Ernst & Young's State and Local Tax Weekly newsletter for April 4 and April 11 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

Federal Mobile Workforce State Income Tax Simplification Act introduced in the Senate

Proposed federal legislation entitled the Mobile Workforce State Income Tax Simplification Act of 2025 (S.1443) would limit the ability of any state or other local taxing jurisdiction to impose tax on the income of employees who perform employment duties in more than one State. Wages or other remuneration earned by an employee who performs employment duties in more than one State would be subject to income tax in the State of the employee's residence and any other State within which the employee is present and performing employment duties for more than 30 days during the calendar year in which the wages or other remuneration is earned.

An employee would be deemed present and performing employment duties within a State for a day if the employee performs more of the employee's employment duties within that State than in any other State during a day. If the employee performs duties in a resident State and only one nonresident State during one day, the employee would be considered to have performed more of the employee's employment duties in the nonresident State than in the resident State for that day. The portion of the day the employee is in transit would not be considered in determining the location of an employee's performance of employment duties.

Employee would not include professional athletes, professional entertainers, qualified production employees, or certain public figures.

If approved as currently proposed, these provisions would become effective on January 1 of the second calendar year that begins after this Act is enacted. S.1443 was introduced on April 10, 2025, and has been sent to the Senate Finance Committee. Similar bills, HB 10026 (2024) and S. 1274 (2021) were considered in prior legislative sessions.

INCOME/FRANCHISE

Idaho: New law (HB 479) makes clear that the corporate income tax rate reduction to 5.3% (from 5.695%) enacted under HB 40 (2025), applies to each tax year commencing on and after January 1, 2025. HB 479 also added a list of prior corporate income tax rates, beginning with tax year 2001 and subsequent rate reductions that took effect in 2012, 2018, 2021, 2022, 2023 and 2024. Idaho Laws 2025, ch. 302 (HB 479), signed by the governor on April 4, 2025.

Indiana: The Indiana Department of Revenue (IN DOR) issued an updated bulletin describing the state's financial institutions tax (FIT). The update adds language on adjustments that may be made when a combined returns does not fairly reflect Indiana source income, adds information on the pass-through entity tax, describes calculations for net operating losses (NOL) when there is a discharge of indebtedness, and explains modifications to federal returns. The bulletin (1) includes definitions of "business of a financial institution," "taxpayer," "unitary business" and "unitary group"; (2) lists the FIT tax rate, which was phased down from 8.5% for tax years before 2014 to the current 4.9% rate that applies to tax years beginning after December 31, 2022; (3) describes corporations exempted from the FIT and other exclusions for financial institutions whose Indiana activities are limited to certain activities; (4) discusses when a taxpayer that is a member of a unitary group is required to file a combined return, when such taxpayer may petition the IN DOR to file a separate return and when the IN DOR may adjust a taxpayer's income to fairly reflect the taxpayer's Indiana source income; (5) describes the computation of the FIT, including NOLs (with examples), net capital losses, and nonresident tax credits; (6) provides rules for reporting federal modifications or alterations to the taxpayer's federal return; and (7) describes how to pay the FIT. Ind. Dept. of Rev., General Tax Information Bulletin #200 (updated April 2025).

Kansas: New law (SB 269) provides for the reduction in state income tax and privilege taxes on national banking associations, state banks, trust companies or savings and loan associations, contingent on revenue thresholds being met. Starting August 15, 2025 and each August 15 thereafter, if the budget director certifies that the total fiscal year (FY) adjusted general revenue fund collections for the prior FY exceeds the inflation adjusted base year revenues and that the money in the budget stabilization fund equals or exceeds 15% of the prior FY's state tax receipt revenues to the state general fund, the revenue secretary will calculate and publish the income tax and privilege tax reduction as a result excess. The new rate, if any, would go into effect for the next tax year. The lower and higher individual income tax bracket rates will decrease until they reach 4%. After that rate is reached, the secretary will then compute decreases to the corporate surtax rate, which will be reduced until the combined surtax and normal rates equal 4%. The normal tax rate for financial institutions and for trust companies and savings and loan associations will be decreased until the combined normal tax and surtax rates equals 2.6% for banks and 2.62% for trust companies and savings and loan associations. No further reductions to the above taxes are provided for. SB 269 takes effect and is in force from and after its publication in the statute book. Kan. Laws 2025, SB 269, enacted over the governor's veto on April 10, 2025.

