Ernst & Young's State and Local Tax Weekly newsletter for February 21 and February 28 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 Jersey seeks feedback on proposed new and amended corporate business tax regulations

The New Jersey Division of Taxation has released a package of proposed guidance related to the corporate business tax (CBT) that would amend, repeal and implement new regulations in response to recent statutory changes. Specifically, the guidance package addresses CBT changes made by P.L. 2022, c. 133 (signed December 22, 2022); P.L. 2023, c. 50 (signed May 8, 2023); and P.L. 2023, c. 96 (signed July 3, 2023). (For more on c.96, see Tax Alert 2023-1182.) The full text of the proposed amendments can be found here.

The proposed changes aim to clarify existing rules, eliminate obsolete regulations and correct typographical and grammatical errors. They also would prospectively incorporate parts of the Multistate Tax Commission's (MTC) updated guidelines on P.L. 86-272.¹ Several outdated provisions would be repealed, and technical corrections would be made to ensure clarity and compliance with current laws.

The deadline for taxpayers to submit written comments is April 19, 2025.

Key changes in the proposed rules include:

• Net operating losses (NOLs): Proposed amendments would clarify the treatment of NOLs and their carryovers, aligning the state's provisions with IRC Section 172. Proposed new rules would establish a pooling system for combined group members and would require tracing of the NOLs to be maintained by the combined group and members. These changes would apply to privilege periods ending on and after July 31, 2023. [N.J.A.C. 18:7-5.21; N.J.A.C. 18:7-21.11 and .27]
• S Corporations: Proposed amendments would codify changes made by P.L. 2022, c. 133, that simplified the administrative process for S corporations and qualified Subchapter S Subsidiaries by making their election status automatic upon IRS approval and allowing an opt-out for those wishing to be taxed as C corporations. This change would apply to privilege periods beginning on and after December 22, 2022. [N.J.A.C. 18:7-3.6]
• Nexus rules: Proposed amendments would add a new subsection to incorporate the new bright-line nexus rule, which established thresholds for business activities in New Jersey, requiring businesses with over $100,000 in receipts or 200 transactions to file CBT tax returns. Proposed amendments also would clarify whether activities of unitary partnerships are considered when determining nexus at the corporate owner level. This change would apply to privilege periods ending on and after July 31, 2023. [N.J.A.C. 18:7-1.6]
• Combined reporting: Proposed amendments would modify and add new definitions related to combined returns in accordance with changes made to the state's combined reporting regime by P.L. 2023, c. 96, including a revised definition of "unitary business" as of July 31, 2023, and new definitions of "world-wide basis" and "world-wide group" as of July 31, 2022. Proposed amendments would also clarify the treatment of, and add definitions for, various entities, such as captive investment companies, captive real estate investment trusts, and captive regulated investment companies. These changes would apply to privilege periods ending on and after July 31, 2023, unless otherwise noted. [N.J.A.C. 18:7-21.1]
• Tax credits and deductions: Proposed amendments would repeal prior rules that set forth the ordering of tax credits and replace them with a simplified method for the use of tax credits, in general, that the taxpayer earned, purchased, or was awarded. Generally, unless the statute specifies that the credit be used first, a taxpayer would be able to use their tax credit and credit carryover within the period specified by the statue. The proposed amendments would also clarify the treatment of various deductions, including allowing (1) qualified research expenditures to match the expenditures for the New Jersey research and development tax credit regardless of the timing schedule under IRC Section 174, and (2) research expenditures of cannabis licensees. The change regarding the research credit would apply to privilege periods beginning on or after January 1, 2022. [N.J.A.C. 18:7-3.17; N.J.A.C. 18:7-3.23A]
• Digital assets and financial services: Proposed new rules would clarify that financial products, instruments and services are not considered tangible personal property and, therefore, not protected by P.L. 86-272. This distinction would impact how digital assets are taxed and reported, ensuring that transactions involving digital assets, such as virtual currencies or non-fungible tokens and related services, are subject to the same regulations as other financial products. The proposal includes several examples. These changes aim to provide clearer guidelines for businesses operating in the digital space, enhancing compliance and aligning New Jersey's tax framework with evolving financial technologies. [N.J.A.C. 18:7-1.8]
• Amendments to filing procedures: Proposed amendments to filing requirements include electronic submission mandates for most amended returns and clarifications on the due dates for CBT returns. Paper returns would be acceptable under certain circumstances, such as when the taxpayer's software doesn't allow them to file the electronic return or for certain amended returns. [N.J.A.C. 18:7-11.13]
• Partnerships: Proposed amendments would codify a statutory change that exempts partnerships from the nonresident withholding tax for nonresident corporation partners that are part of a combined group, provided the partnership is unitary with that group. [N.J.A.C. 18:7-7.6]
• Internet activities: Proposed new regulation would provide clarity on whether internet activities exceed P.L. 86-272 protections. While the proposal relies on the MTC's P.L. 86-272 guidelines, it would expand on other activities not covered under the MTC's guidelines. The list of protected and unprotected activities is substantially similar to the activities listed in the New Jersey Division of Taxation CBT nexus guidance (TB-108(R)) revised on January 18, 2024 (see Tax Alert 2023-1527).² [N.J.A.C. 18:7-1.9A]

