23 June 2025 State and Local Tax Weekly for May 2 and May 5 Ernst & Young's State and Local Tax Weekly newsletter for May 2 and May 5 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. On May 9, 2025, Governor Kathy Hochul signed into law revenue legislation (A. 3009-C/S. 3009-C), hereafter Final Bill), which is a necessary component of the 2025—2026 New York State (NYS) budget. The Final Bill includes a variety of tax law changes that will affect corporate and individual taxpayers across various industries. Most notably, the Final Bill:
Tax Alert 2025-1100 discusses the significant tax proposals included in the Final Bill, while Tax Alert 2025-1044 discuss changes to the MCTMT. New York court upholds state's P.L. 86-272 internet activities regulation but rules against its retroactive application On April 28, 2025, the New York Supreme Court for Albany County (court) held in American Catalog Mailers Association1 that 20 NYCRR Section 1-2.10 (hereafter, regulation), which identifies protected and unprotected internet activities under P.L. 86-272,2 is not preempted by federal law, but the regulation may only be applied prospectively from when issued (i.e., as of December 2023) and not retroactively to 2015. Background: In April 2022, the New York State (NYS) Department of Taxation and Finance (Department) released updates to its Article 9-A Business Corporation Franchise Tax draft regulations identifying which activities conducted over the internet would be protected by P.L. 86-272. The NYS draft regulations stated that they were not final and "should not be relied upon." The final regulations, which include the internet activities rules, were adopted by the Department on December 27, 2023. The final regulations applied retroactively to tax years beginning on or after January 1, 2015. (See Tax Alert 2024-0140.) In April 2024, the plaintiffs, an industry trade association for catalog, online, direct mail and other remote-selling merchants and their suppliers filed a motion for summary judgment in the New York Supreme Court for Albany County, seeking to have the final regulation invalidated on the grounds it conflicts with federal law in violation of the Supremacy Clause of the US and NYS constitutions. Alternatively, if the regulation was not declared invalid in whole or in part, the plaintiff sought to have the regulation declared invalid to the extent it applies to any time-period before the date of the regulation's publication.3 Court ruling: In dismissing the plaintiff's motion for summary judgment that the regulation is invalid, the court found no conflict between P.L. 86-272 and the regulation since P.L. 86-272 does not preempt NYS's implementation of the regulation. The court explained that P.L. 86-272 does not prohibit NYS from identifying and regulating which internet activities exceed the solicitation of orders. The court also determined that the regulation "does not broadly tax any and all internet sales." Rather, it identifies internet activities that create nexus and, as such, the regulation "does not subject out-of-state sellers who engage in more than solicitation within the State, to duplicative or unfair taxation." Accordingly, the court held the regulation is not preempted by P.L. 86-272, because it does not violate the Supremacy Clause of the US and NYS constitutions. In granting the plaintiffs motion for summary judgment on the retroactive application of the regulation, the court held that the regulation can only be applied when issued, i.e., as of the December 2023 publication date, finding that retroactive application of the regulation violates the due process clauses of the US and NYS constitution. In so holding, the court found the retroactive period was "excessive" and that plaintiffs were "not forewarned" of the retroactive application of the regulation. The court explained that the Department indicated the draft regulations were not final and should not be relied upon until final. Moreover, retroactive application was not provided for until the final regulation. Further, plaintiffs, who thought their activities would be exempt from taxation, had no opportunity to alter their behavior in anticipation of retroactive application of the regulation. For additional information on this development, see Tax Alert 2025-1023. Alaska: On May 9, 2025, the Alaska legislature passed Senate Bill 113 (SB 113), which would: (1) generally adopt Multistate Tax Compact (Compact) provisions relating to the allocation and apportionment of income by updating definitional provisions, (2) adopt market-based sourcing for services and intangible property, and (3) adopt single sales factor apportionment for "highly digitized businesses." SB 113 will be sent to Governor Mike Dunleavy for his consideration. If enacted, the provisions of SB 113 would take effect January 1, 2026. For additional information on this development, See Tax Alert 2025-1046. Michigan: The Michigan Department of Treasure issued a