Utah: New law (HB 60) modifies the nonrefundable tax credit provisions for taxpayer members of a pass-through entity that elects to be taxed at the entity level (taxed PTE). Specifically, the law extends the period in which a taxed PTE taxpayer may carry forward credit that exceeds the taxpayer's tax liability from five-years to ten-years. This change takes effect January 1, 2026 and applies retroactively, beginning January 1, 2025. Utah Laws 2025, HB 60, signed by the governor on March 25, 2025.

SALES & USE

Colorado: The Colorado Department of Revenue (CO DOR) released a proposed draft new rule that would provide guidance on sales tax on leases — Special Rule 47. Under the general rule, leases of tangible personal property in Colorado are subject to Colorado state and state-administered local sales taxes, with certain exemptions. The draft rule provides that a lessor's purchase of property for a long-term lease is a wholesale sale that would be exempt from sales and use tax if it falls within the definition of "wholesale sale" under C.R.S. 39-26-102(19)(a) and meets the requirements for the exemption in C.R.S. 39-26-713(2)(b). To be considered a wholesale sale, the primary purpose for acquiring the property would have to be to lease the property in an unaltered condition and unused by the lessor or any related party. The exemption would not apply if the lessor used or intends to use the property or provide the property to a related party for use. Regarding short-term leases, the lessor would be able to purchase the property tax free only if the CO DOR grants written permission to do so, and the lessor agrees to collect applicable Colorado and state-administered local sales taxes on the leases. Permission to purchase tax-fee property for short-term lease would apply to all property subsequently purchased by the lessor for short-term leases. The draft rule would provide that long-term lease payments are subject to Colorado and state-administered local sales taxes. Short-term lease payments also would be subject to Colorado and state-administered local sales taxes unless the lessor paid the applicable taxes upon the property's acquisition. Subleases would be leases subject to this rule; subleases may qualify for certain exemptions. Sale-leaseback transactions would not be considered a lease for sales tax purposes. The draft rule would provide guidance on a lessor's responsibilities, including licensing and registration and collection of tax. Sales of previously leased property would be subject to Colorado and state-administered local sales taxes in the same manner as any other sales of used property. The rule would define key terms, including "lease" (and lists what the "lease" does not include), "long-term lease," "related party," "state-administered local sales taxes," "short-term lease" and "sublease." Click here for more on the draft rule.

Colorado: In response to a ruling request regarding the taxability of event cancellation fees that included the use of a hotel banquet hall and catering, the Colorado Department of Revenue (CO DOR) determined that such fees are not subject to Colorado state and state-administered local sales and use taxes. The CO DOR explained that when an event is cancelled no taxable event occurs because the event organizer is not making a retail sale of tangible personal property, commodities or services. In this case, the event organizer did not serve or furnish food or drink. Further, use of a banquet room is not a service explicitly subject to Colorado sales tax. Colo. Dept. of Rev., GIL 25-003 (March 24, 2025).

Colorado: In response to a ruling request, the Colorado Department of Revenue (CO DOR) determined that fees charged by a company for electric vehicle (EV) charging at EV charging stations it operates are not subject to Colorado sales tax. Under Colorado law, sales tax is imposed on electric services. The CO DOR explained that "electric services commonly means the regular or ongoing delivery of electricity by a utility … [t]he service is not merely the discrete or occasional sale of electricity at a point in time, but continuous access to electricity at the customer's location on demand." The CO DOR found that the company's sales are discrete, one-time sales and, as such, do not fall within the common meaning of electric services. Charging station operators that are not making taxable sales, however, must pay state sales tax on the electric services they purchase. Colo. Dept. of Rev., GIL 25-002 (February 10, 2025).