Among other things, the proposed amendments would:

• Clarify the treatment of IRC Section 959 dividends [N.J.A.C. 18:7-5.20]
• Clarify how to source capital gains when they are integrated or not integrated in business and operational income [N.J.A.C. 18:7-8.9]
• Clarify that capital gains from the sale of bonds, digital assets, or other financial products/instruments sold for trading purposes are not treated as capital gains and includable in the receipts fraction [N.J.A.C. 18:7-8.9]
• Amend provisions regarding the extended due date of the CBT return, still maintaining the 15th day of the month following the month of the extended Federal due date [N.J.A.C. 18:7-11.12]
• Clarify that combined group members are jointly and severally liable [N.J.A.C. 18:7-13.11]
• Clarify that a place of business in New Jersey also includes employees who routinely work from home [N.J.A.C. 18:7-17.8]

For additional information on this development, see Tax Alert 2025-0561.

Governor budgets

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

Illinois: On February 19, 2025, Governor JB Pritzker presented his FY2026 budget. Tax related changes in the governor's budget proposal would establish a tax amnesty program (i.e., the "Delinquent Tax Payment Incentive Program"), pause the final shift of state sales taxes on motor fuel purchases to the Road Funds, and realign the tax treatment for table and electronic games at casinos.

Louisiana: On February 19, 2025, Governor Jeff Landry presented his FY 2026 budget. The governor encouraged voters to vote yes on Amendment 2, which includes tax provisions, during the March 29, 2025 statewide election. The governor further said that the new budget will allow the state to use new revenue on non-recurring expenditures to do such things as to continue to lower the personal income tax rate.

Michigan: On February 26, 2025, Governor Gretchen Whitmer gave her 2025 State of the State address. The governor noted the "looming threat of tariffs" and she proposed the expansion of the working families tax credit and rollback of the retirement tax. The governor also is proposing to tax vapes in the same manner as cigarettes.

New Hampshire: On February 13, 2025, Governor Kelly Ayotte presented her FY 2026-27 budget recommendations. The governor said her budget "continues our New Hampshire way of not raising taxes, but instead taking a hard look at spending."