notice, stating that the income tax rate for individuals and fiduciaries for the 2025 tax year will be 4.25%. Under Michigan law, if certain revenue conditions related to the general fund and the rate of inflation are met, the individual income tax rate for individuals and fiduciaries would be reduced for the tax year. The State Treasure, the Director of the Senate Fiscal Agency and the Director of the House Fiscal Agency jointly agreed that conditions for the temporary rate reduction were not present, and as such, the individual income tax rate will remain 4.25% for the 2025 tax year. This rate applies to individuals, fiduciaries and flow-through entities paying the Michigan flow-through entity tax. Mich. Dept. of Treas., Notice: 4.25% Income Tax Rate for Individuals and Fiduciaries in 2025 Tax Year (May 1, 2025). Montana: New law (HB 337) modifies the state's personal income tax (PIT) brackets and reduces the top PIT rate. For income tax years beginning January 1, 2026 the rates and brackets are as follows:
Similar adjustments were made to the tax brackets that apply to net long-term capital gains. Mont. Laws 2025, ch. 227 (HB 337), signed by the governor on April 28, 2025. Virginia: New law (HB 1600) extends the period in which the pass-through entity tax (PTET) election can be made to tax years beginning on and after January 1, 2022 but before January 1, 2027 (from 2026). Va. Laws 2025, ch. 725 (HB 1600), signed by the governor on May 2, 2025. Virginia: New law (HB 1600) modifies the exception to Virginia's rolling conformity to the Internal Revenue Code (IRC). Virginia general conforms to the IRC except when the projected impact of the federal amendment will increase or decrease general fund revenues by a specific amount. As amended by HB 1600, the exception applies when: (1) any amendment enacted on or after January 1, 2025 but before January 1, 2027, has a projected impact that would increase or decrease general fund revenues by any amount in the fiscal year in which the amendment was enacted or any of the succeeding four fiscal years and (2) all amendments enacted on or after January 1, 2025 but before January 1, 2027 if the cumulative projected impact of such amendments would increase or decrease general fund revenues by any amount in the fiscal year in which the amendments were enacted or any succeeding four fiscal year. This provision does not apply to any amendment to federal law that is subsequently adopted by the Virginia General Assembly or is a federal tax extender. Va. Laws 2025, ch. 725 (HB 1600), signed by the governor on May 2, 2025. Alabama: New law (HB 253) exempts from sales and use tax the gross receipts from (1) sales of aircraft replacement parts, components, systems, sundries and supplies affixed to, used on, or that became part of, aircraft brought into the state and used, or to be used, by certified or licensed air carrier to undergo conversion, reconfiguration or general maintenance while temporarily in Alabama; and (2) sales of aircraft delivered in Alabama and used, or to be used, by certified or licensed air carriers, provided that such aircraft will not be hubbed in Alabama. The law describes when a "aircraft" will be considered not permanently domiciled in the state. In regard to the privilege or license tax imposed on businesses that lease or rent commercial aircraft within Alabama, the law provides that the tax levy on gross proceeds, including the initial lease or rental payment and all subsequent lease and rental payments, is determined based on the aircraft's location when it first entered into revenue service. An exemption similar to the sales and use tax exemption described in (1) above also applies to the state's lease or rental tax. The above exemptions do not apply to county or municipal sales and use taxes or rental or lease taxes unless the local governing board approves a resolution or ordinance. These exemptions are available from September 1, 2025 to August 31, 2030. HB 253 takes effect on June 1, 2025. Ala. Laws 2025, Act 240 (HB 253), signed by the governor on April 30, 2025. Arkansas: New law (HB 1807) modifies the sales and use tax exemption for aircraft held for resale and used for rental or charter to clarify that the exemption is available to any person that is engaged in the business of selling aircraft in Arkansas, holds a retail sales tax permit, and holds aircraft in stock for resale. (Italics indicates language that was added to the statute.) The law adds a definition of "business of selling aircraft" to mean "the purchase of aircraft for stock in trade and the management of aircraft inventory for the primary purpose of generating a profit from the resale of aircraft to customers." An exemption also applies to a transaction in which a person acquires an aircraft to rent or lease in the ordinary course of its business if it can establish that the annual amount of gross revenue from renting or leasing the aircraft, including revenue from related