Mississippi: New law (SB 2805) expands the scope of any tax levied on gross proceeds or gross income from room rentals of hotels or motels under the authority of a local and private law (hereafter, "local law") of the State of Mississippi to include gross proceeds or gross income of any entity or individual engaged in the business of facilitating, arranging, brokering a room intended or designed for dwelling, lodging or sleeping that at any one time will accommodate transient guests. When tax levied and collected under local law on gross proceeds or gross income of hotels or motels is the same or similar to the state's sales tax, the gross proceeds or gross income of the person facilitating the room rental is also subject to tax under the local law. The definition of "hotel" for purposes of any tax levied and collected under local law, is expanded to include "entities facilitating, arranging or brokering transient guest transactions." Such entities are third-party entities that facilitate rentals of hotel accommodations by listing or advertising room availability and either directly or indirectly through agreements with third parties, collect payment from the customer and transmit it to the property owner or manager. These changes take effect July 1, 2025. Miss. Laws 2025, SB 2805, signed by the governor on March 24, 2025.

South Dakota: New law (HB 1037) suspends the tax collection allowance credit for filing returns and remitting taxes under S.D. Codified Laws Section 10-45-27.2. The suspension runs July 1, 2025 through June 30, 2028. S.D. Laws 2025, HB 1037, signed by the governor on March 28, 2025.

BUSINESS INCENTIVES

Kentucky: New law (SB 1) creates the Kentucky Film Office. Duties of the film office include marketing Kentucky as a location for film production. The film office will receive and retain all tax incentive application fees; the application fee ranges from $250 if the total amount of qualifying expenditures and qualifying payroll expenses is less than $50,000 and up to $1,000 if the qualifying expenditures and qualifying payroll expenses is more than $100,000. The law also establishes the Kentucky Film Leadership Council, which will review applications for certain film related tax incentives and determine eligibility. Previously, the Kentucky Economic Development Finance Authority reviewed applications for eligibility. The law replaces references to the authority to references to the council throughout film credit provisions. SB 1 takes effect July 1, 2025. Ky. Laws 2025, ch. 91 (SB 1), signed by the governor on March 26, 2025.

Michigan: The Michigan Department of Treasury (MI DOT) issued a notice describing the state's new research and development (R&D) tax credit, which is created for tax years beginning on and after January 1, 2025. The notice sets forth the process for claiming the R&D credit; the process differs depending on whether the taxpayer is a corporate income taxpayer or a flow-through entity. Topics covered by the notice include: (1) credit eligibility requirements, including definitions of "flow-through entity" and "qualifying R&D expenses" (with an example of R&D expenses); (2) the unadjusted credit amount, which is calculated each year based on R&D expenses incurred during the calendar year — the MI DOT noted that is working on guidance for counting the number of employees for purposes of the unadjusted credit calculation; (3) the tentative claim requirement under which an eligible claimants must timely submit a tentative claim that identifies the unadjusted credit amount and include information required to administer the credit; (4) adjustment of credit when the tentative claim exceeds the statutory limit — the MI DOT indicated that it will publish an additional notice on whether proration of credit is required; and (5) the process for claiming the R&D credit — the MI DOT noted that a claimant may not assign or transfer any portion of the credit. For R&D expenses incurred in the 2025 calendar year, the MI DOT said that all claimants with a tax year beginning in 2025 must submit their tentative claims by April 1, 2026. For years after 2025, the tentative claim must be submitted by March 15 of the following year (e.g., for R&D expenses incurred in 2026, the tentative claim must be submitted by March 15, 2027). The MI DOT said it will not accept tentative claims submitted after the statutory deadline. Lastly, the MI DOT noted that it is developing forms, instructions, guidance and procedures for administering the R&D credit. Mich. Dept. of Treas., "Notice Regarding New Research and Development Credit" (April 2, 2025).

Utah: New law (HB 60) for purposes of the commercial energy system tax credit clarifies that a "commercial unit" is a building or structure that an entity uses to transact business, specifying that the building or structure is not a residence. HB 60 also limits the availability of the nonrefundable enterprise zone tax credit, providing that a business entity may claim this credit for tax years beginning before January 1, 2025. The nonrefundable enterprise zone tax credit provisions are repealed on December 31, 2026. These changes take effect May 7, 2025 and apply beginning January 1, 2025. Utah Laws 2025, HB 60, signed by the governor on March 25, 2025.

Utah: New law (SB 43) changes the income tax credit review cycle to once every five years (from every three years) to determine whether to continue, modify or repeal the tax credit. The law also establishes a process for the Office of the Legislative Auditor General (Office) to audit income tax credits. By August 31 of each year, the Revenue and Taxation Interim Committee (Committee) may refer a list of income tax credits to the Office it recommends for audit. If Committee does not submit such a list, the Office will select credits for audit. SB 43 takes effect May 7, 2025. Utah Laws 2025, SB 43, signed by the governor on March 25, 2025.