New Jersey: On February 25, 2025, Governor Bill Murphy presented his FY 2026 budget. The governor said that his budget will provide additional direct property tax relief through its ANCHOR program, by continuing the Senior Freeze program and creating Stay NJ to help seniors stay in their homes. Tax relief measures related to children include $750 million for the child tax credit, the child and dependent care tax credit, and the earned income tax credit, as well as a new sales tax exemption for cribs, car seats, bottles, strollers and other critical baby supplies. Other tax related measure would: (1) allocate $20 million for the Strategic Innovation Centers; (2) align New Jersey with the federal tax treatment for Qualified Small Business Stock; (3) reform the Angel Investor Tax Credit; and (4) create a new tax credit to incent companies from around the world to manufacture next-generation products in New Jersey. The governor, in his budget remarks, also said that he will be proposing "a range of tax policy changes." These changes include increasing realty transfer fees on the assessment on real property from 1% to 2% on property between $1 million and $2 million, and to 3% for certain real property exceeding $2 million, and increasing taxes on internet gaming and sports betting, adult-use marijuana, cigarettes and alcoholic beverages. The governor also is proposing to expand the sales and use tax base to include the following services and transactions: digital services; vehicle trade-ins; certain complimentary meals, rooms, and tickets; second-hand airplane sales; participatory sports; interior design; and horse training. The governor's proposal would remove the partial sales tax exemption and $20,000 sales tax cap on boats and other vessels. Under the governor's proposal, a new $2 truck traffic excise fee would be imposed on warehouses based on the number of truck trips, and a new excise tax would be imposed on purchases of certain unmanned aircraft systems (e.g., drones).

Wisconsin: Governor Tony Evers on February 18, 2025, presented his 2025-27 Biennial Budget. The governor's budget provides $2 billion in tax relief, including eliminating income tax on cash tips, cutting income taxes for the middle-class, doubling Wisconsin's personal income tax exemption, eliminating the sales tax on electricity and gas for use in Wisconsin homes as well as several everyday expenses, eliminating the sales tax on over-the-counter medications, enhancing the homestead tax credit, creating a new property tax and rent rebate, and holding the line on property taxes. The governor is proposing the creation of a new incentive for local governments to freeze their property taxes — in exchange for doing so, the local government would receive a direct payment from the state.

INCOME/FRANCHISE

Arizona: New law (HB 2688) updates the state's date of conformity to the Internal Revenue Code (IRC) to January 1, 2025 (from January 1, 2024). The updated IRC conformity date applies to income tax computations for tax years beginning from and after December 31, 2024. For purposes of computing income for a tax year beginning in 2025, the state conforms to the IRC in effect on January 1, 2025, including provisions that became effective in 2024, with specific adoption of retroactive effective dates, but excluding changes enacted after January 1, 2025. Ariz. Laws 2025, ch. 1 (HB 2688), signed by the governor on February 28, 2025.

Georgia: The Georgia Department of Revenue (GA DOR) adopted amendments to Rule 560-7-3-.13 "Consolidated Returns" (adopted rule) to incorporate statutory changes enacted under HB 1058 from the 2021 — 2022 legislative session. Starting in 2023, a group of affiliated corporations can elect to file a consolidated return; prior to 2023, a group of affiliated corporations had to petition the Commissioner for permission to do so. An affiliated group may make the consolidated return filing election on a timely filed original income tax return, including extensions. The election, once made, is irrevocable and binding on the affiliated group and the GA DOR for five years. Affiliated groups that had permission to file a consolidated return before 2023, may: (1) elect to file a consolidated return under this rule; (2) continue to file a consolidated return under the terms of the prior grant (affiliated groups choosing this option are governed by Rule 560-7-3-.13 as it existed before January 1, 2023); or (3) cease filing a consolidated return and file separate returns. The adopted rule provides guidance on terminating a prior grant of permission, making a new consolidated return election, and terminating the filing of a Georgia consolidated return during the five-year binding period when there is a change to the Georgia affiliated group. The adopted rule requires that all credits utilized against the Georgia affiliated group's tax liability be assigned to the consolidated parent, unless the parent generated the credit. Credits may only be assigned in the year generated and the assignment must be made by the return's due date, including extensions. Credit carryforwards are not assignable. The adopted rule includes a transition rule for carrying forward credits and net operating losses (NOLs). A Georgia affiliated group that had permission to file a consolidated return before 2023, and that elects to file a Georgia consolidated return for tax years beginning on or after January 1, 2023 and the four succeeding tax years, are eligible to carry forward to the Georgia consolidated return the credits/NOLs shown on the last-filed consolidate return filed under the prior grant of permission. The adopted rule also provide guidance on estimated tax payments and special issues. The adopted rules apply to tax years beginning on or after January 1, 2023.