party transactions, equals at least 7.5% of the net acquisition price for the aircraft. The net acquisition price includes the value of any trade or exchange and excludes any sales commission paid to a third party. Lastly, the law provides that the exemption applies regardless of the relationship between the lessor and lessee. These changes take effect on the first day of the calendar quarter following the Act's effective date, with the Act taking effect 90 days after the legislature adjourns sine die. Ark. Laws 2025, Act 879 (HB 1807), signed by the governor on April 17, 2025. Arkansas: New law (SB 568) creates a sales and use tax exemption for lithium resource development. The exemption is available to a qualified firm that invests in a qualified facility.4 To claim the exemption, a qualified firm must apply to the Department of Finance and Administration (Department). To qualify for the exemption, a firm must create a minimum qualified investment of at least $100 million within the state no later than 10 years after the start of construction of the qualified facility subject to the application. The Department will deny or grant the application in whole or in part within 30 days after receiving a completed application. If the application is approved, the Department will transmit an approved financial incentive certificate to the qualified firm. Once the Department confirms that the required minimum qualified investment has been met, it will issue a rebate to the qualified firm for any state sales or use tax paid on the eligible facility costs used to determine the qualified investment. Items that qualify for the sales and use tax exemption include the following: (1) lithium, cathode, anode, lithium battery, and grid storage facility equipment; (2) services purchased for the purpose of and in conjunction with developing, acquiring, constructing, expanding, renovating, refurbishing, and operating a qualified facility; (3) electricity used by a qualified facility; and (4) equipment, materials and products for the further processing of materials used in manufacturing lithium, cathode, anode, lithium battery, and grid storage facility equipment in the state. The following items are excluded from the exemption: equipment, materials, products, land, and services purchased, leased or rented for extraction of salt water. The incentive certificate may be revoked if certain conditions are met. These provisions take effect October 1, 2025. Ark. Laws 2025, Act 1012 (SB 568), signed by the governor on April 22, 2025. Georgia: The Georgia Department of Revenue (GA DOR) adopted new Rule 560-12-2.118 "Digital Products, Goods, and Codes," to provide guidance on the application of the state's sales and use tax on sales or uses of certain digital products, digital goods, digital codes and internet access services. Starting January 1, 2024, the state's sales and use tax is imposed on retail purchases/sales of specified digital products, other digital goods or digital codes to end users in Georgia, if (1) the end user receives the right to permanently use such products, goods or codes, and (2) the transaction is not conditioned upon continued payment by the end user. The rule provides that a seller confers the right of permanent use to the end user if they allow the end user to download and retain the product, even when the end user's right of permanent use is contingent upon their continued payment. Tax also is imposed on an entire transaction that contains both non-fungible tokes (NFTs) and taxable specified digital products, other digital goods or digital codes. Tax applies regardless of whether possession of the specified digital products, other digital goods or digital codes is maintained by the seller or a third party. The new rule addresses the following topics: (1) how to source receipts from sales of specified digital products, other digital goods or digital codes; (2) exemptions and exclusions that apply to internet access services, certain sales of prewritten computer software transferred electronically or delivered by load and leave, software as a service, and certain subscriptions for which the end user does not receive the right of permanent use of the specified digital products, other digital goods or digital codes or such right to use is conditioned upon continued payment by the end user; (3) when a sale of specified digital products, other digital goods or digital codes is a sale for resale; and (4) when tax applies to a withdrawal of specified digital products, other digital goods or digital codes from inventory. The rule also defines key terms, including "specified digital products" (e.g., audio, visual, audio-visual, books, code), "other digital goods" (e.g., artwork, magazines, newspapers, photos, video games, periodicals, video or audio greeting cards, electronic entertainment), "end user," "prewritten computer software," "software as a service," "subscription," and "transferred electronically." The