Virginia: New law (HB 2653) sunsets the qualified equity and subordinate debt investment tax credit after 2025. Specifically, the credit can be claimed for tax years beginning on or after January 1, 1999 but before January 1, 2026. Va. Laws 2025, ch. 306 (HB 2653), signed by the governor on March 21, 2025.

PROPERTY TAX

Arkansas: New law (HB 1759) increases the period in which property taxes may be assessed. Taxable tangible personal property (TPP) of a new resident or a new business established between January 1 and May 31 and taxable TPP acquired by a resident during the same period, except TPP acquired April 1 (from May 2) through May 31, is assessable without delinquency within 60 days (from 30 days) following the date of acquisition. The 10% penalty for delinquent assessment does not apply to TPP becoming eligible for assessment through May 31 if the TPP is assessed by May 31, except that TPP acquired April 1 through May 31 is assessable without penalty within 60 days (from 30 days) following the date of acquisition. The law takes effect 90 days after the General Assembly adjourns sine die. Ark. Laws 2025, Act 551 (HB 1759), signed by the governor on April 10, 2025.

Louisiana: Governor Jeff Landry issued an executive order amending the conditions for participating in the industrial tax exemption program (ITEP). Under ITEP, the Board of Commerce and Industry (BCI), with the approval of the governor, may enter into a contract for the exemption from ad valorem taxes of a new, or additions to an existing, manufacturing establishment. The governor in determining "what is in the best interests of the state for consideration of ITEP contracts" will consider the criteria set forth in the executive order. In making its determination, the BCI also will consider the criteria set forth in its rules and regulations. This executive order adds new conditions and modifies already existing conditions. A new condition allows companies with ITEP contracts existing under 2017 and 2018 Rules to "opt out" of the jobs, payroll and compliance components. To "opt out," a company would amend its Exhibit A to reflect zero jobs and zero payroll, regardless of whether the contract is up for renewal; the reflection of zero jobs and zero payroll must be prospective. Another new consideration allows a minimum $500 million in capital expenditure by a manufacturing establishment's expansion or addition project to be considered a Mega Project, eligible for an ITEP exemption higher than the 80% ad valorem tax exemption base rate. An amended condition provides that project applications for sustaining capital expenditure, proactive environmental capital upgrades and replacement parts may qualify as an addition to a manufacturing establishment only if it is required to rehabilitate or restore an establishment and to conserve, as long as possible, original condition. La. Gov., Executive Order No. JML 25-033 (March 20, 2025).

CONTROVERSY

Idaho: New law (HB 479) modifies the limitation period for issuing a notice of deficiency, assessing tax or a proceeding in court for tax collection (collectively, "limitation period"). For sales tax purposes, sales and use tax owed by a person who has failed to file a return may be assessed within seven years of when the return should have been filed, and for income tax purposes, when there is a failure to file a return, for any reason, a deficiency may be issued, a tax assessment imposed or proceeding may begin at any time. When the taxpayer who failed to file a return had a reasonable belief that no return was required to be filed, HB 479 reduces the limitation period for issuing a deficiency, assessment or proceeding to three years of the when the return was due. These changes take effect July 1, 2025. Idaho Laws 2025, ch. 302 (HB 479), signed by the governor on April 4, 2025.

PAYROLL & EMPLOYMENT TAX

Mississippi: On March 27, 2025, Mississippi Governor approved HB 1, which lowers the personal income tax rates in tax years 2026 through 2030 and provides for a possible total phase out of the income tax after 2030 if revenue goals are met. For tax years 2026 through 2030, employers will need to annually update the Mississippi income tax withholding formula published here. For more on this development, see Tax Alert 2025-0936.

Nebraska: On March 25, 2025, Nebraska Governor Jim Pillen signed into law LB 297, which reduces the 2025 state unemployment insurance (SUI) tax rates by returning them to the 2024 rates. Employers will remain in the category assigned to them for 2025 but the 2024 SUI tax rate for that category will apply. Nebraska has 20 rate categories. This change is estimated to lower employer 2025 SUI contributions by $44 million. The SUI tax rates for 2025 continue to range from 0% to 5.4% and the rate for new employers remains at 1.25% (5.4% for new construction employers). The 2025 SUI wage base is $9,000 and $24,000 for Tax Category 20 employers. For additional information on this development, see Tax Alert 2025-0894.