Indiana: The Indiana Department of Revenue (IN DOR) adopted rules related to sourcing sales from services and intangibles. Specifically, the IN DOR repealed 45 IAC 3.1-1-55 and replaced it with new rule 45 IAC 3.1-1-55.5. The new rule provides guidance on market-based sourcing (which was adopted under a 2019 law change) for receipts from the provision of services and the sale of intangibles, referencing the Multistate Tax Commission Multistate General Allocation and Apportionment regulations (MTC reg). The new rule addresses various transactions, including those involving: the sale, rental, lease or license of real property; the rental, lease or license of tangible personal property; in-person services; services delivered to customers by physical means; services delivered to individual and business customers by electronic means; provision of professional services to individual and business customers; licensing or leasing of intangible property, production intangibles and marketing intangibles; sales or exchanges of intangible property; airline transportation; railroad transportation; trucking or transportation services; construction contracts; newspapers and magazine publishers; and the sale, exchange, or assignment of tax credits or from the refundable portion of a tax credit included in federal taxable income. If the rule lists multiple possible tests, the tests are applied as a hierarchy unless otherwise provided by the rule. The provisions in the rule do not apply to receipts from: (1) insurance premiums; (2) motorsports racing; (3) repatriated foreign dividends under IRC Section 965 or global intangible low-taxed income under IRC Section 951A; (4) broadcast services; (5) telecommunications services; or (6) receipts attributable under Ind. Code Section 6-3-2-2.2 (regarding certain interest income, discounts, and receipts). The IN DOR said it repealed 45 IAC 3.1-1-55 as it covered a different apportionment methodology than the current rules. The new rules and the repeal of the old rule take effect 30 days after filing with the publisher; the final rules were published on January 29, 2025. Ind. Dept. of Rev., LSA Document #24-432 (February 2025).

South Dakota: New law (HB 1028) updates the South Dakota bank franchise tax date of conformity to the Internal Revenue Code to January 1, 2025 (from January 1, 2024). This change takes effect July 1, 2025. S.D. Laws 2025, HB 1028, signed by the governor on February 18, 2025.

West Virginia: New law (HB 2025) updates West Virginia's Internal Revenue Code (IRC) conformity date for corporate net income tax purposes to federal changes made after December 31, 2023 but before January 1, 2025 (from federal changes made after December 31, 2022 but before January 1, 2024). No amendment to the IRC made on or after January 1, 2025, will be given any effect. This change is effective retroactive to the extent allowable under federal income tax law. W.Va. Laws 2025, HB 2025, signed by the governor on February 24, 2025.

West Virginia: New law (HB 2024) for personal income tax purposes, updates the state's Internal Revenue Code (IRC) conformity date to federal changes made after December 31, 2023 but before January 1, 2025 (from federal changes made after December 31, 2022 but before January 1, 2024). No amendments to the IRC made on or after January 1, 2025 will be given any effect. W.Va. Laws 2025, HB 2024, signed by the governor on February 24, 2025.

SALES & USE

Colorado: In response to a letter ruling, the Colorado Department of Revenue (CO DOR) said franchise fees imposed by municipalities on utility companies for the company's use of alleys, streets and rights-of-way, are subject to sales tax as part of the purchase price. The CO DOR reasoned that franchise fees were not among the list of fees excluded from the purchase price. Taxes and fees excluded from the purchase price include, any direct tax imposed by the federal government, any direct tax imposed by C.R.S. tit. 39, art. 26, and any retail delivery fee and enterprise retail delivery fee imposed by C.R.S. 43-4-218. Colo. Dept. of Rev., GIL 24-005 (December 18, 2024; published February 25, 2025).

Colorado: In response to a letter ruling, the Colorado Department of Revenue (CO DOR) said that when a purchaser arranges for and hires a third-party shipping company to take possession of property at the business location of the seller and deliver it to the purchaser, the sale is sourced to the known location of the purchaser. In this case, the customer that purchased the goods arranged for a third-party logistics company to pick up the goods for delivery to the customer's facility outside the state. Because the customer received the goods at its out-of-state facility, the sales are sourced to the out-of-state location. The CO DOR noted that for purposes of sourcing the sales, the location where title transferred from the seller is not relevant. Rather, the key factor is the location where the purchaser received the property. Colo. Dept. of Rev., GIL 24-008 (December 18, 2024; published February 24, 2025).