rule, which was adopted on April 16, 2025, took effect on May 6, 2025. Kansas: New law (SB 98) creates a sales tax exemption for eligible investments in a qualified data center that may be claimed by a qualified firm on and after July 1, 2025. The exemption is available for eligible data center costs of the qualified data center and labor services to install, apply, repair, service, alter or maintain data center equipment. To qualify for the exemption, the qualified firm must commit to: (1) submit an application as required by the Secretary of Commerce and enter into an agreement with the Secretary upon approval; (2) commit to (i) invest $250 million in a qualified data center costs by the fifth year of operation, (ii) begin construction of the project within 10 years of the agreement with the Secretary, (iii) purchase electricity for 10 years from a public utility that provides retail electric services, and (iv) undertake practices that will conserve, reuse and replace water; and (3) create and maintain at least 20 new jobs at the data center within two years of beginning operations. If the Secretary determines that a qualified firm has breached the terms or conditions of the agreement, the qualified firm will have 120 days to cure the breached terms or conditions. If the qualified firm fails to cure the breach within the allotted time, the Secretary may require the qualified firm payback the amount of sales tax exemption it has received, terminate the exemption, or suspend all or part of the exemption. The sales tax exemption is valid for 20 years after the date of commencement of operations. Before awarding any benefits or public financial assistance to a qualified data center project, the Secretary must receive approval from the fusion center oversight board. The law defines several terms including "commencement of construction," "commencement of operations," "data center equipment," "eligible data center costs," "new jobs," "qualified data center," "qualified firm," "Department" and "Secretary." New or expanded qualified data center facilities are not eligible for electric rate discounts a public utility may authorize. SB 98 takes effect on July 1, 2025. Kan. Laws 2025, ch. 124 (SB 98), signed by the governor on April 24, 2025. Tennessee: New law (SB 384), effective July 1, 2025, modifies the local hotel occupancy tax to require a hotel operator to remit the tax when a person has maintained occupancy for 30 continuous days. The operator must cease collecting the tax from the person for the remainder of their stay in the hotel. This change took effect upon becoming law and applies to rental agreements entered into, renewed or amended on or after July 1, 2025. Prior to this change, an in effect through June 30, 2025, when a person has maintained occupancy for 30 continuous days, the entire rental term is exempt from local occupancy tax. In this instance, the operator is required to provide a refund or credit for tax previously collected. As of July 1, 2025, the local hotel occupancy tax for the first 30 days will no longer be refunded or credited. Another law (SB 629) prohibits the rate of the local hotel occupancy tax imposed by a municipality from exceeding 4% of the consideration charged to a transient by the hotel operator, provided that on or after May 5, 2025 (the law's effective date), a municipality may not increase the tax in an amount that would result in the cumulative tax in an incorporated area of a county exceeding 8%. A local hotel occupancy tax that exceed this limit may remain in full force and effect if it was levied or authorized before May 1, 2025. Tenn. Laws 2025, ch. 364 (SB 384) and ch. 372 (SB 629), both bills signed by the governor on May 5, 2025; see also, Tenn. Dept. of Rev., Notice #25-07 "Short-Term Rental Unit — 30 Day Occupancy" (May 2025). Wisconsin: In a tax bulletin, the Wisconsin Department of Revenue explained that the additional fee retailers charge consumers that pay with a credit card (i.e., credit card fee) is part of the sales price of taxable products and services sold to the consumer. Thus, if the product or service that is sold is subject to tax, the credit card fee also is subject to tax. If both taxable and nontaxable products and services are purchased with a credit card, the retailer may allocate the credit card fee between the taxable and nontaxable purchases. Only the portion of the credit card fee allocated to the taxable purchases is subject to tax. Wis. Dept. of Rev., Tax Bulletin 229 (April 2025). Arkansas: New law (SB 568) expands the definition of "solid waste" for purposes of the income tax credit for waste reduction, reuse or recycling equipment to include electronic waste, lithium-ion battery cells and battery packs. These provisions take effect October 1, 2025. Ark. Laws 2025, Act 1012 (SB 568), signed by the governor on April 22, 2025. Arkansas: New law (HB 1935) creates the modernization and automation tax credit to encourage investment by