MISCELLANEOUS TAX

Louisiana: On March 29, 2025, Louisiana voters rejected Amendment 2 (HB 7), which would have made tax-related amendments to the Louisiana Constitution. The tax-related amendments, among other changes, would have: (1) transitioned various property tax provisions, including the industrial tax exemption program (ITEP), from the Constitution to statute; (2) required a two-thirds vote of the legislature to enact an exemption, exclusion, deduction, credit, or rebate, or an increase in a deduction, credit, or rebate; (3) authorized payments to parishes that elect to provide an ad valorem tax exemption for business inventory; and (4) authorized parishes to apply a reduced assessed value percentage to business inventory.

Oregon: New law (HB 2010) extends the assessment on premium equivalents of managed care organizations and the assessment on health insurance plan premiums or premium equivalents to December 31, 2032 (from December 31, 2026). The assessment on net inpatient and net outpatient revenues of specified hospitals is extended to December 31, 2032 (from September 30, 2025). HB 2010 takes effect on the 91st day following the adjournment of the legislature sine die. Ore. Laws 2025, ch. 4 (HB 2010), signed by the governor on March 26, 2025.

Virginia: New law (HB 1743) requires the Virginia Department of Taxation to convene a work group to review the local license tax deduction in Virginia for receipts attributable to out-of-state businesses. The review should include: (1) current policy and methodology of the deduction in Va. Code. Section 58.1-3732(B)(2); (2) any constitutional or case law concerns regarding current laws governing the deduction, (3) any potential revenue impact on local revenues resulting from a determination that such deduction based upon receipts subject to a net income tax or a gross receipts tax in another state or foreign jurisdiction as well as alternatives to phase in any such potential impact; (4) potential administrative complexities or benefits for taxpayers; (5) the support structure needed to verify the tax deduction across local jurisdictions and enforce compliance; and (6) the impact to the deduction from other current laws. The work group has until October 1, 2025 to submit its report of findings and recommendations to the Joint Subcommittee on Tax Policy and the Chairs of the Senate and House Committees on Finance and Appropriations. Va. Laws 2025, ch. 192 (HB 1743), signed by the governor on March 21, 2025.

GLOBAL TRADE

Federal: On April 11, 2025, President Donald Trump published a Presidential Memorandum exempting certain electronic goods from his Reciprocal Tariff Policy (the additional tariffs) explained in Executive Order 14257, issued on April 2, 2025. Tariffs imposed under a February 1, 2025 Executive Order, the International Emergency Economic Power Act (IEEPA), still apply to these electronic goods. The IEEPA tariffs include 20% tariffs on Chinese imports and 25% tariffs on Mexican and Canadian goods that do not qualify under the US-Mexico-Canada free trade agreement. The electronic goods described in the April 11 Presidential Memorandum are only exempted from the additional tariffs on imports from US trading partners. The US Administration has suggested that the exemption is temporary. For more on this development, see Tax Alert 2025-0893.

International — Canada: Tax Alert 2025-0907 summarizes certain recent developments in the Canada-United States (US) trade landscape as of April 10, 2025, including the US's pause on certain tariffs announced earlier in April and Canada's countermeasures on automobile tariffs. Further, the Alert provides an update with respect to ongoing investigations and exemptions related to trade duties and tariffs.

VALUE ADDED TAX

International — Ghana: The Ghana Revenue Authority (GRA) has announced that, effective April 1, 2025, value-added tax (VAT) applies to non-life insurance services in accordance with the Value Added Tax (Amendment) Act, 2023, Act 1107 (the VAT Amendment Act). Although the VAT Amendment Act came into force on December 29, 2023, the GRA had not been enforcing it. This announcement serves to inform stakeholders that the implementation of VAT on non-life insurance services is now being enforced. For more on this development, see Tax Alert 2025-0940. International — Kenya: In David Mwangi Ndegwa (Respondent) v. Kenya Revenue Authority (Appellant), the Court of Appeal, on March 21, 2025, ruled that the sale of commercial property is subject to value-added tax at the standard rate of 16%. For more on this development, see Tax Alert 2025-0913.

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.