Maine: The Maine Revenue Services adopted amendments to Rule 318 "Instrumentalities of Interstate or Foreign Commerce" and Rule 301 "Sales for Resale and Sales of Packaging Materials" to conform the rules to statutory changes that generally impose sales tax on leases and rentals. Rule 318 explains that a lessee using leased property (e.g., vehicle, railroad rolling stock, aircraft or watercraft) may claim the sales and use tax exemption on lease and rental payments occurring on and after January 1, 2025. The exemption is claimed in the same manner as a purchaser of such property. Amendments to Rule 301 establish procedures for making sales for resale, including leases or rentals and certain sales to service providers. Amendments to both rules were adopted on February 25, 2025. Maine Rev. Serv., Maine Tax Alert (Vol. 35, Issue 4, February 2025 - #2).

Nebraska: New law (LB 208) modifies sales and use tax provisions related to the streamlined sales and use tax agreement (SSUTA). The law provides that a Model 1 seller will not receive any sales tax collection fees if its sales and use tax functions are performed by a certified service provider (CSP) and the CSP is compensated under the SSUTA. The law also updates the SSUTA to include amendments adopted by the Streamlined Sales Tax Implementing States through December 31, 2024 (from December 31, 2015). Regarding the sales/use tax rate database maintained by the State, when a zip code area includes more than one tax rate, the lowest combined tax rate imposed in a nine-digit zip code will apply, while the highest combined tax rate imposed in a five-digit zip code area will apply. (Formerly, the lowest combined rate applied to a five-digit zip code area.) LB 208 takes effect three months after the legislature adjourns. Neb. Laws 2025, LB 208, signed by the governor on February 25, 2025.

South Dakota: New law (HB 1027) repeals obsolete provisions related to noncollecting retailers. The repealed provision had required noncollecting retailers provide notice to South Dakota purchasers that South Dakota use tax was due on nonexempt purchases of tangible personal property, service or electronically transferred products. The notice had to be readily visible and contain certain information. In addition, the notice had to be on a webpage necessary to facilitate the applicable transaction and for internet purchases it had to be on the electronic order confirmation. Specifically, the law repeals the following statutory provisions: S.D. Codified Laws Sections 10-63-1 through 10-63-9. HB 1027 takes effect July 1, 2025. S.D. Laws 2025, HB 1027, signed by the governor on February 18, 2025.

BUSINESS INCENTIVES

Illinois: New law (HB 587) amends the Illinois Enterprise Zone Act by allowing a new battery energy storage solution facility, which at the time of designation, is located in an enterprise zone to be designated as a high impact business. A "new battery energy storage solution facility" is newly constructed battery energy storage facility or a newly constructed expansion, or replacement, of an existing battery energy storage facility that stores electricity using battery devices and other means. Such facility includes any permanent structures associated with the new battery energy storage facility and all associated transmission lines, substations and other equipment related to the storage and transmission of electrical power meeting a capacity and storage capability. In addition, a business that intends to construct a new high voltage direct current converter station at a designated location in Illinois may qualify for designation as a high impact business if certain conditions are met. HB 587 took effect upon becoming law. Ill. Laws 2024, Pub. Act 103-1066 (HB 587), signed by the governor on February 20, 2025.