existing in-state businesses. The credit is available to Arkansas business that: (1) have been in continuous operation in Arkansas for at least two years; (2) incur a minimum of $25 million in project costs; (3) hold a direct-pay sales and use tax permit from the department before submitting the application for incentives; and (4) have received a positive cost-benefit analysis from the commission for the project that forms the basis of the financial incentive agreement (hereafter, "agreement"). The amount of the credit is up to 5% of the eligible project costs, with the maximum amount of credit that may be used in a fiscal year by an applicant capped at $2 million. Unused credit may be carried forward for up to five years beyond the year in which it was first earned. The department will provide forms to qualified businesses to claim the credit. Only project costs incurred after the commission's approval of the application are eligible for the credit. If the application is approved, the commission will execute an agreement with the applicant. The agreement will require that the project be completed within six years from the date the agreement was executed and that the applicant maintain within the state the current yearly average level of payroll and employment during the course of the project and 24 months after the project terminates. The agreement also must contain a forfeiture provision that would require the applicant return any credits claimed for the project if they are found to have breached the agreement. An expenditure may not qualify for both the increased refund for major maintenance and improvement projects and the modernization and automation tax credit. The law also amends the definition of "project costs" under the Consolidated Incentives Act to provide that eligible project costs must be incurred within six years from the date a financial incentive agreement with a project qualifying for a modernization and automation tax credit was approved. These changes take effect on October 1, 2025. Ark. Laws 2025, Act 882 (HB 1935), signed by the governor on April 17, 2025. Arkansas: New law (HB 1922) establishes a tax credit for businesses relocating their corporate headquarters to the state. The income tax credit for an eligible business is up to 50% of the payroll for the new full-time permanent employees of a corporate headquarters relocating to Arkansas. Such eligible business must receive a positive cost-benefit analysis from the commission before being offered a financial incentive agreement (hereafter, "agreement"). Eligibility for this incentive depends on the tier of the county in which the corporate headquarters is relocating as follows: (1) for tier 1 counties, the eligible business must create at least 300 new full-time permanent employees with an average hourly wage that exceeds the lesser of 150% of the county or state average hourly wage for the county to which the corporate headquarters is relocating; (2) for tier 2 counties, the eligible business must create at least 250 new full-time permanent employees with an average hourly wage that exceeds the lesser of 125% of the county or state average hourly wage for the county to which the corporate headquarters is relocating; (3) for tier 3 counties, the eligible business must create at least 200 new full-time permanent employees with an average hourly wage that exceeds the lesser of 115% of the county or state average hourly wage for the county to which the corporate headquarters is relocating; and (4) for tier 4 counties, the eligible business must create at least 150 new full-time permanent employees with an average hourly wage that exceeds the lesser of 110% of the county or state average hourly wage for the county to which the corporate headquarters is relocating. At the end of the calendar year, and each year thereafter for the term of the agreement, the business must certify that the requisite payroll and number of new full-time employees related to the relocated headquarters during the preceding calendar year. After the revenue division audits and verifies the certification, it will determine the amount of credit earned by the qualified business. For the first five years following the date of the execution of the agreement, the credit may offset up to 100% of the qualified business's income tax liability. The amount is reduced to 80% in the sixth year, to 60% in the seventh year, to 40% in the eighth year, and to 20% in the ninth year. In the tenth year and thereafter, the credit can no longer offset the qualified business's income tax liability. Unused credit cannot be carried forward and the credit cannot be sold or transferred. A qualified business's failure to annually certify or recertify payroll figures and claim the earned credit, will result in a reduction of the earned tax credit, and possible termination of the agreement. If the annual payroll of the qualified business falls below the payroll threshold, the agreement may