-0372. District of Columbia: On January 31, 2025, the District of Columbia Office and Tax Revenue (OTR) adopted amendments to D.C. Mun. Regs. tit. 9, Section 105.14. As amended, the rule requires taxpayers filing returns with the District of Columbia to submit a copy of their federal income tax return, including any schedules or other information provided to the IRS. This requirement applies to corporations, unincorporated businesses and partnerships with gross income for the tax year exceeding $2.5 million worldwide and $50,000 apportioned to the District. And it applies to individuals filing single or married filing separately with gross income exceeding $500,000 for the tax year, or married filing jointly with gross income exceeding $1 million. The copy of the federal income tax return must be filed in electronic form. This change is effective for tax years beginning after December 31, 2024. D.C. OTR, adopted D.C. Mun. Regs. tit. 9, Section 105.14 (D.C. Register, Vol. 72 No. 5, Jan. 31, 2025). Kentucky: The Kentucky Department of Revenue (Department) has announced that MyTaxes, a new tax portal for business tax filers, is projected to be available on March 14, 2025. The Department will temporarily pause operations to facilitate the rollout from February 26 through March 14, 2025. MyTaxes is intended to offer business taxpayers: (1) a more comprehensive view of taxpayer data including filing, paying, and viewing return information for multiple tax types; (2) the ability to view taxpayer correspondence; and (3) increased self-service capabilities, such as submitting a refund application, making payments and requesting a letter of good standing. Beginning March 14, 2025, business tax filers will use the new MyTaxes portal, instead of OneStop, to access information and file the following taxes, fees and charges: sales and use tax, corporation income tax, limited liability entity tax, telecommunications tax, withholding tax, utilities gross receipts license tax (UGRLT), non-resident withholding tax, commercial mobile radio service charge, motor vehicle tire fee, transient room tax, and tobacco and vapor products licensing tax. MyTaxes will also replace E-Tax, the UGRLT and Telecom filing system and WRAPS (the Withholding Returns and Payment System). The Department recommends that businesses complete any necessary filings before the shutdown to avoid delays and to print their historical data, which will not be accessible in OneStop as of February 26. For additional information on this development, see Tax Alert 2025-0415. Federal: The Treasury Department and IRS have issued proposed regulations (REG-115560-23) on imposing and calculating the IRC Section 5000D excise tax on manufacturers, producers or importers (collectively, taxpayers) of designated drugs sold during the applicable statutory period. The statutory period relates to a taxpayer's noncompliance with certain milestones prescribed in the Medicare Drug Price Negotiation Program. At the same time, the IRS released Revenue Procedure 2025-9, which provides a safe harbor and safe harbor percentage that may be used to identify applicable sales of a designated drug made during a day described in IRC Section 5000D(b). This safe harbor can be used for returns filed beginning in 2025 until the proposed regulations are finalized or other guidance is issued. Final regulations on reporting liability for the excise tax were issued in July 2024 (see Tax Alert 2024-1364). At that time, the IRS and Treasury indicated they would issue separate regulations addressing substantive issues. For additional information on this development, see Tax Alert 2025-0348. Federal: United States (US) Customs and Border Protection issued a Notice of Proposed Rulemaking on January 21, 2025, which is available for public comment, proposing that merchandise subject to specified trade or national security actions be ineligible for the administrative exemption for certain low-value shipments not exceeding US$800 per person, per day. For more on this development, see Tax Alert 2025-0292. Federal: United States (US) Customs and Border Protection issued an Interim Final Rule (IFR) in the Federal Register on January 17, 2025 that is available for public comment to further address implementing regulations in the 19 CFR Section 182 United States-Mexico-Canada Agreement (USMCA) that went into effect in July 2020. The IFR, which is effective on March 18, 2025, with a 120-day delayed compliance date for the vehicle certification regulations, addresses the following: automotive goods, textile and apparel goods, drawback and duty-deferral program requirements, recordkeeping and protest requirements, temporary admission of goods, fee provisions and other conforming amendments to fulfill USMCA requirements. For additional information on this development, see Tax Alert 2025-0285. Federal - International: This edition of Trade Talking Points includes updates on: trade policy developments following the inauguration of US President Trump; reauthorization of the US African Growth and Opportunity Act; the EU Free Trade Agreement with Mexico and Malaysia; entry into force of the EU-Chile Interim Trade Agreement; the latest European Free Trade Association agreements with Thailand and Ukraine; China's new safeguard investigation into beef products; and more. A copy of the January 2025 edition of Trade Talking Points is available via Tax Alert 2025-0316. International — Philippines: On January 17, 2025, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. 3-2025, the implementing regulations for Republic Act (RA) No. 12023, which imposes a 12% VAT on digital services, including those provided by nonresident digital service providers (DSPs). Digital services provided by a nonresident DSP shall be considered performed, rendered, supplied or delivered in the Philippines in the course of trade or business if such digital services are consumed in the Philippines (i.e., the buyer is in the Philippines based on payment information, residence information, access information, etc.). All nonresident DSPs that are required to register (i.e., meet the VAT threshold) shall register or file an update with the BIR within 60 days from the Regulations' effective date through the VAT on Digital Services Portal and shall immediately be subject to VAT after 120 days from the effective date. For additional information on this development, see Tax Alert 2025-0331. International — Slovenia: Beginning on July 1, 2025, all VAT-registered persons in Slovenia will be obliged to prepare and submit VAT ledgers to the tax authorities in addition to VAT reports. This new requirement was enacted under the VAT Act, published on December 6, 2024. VAT ledgers will have to be prepared on a monthly basis, separately for output (Record of Calculated VAT) and input (Record of Deductible VAT) transactions, and submitted electronically within the same timeframe as VAT reports. Content and format will be prescribed; however, technical standards on how the information will be exchanged are not available yet. Tax Alert 2025-0351 highlights the new requirements. Tuesday, February 25, 2025. Financial Services — State Tax Navigator quarterly series: a focus on state tax matters for banking, capital markets & insurance industry (BCMI) 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 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. Tuesday, March 11, 2025. Domestic tax quarterly webcast series: a focus on state tax matters (1:00-2:30 p.m. ET). For our first quarterly webcast in 2025, speakers from our Indirect, Washington Council Ernst & Young (WCEY) and Quantitative Economics and Statistics (QUEST) groups will provide an update on the current state of the states and discuss important state tax policy considerations that are emerging in 2025, as well as federal tax and trade policy developments that could affect state and local taxes. Topics will include: (1) state and local revenue and fiscal conditions; (2) governors' budget initiatives; (3) state and local tax legislative and administrative proposals and trends; (4) federal policy developments that could affect state tax policy decisions, including extension of Tax Cuts and Jobs Act provisions and other potential federal tax law changes, federal tax credits and incentives, federal trade policy, and federal and state sustainability initiatives, including increased interest in the creation of state superfunds. 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. 1 Under G.L. c. 63 Section 38B, a business corporation or financial institution may be classified as a security corporation if it is engaged exclusively in buying, selling, dealing in, or holding securities on its own behalf and not as a broker. 2 The draft rule would define various terms including "application service provider," "computer equipment," "electronic computer software delivery," "long-term contract," "mainframe computer access," "short-term contract," and "state-administered local sales taxes." 4 Md. Code Tax-Gen Section 13-1104. The limitations period for sales and use tax refund claims is four-years. 5 Md. Code Tax-Gen Section 13-1104(a) states that "[e]xcept as otherwise provided in this section, a claim for refund under this article may not be filed after [three] years from the date the tax, interest, or penalty was paid." Document ID: 2025-0516 |