Nebraska: New law (LB 182) amends the Affordable Housing Tax Credit to add a definition of "pass-through entity" (PTE) (i.e., a partnership, limited liability company or S corporation), delete the definition of "qualified taxpayer" (which was defined as "a taxpayer owning an interest, direct or indirect, in a qualified project"), and expand the definition of "taxpayer" to include a nonprofit corporation of the type listed under IRC Sections 501(c)(3) or (c)(4). The law also allows the owner of an affordable housing project a nonrefundable affordable housing tax credit if the project for which the credits are sought is a qualified project and tax credits are available. If the owner of a qualified project is a PTE, the credit will be allocated among some or all of the PTE's partners, members or shareholders. A PTE that receives an allocation of the credit from the owner of the qualified project or from another PTE may further (1) allocate the credit among some or all of its partners, members or shareholders, or (2) transfer, sell or assign (collectively "transfer") all or a portion of the credit to a taxpayer. A partner, member or shareholder of a PTE may transfer their ownership interest in the tax credit; similarly, a taxpayer may transfer all or a part of the tax credit. (Date and notice requirements may apply to the allocations/ transfers.) These changes are retroactively applicable to tax years beginning on or after January 1, 2024. In addition, the law allows the Child Care Tax Credit to be claimed by financial institutions subject to the franchise tax and insurance companies subject to the premium and related retaliatory tax. Neb. Laws 2025, LB 182, signed by the governor on February 25, 2025.

PROPERTY TAX

Nebraska: New law (LB 209) clarifies the property tax exemption for certain nursing facilities. Specifically, the exemption applies to any for-profit skilled nursing facility or for-profit nursing facility or for-profit assisted-living facility that provides housing for Medicaid beneficiaries. The amount of the exemption for such property is a percentage of the property taxes that would otherwise be due. The law also makes clear that this exemption does not modify, limit or reduce any property tax exemption provided to nonprofit skilled nursing facilities, nonprofit nursing facilities or nonprofit assisted-living facilities. LB 209 includes an emergency clause and, as such, took effect when passed and approved. Neb. Laws 2025, LB 209, signed by the governor on February 25, 2025.

Wyoming: New law (SF 81) clarifies that the property tax exemption for property of the state that is owned and used primarily for governmental purposes includes leases of state school lands and state land leased for agricultural purposes. The law further provides that state owned lands are exempt from property taxation regardless of the use of the lands. This exemption does not prevent the taxation of any other property, such as improvements to the land, that is not owned and used primarily for a governmental purpose. This exemption is repealed on January 1, 2027. SF 81 took effect upon becoming law, with the property tax exemption applying to the tax year beginning January 1, 2025. Wyo. Laws 2025, ch. 26 (SF 81), signed by the governor on February 24, 2025.

Wyoming: New law (SF 48) effective January 1, 2026, exempts from property tax the first $75,000 in fair market value of business property owned by a person in each county. "Business property" means taxable personal property excluding any property that is exempt under Wyo. Stat. Section 39-11-105(a)(xi) as personal property for personal or family use. Wyo. Laws 2025, ch. 28 (SF 48), signed by the governor on February 24, 2025.

Wyoming: New law (SF 49) modifies the method for valuing the fair market value (FMV) of tangible personal property. Effective January 1, 2026, FMV will be determined using Department of Revenue prescribed valuation indexes and depreciation schedules. When the tangible personal property meets the depreciation floor (i.e., 20% of the reported installed cost of the property), the trending factor remains constant in subsequent years until the property is removed from service. Wyo. Laws 2025, ch. 20 (SF 49), signed by the governor on February 24, 2025.

COMPLIANCE & REPORTING

Maine: The Maine Revenue Services adopted amendments to Rule 104 "Filing of Maine Tax Returns" to impose electronic filing requirements on certain returns. The new electronic filing requirements apply as follows: (1) partnership audit returns and reports filed to report federal adjustments, starting January 1, 2026; (2) Maine Form REW-5 (Request for exemption or reduction in withholding of Maine Income Tax on the disposition of Maine real property) submitted on or after May 1, 2025; and (3) Maine income tax returns on trusts and estates, starting July 1, 2025. Electronic filing is required unless the taxpayer is granted a waiver from mandatory participation. The Rule was amended on February 25, 2025. Maine Rev. Serv., Maine Tax Alert (Vol. 35, Issue 4, February 2025 - #2).

Montana: Reminder - 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. 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. 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.