be terminated; the qualified business may file a request for an extension of the credit. Repayment of the credit may be required under certain circumstances. The law also modifies the investment tax incentive under the Consolidated Incentive Act to provide that the director may authorize an income tax credit or sales and use tax credit of up to 10% of the total audited eligible project costs. Before the commission approves a financial incentive agreement for this credit, the qualified business must elect to receive the credit as an income tax credit or a sales and use tax credit. These changes take effect January 1, 2026. Ark. Laws 2025, Act 881 (HB 1922), signed by the governor on April 17, 2025. Virginia: New law (HB 1600) extends the period in which a qualified taxpayer may claim a housing opportunity tax credit to tax years beginning before January 1, 2031 (from 2026). The law caps the aggregate amount of the credit authorized for all qualified projects to $575 million across all calendar years, with a $64 million annual limit in each 2026 through 2030. Credits issued on and after January 1, 2022, will be allowed ratably, with one-tenth of the total amount of credits allowed annually for 10 years over the credit period, except the allowed credit amount is reduced in the first year of the credit period due to any calculation and reduction under 26 U.S.C. Section 42(f)(2). Va. Laws 2025, ch. 725 (HB 1600), signed by the governor on May 2, 2025. Arkansas: New law (HB 1386) modifies property tax assessment provisions, adding a definition of "substantial improvement" to mean "an improvement to real property that increases the assessed value of the real property by at least [25%]." A "substantial improvement" does not include necessary repairs made to the real property to fix damage done to the real property by a natural disaster except to the extent the materials and/or components used to repair the property are a higher quality and value than the materials used in the damaged property. The law also amends procedures for valuing property. In addition to the current requirement that each separate parcel of real property is valued at its true market value in money, excluding the value of crops growing on the property, the law adds that only real property located in Arkansas is considered in determining the true market value of residential real property. Real property located outside the state, however, may be considered in determining the true market value of commercial real property when there is no comparable commercial property in the state. These changes are effective for assessment years beginning on or after January 1, 2025. Ark. Laws 2025, Act 410 (HB 1386), signed by the governor on March 25, 2025. Colorado: New law (SB 25-259) eliminates the state property tax reimbursement for real and personal property destroyed by a natural cause. The reimbursement is available for property tax years 2013 through 2024. Colo. Laws 2025, ch. 126 (SB 25-259), signed by the governor on April 25, 2025. Hawaii: New law (HB 1175) allows a taxpayer, an aggrieved county or the tax assessor to file an appeal of a tax court decision with the intermediate appellate court within 30 days after entry of final judgment. (This is in addition to filing within 30 days after the tax court decision was filed.) The legislation explains that this change conforms statutory tax appeals provisions with procedures adopted by the judiciary. HB 1175 took effect upon approval. Haw. Laws 2025, Act 10 (HB 1175), signed by the governor on April 11, 2025. Montana: New law (SB 328) revises the deadline for appealing a County Tax Appeal Board decision to the Montana Tax Appeal Board to allow a person or the revenue department on behalf of the state or any municipal corporation aggrieved by the County Tax Appeal Board by filing a notice within the later of 45 calendar days after the date of the county board hearing, or 30 calendar days after the date the county board mails its decision. SB 328 took effect upon passage and approval and applies to appeals from the County Tax Appeal Board hearings that occur on or after the April 17, 2025. Mont. Laws 2025, ch. 206 (SB 328), signed by the governor on April 17, 2025. Indiana: On April 16, 2025, Indiana Governor Mike Braun signed into law SB 451, which, for tax years 2030 through 2042, lowers the personal income tax rate by .05 percentage points every other year if revenue goals are met. For tax years 2030 through 2042, employers may need to confirm if updates are needed to Indiana's withholding formula. For additional information on this development, see Tax Alert 2025-0991. New York: On May 9, 2025, New York Governor Kathy Hochul approved the fiscal year 2025 — 2026 budget (A3006-C, Part MM), which authorizes the transfer of $8 billion from general funds to repay the state's outstanding federal unemployment insurance (FUTA) loan balance. As of May 8, 2025, New York's FUTA loan balance was $5.5 