CONTROVERSY

Connecticut: The Connecticut Department of Revenue Services (CT DRS) issued a special bulletin announcing a settlement initiative regarding filing and payment of liabilities associated with the 2024 Form CT-1065/CT-1120SI "Connecticut Composite Income Tax Return" and the 2024 Form CT-PET "Connecticut Pass-Through Entity Return." The CT DRS said because it was delayed in making these forms available to software companies, it will waive otherwise applicable penalty and interest accrued between March 15, 2025 and April 15, 2025, if the taxpayer files the applicable returns and pays the associated liability in full by April 15, 2025. The CT DRS said that the initiative also includes filing extensions for these forms. In the case of an extension, the taxpayer must file the extension and pay the full amount of tax due by April 15, 2025. The CT DRS said that its receipt of an extension on or before April 15, 2025 "will constitute the taxpayer's written acceptance of the terms of the settlement initiative." Conn. Dept. of Rev. Serv., TSSB 2025-5 "Taxpayer Alert "2024 Form CT-1065/CT-1120SI and 2024 Form CT-PET Filing and Payment Initiative" (February 21, 2025).

New Jersey: The New Jersey Division of Taxation (NJ DOT) clarified the use of electronic signatures on GIT/REP forms. New Jersey law enacted in 2021 (ch. 179) allows electronic notarization and e-signatures for deeds transferring real property. The law change did not specifically address e-signatures for GIT/REP forms. The NJ DOT noted that the county clerk makes the decision to accept or reject a deed for recording. The NJ DOT said the preferred way to sign and submit Forms GIT/REP-1, 3 and 4A for e-recording is to physically sign the form and attach it as a PDF along with the RTF-1 and any required payment. If the county clerk rejects the GIT/REP form, the seller will have to resubmit the corrected form. Original Forms GIT/REP-2 and 4 must be physically submitted and they must include a physical raised seal. N.J. Div. of Taxn., "Electronic Signatures and the GIT/REP Forms" webpage (last update February 12, 2025).

PAYROLL & EMPLOYMENT TAX

Seattle, WA: On February 11, 2025, voters in Seattle, WA approved Proposition 1A, which imposes a tax on payroll expenses for employers doing business in Seattle — referred to as the Social Housing Tax (Seattle Muni. Code ch. 5.37). Specifically, Proposition 1A imposes a 5% payroll expense tax on annual compensation over $1 million paid in Seattle to any employee. The new tax, which is levied on businesses, is in addition to Seattle's payroll expense tax imposed under Seattle Muni. Code ch. 5.38 and any other license fee or tax. The following are exempt from the new tax: (1) independent contractors for purposes of the business license tax under Subsection 5.45.090.S and whose excess compensation is included in the tax paid by another business under Section 5.37.040; and (2) businesses that are preempted from tax by cities under federal or state regulations, including businesses listed in Subsection 5.38.040.A.4 (as in effect on January 1, 2024). The allocation and apportionment provisions in Section 5.38.050, as well as the definitions under Seattle Muni. Code ch. 5.38. (both provisions as in effect on January 1, 2024), apply to the new tax. This tax will provide funding for the Social Housing Developer.

MISCELLANEOUS TAX

Multistate: The study "FY23 business tax report: A comprehensive state and local tax review" presents detailed state-by-state estimates of state and local taxes paid by businesses. It is the 22nd annual report prepared by Ernst & Young LLP in conjunction with the Council on State Taxation (COST) and the State Tax Research Institute (STRI). The estimates presented in this study are for fiscal year 2023 (FY23), which ran from July 2022 through June 2023 for most states. Businesses paid $1,096.2 billion in state and local taxes in FY23, which was 44.7% of all tax revenue at the state and local level. Businesses paid $595.7 billion in state taxes in FY23, which was a 0.9% increase from the prior fiscal year, and $500.4 billion in local taxes, which was 7.3% higher, for a combined year-over-year growth rate of 3.7% over FY22.

Business taxes include property taxes paid by businesses; sales and excise taxes on intermediate inputs and capital expenditures purchased by businesses; business entity taxes such as the corporate income tax, gross receipts tax, and franchise tax on businesses and corporations; the share of individual income taxes paid by owners of noncorporate businesses (pass-through entities (PTEs)); unemployment insurance taxes; and all other state and local taxes that are the statutory liability of business taxpayers.

The following are key findings of the study:

• business property tax³ collections grew by 7.7% in FY23 to $394.3 billion
• sales tax collections grew by 6.4% to $240.6 billion
• corporate income and gross receipts taxes grew by 1.7% to $131.1 billion, but individual income taxes on business income decreased 22.9% to $61.4 billion resulting in a collective decrease of business income and gross receipts tax collections of 7.7% in FY23
• businesses paid on average $2.96 in taxes per dollar of government expenditures, assuming that in-state education spending does not benefit in-state businesses.

A copy of the report is available here.

Philadelphia, PA: On February 25, 2025, the Philadelphia Tax Reform Commission issued its interim report. The Commission said both tax cuts and targeted investments "are needed to supercharge businesses and job growth." The Commission's tax-related recommendations include, but are not limited to, the following: (1) eliminating the Business Income and Receipts Tax (BIRT) over the next eight to twelve years — the Commission said the priority focus should be on eliminating the net income portion of the BIRT and then reducing the wage tax, while concurrently making changes to the Net Profits Tax to ensure equitable tax treatment across all types of business and entities; (2) reducing the wage tax until it is 3% or less; and (3) creating a predictable tax rate reduction schedule to "foster a predictable business environment that encourages long-term investment and economic growth" — the report includes three potential options for meeting the recommended tax reform goals. The Commission also is recommending the establishment of the Jumpstart Fund "aimed at supercharging business and job growth," which includes capital for small businesses, workforce development programs, and economic development incentives. In addition, the Commission is recommending that the City "explore ways to conform with federal and state accounting and reporting practices," such as market-based sourcing. A copy of the report is available here.

Wyoming: New law (HB 75) reduces the rate of the severance tax rate for surface coal to 6% (from 6.5%). The rate is comprised of a 1.5% rate imposed by the Wyoming Constitution and a 4.5% (down from 5%) statutory rate. This change takes effect July 1, 2025. Wyo. Laws 2025, ch. 31 (HB 75), signed by the governor on February 24, 2025.

GLOBAL TRADE

Federal: On February 21, 2025, President Trump signed a Presidential Memorandum directing a review and possible renewal of investigations into countries that have implemented Digital Services Taxes (DSTs). The memorandum specifically targets seven countries: France, the United Kingdom, Italy, Spain, Austria, Turkiye and Canada. It also directs his Administration to identify policies of other nations that may discriminate against United States (US) companies or impose burdens on US digital commerce and recommend actions to counteract such policies. Relatedly, on February 20, 2025, the United States Trade Representative opened a public comment period for feedback pursuant to the America First Trade Policy Presidential Memorandum and the Reciprocal Trade and Tariffs Presidential Memorandum. For additional information on this development, see Tax Alert 2025-0549.

Federal: President Donald Trump signed two proclamations on February 10, 2025 reinstating the tariff on steel at 25%, reinstating and increasing the aluminum tariff to 25% as well as adjusting the amount of these imports into the United States (US).⁴ The changes will apply for products that are entered for consumption or withdrawn for consumption as of March 12, 2025.⁵ These two new proclamations are an extension of Proclamations 9704 (Adjusting Imports of Aluminum into the United States) and 9705 (Adjusting Imports of Steel into the United States), signed on March 8, 2018 after the US Department of Commerce's 2018 Section 232 investigation and finding of national security impairment. For more on this development, see Tax Alert 2025-0504.

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.

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Endnotes

¹ P.L. 86-272 is a federal law prohibiting states from imposing state income tax on out-of-state sellers whose in-state activities do not exceed soliciting orders of tangible personal property. P.L. 86-272 does not apply to sales of intangible property or services.

² Additional protected and unprotected activities described in TB-108(R) would be incorporated under proposed amendments to N.J.A.C. 18:7-1.8 and N.J.A.C. 18:7-1.9.

³ Businesses primarily pay property taxes at the local level, where they make up 75.8% of all local business tax collections, whereas they comprise only 2.5% of taxes paid by businesses at the state level.

⁴ See Adjusting Imports of Steel into the United States and Adjusting Imports of Aluminum into the United States.

⁵ See 2025 — 02833.pdf and 2025 — 02832.pdf.