billion, and the related annual interest payment, assessed at a rate of 3.12% for 2025, is due September 30, 2025. This approved funding will relieve New York employers of the added FUTA taxes they pay each year that the state carries a loan balance and the New York unemployment insurance surcharge they pay to assist with the annual federal interest payments the state owes on this unpaid loan balance. For additional information on this development, see Tax Alert 2025-1048. Arizona: New law (HB 2119) requires a municipality that proposes an ordinance to adopt or repeal a model or local option in the Model City Tax Code to provide advanced notice to affected taxpayers before the ordinance is approved or rejected. Specifically, the municipality must request a list of all taxpayers within the municipality in the affected tax classification from the Arizona Department of Revenue at least 75 days before the date it proposes such ordinance. The municipality must provide notice 60 days before the date the proposed ordinance is approved or rejected by the municipality's governing board. This requirement does not apply to ordinances that would impose (1) a use tax or model or local option to exempt a city or town from use tax or (2) a two-tiered tax rate structure for retail sales. HB 2119 takes effect 90 days after the legislature adjourns sine die. Arz. Laws 2025, ch. 144 (HB 2119), signed by the governor on May 7, 2025. Arkansas: New law (SB 568) expands the severance tax on "salt water whose naturally dissolved components, or solutes, are used as source raw materials" to lithium (in addition to bromine) and other products derived from the same salt water used in the production of lithium (in addition to the production of bromine). The amount of tax imposed is $2.45 per 1,000 barrels. The law also levies upon all brine produced in Arkansas for the purpose of lithium extraction (in addition to bromine extraction) a tax equal to 20 cents per 1,000 barrels. A tax of 10 cents per 1,000 barrels is levied upon all brine produced in Arkansas for the purpose of lithium extraction (in addition to bromine extraction). These provisions take effect October 1, 2025. Ark. Laws 2025, Act 1012 (SB 568), signed by the governor on April 22, 2025. Utah: New law (SB 207) imposes a new local impact mitigation tax on oil and gas that is produced within Utah on or after January 1, 2026 and before January 1, 2029 and saved, sold or transported from the field from which the oil or gas was produced. The tax equals five cents per barrel of such oil and one-fourth cent per MCF5 of such gas. This tax does not apply to gas produced or consumed for the purpose of processing oil or gas to a marketable state by removing natural gas liquids or contaminants, or to oil or gas produced by: the United States, the state or a political subdivision thereof, an Indian tribe, a stripper well, a wildcat well during the first 12 months of well production, or a development well during the first six months of well production. The shipment of oil and gas outside the state constitutes a sale that is subject to this local impact mitigation tax. If the oil or gas is stockpiled, the tax applies when the oil or gas is sold, transported or delivered. If, however, the oil and gas is stockpiled for more than two years, tax will apply. The local impact mitigation tax is in addition to all other taxes and does not affect requirements applicable to the severance tax imposed under Ch. 5, Part 1. Unless specifically authorized, the law prohibits a county from imposing an oil or gas mitigation fee. The law defines several terms, including "barrel," "condensate," "crude oil," "development well," "gas," "natural gas," "oil," "oil or gas mitigation fee," "produced," "producer," "qualifying road," "qualifying special service district," "recipient county," "stripper well" and "wildcat well." SB 207 took effect on May 7, 2025. Utah Laws 2025, ch. 339 (SB 207), signed by the governor on March 25, 2025. Federal: On April 29, 2025, the White House issued an Executive Order affecting tariffs on imported articles and amendments to a prior Executive Order addressing specific tariffs on automobiles and automobile parts. The new measures aim to prevent the cumulative effect of overlapping tariffs on the same article by establishing a clear procedure for determining which tariffs apply to an article subject to overlapping tariffs. The Executive Order applies to all entries made on or after March 4, 2025. Amendments to Proclamation 10908, also issued on April 29, retroactively adjust import duties on automobiles and automobile parts coming into the US. The duties on automobile parts will decrease from the previous rate of 25% to a tiered structure that will set the duty at 15% for parts accounting for 15% of the vehicle's Manufacturer's Suggested Retail Price (MSRP) for the first year and a 10% duty for parts accounting for 10% of the vehicle's MSRP in the second year. This rate reduction will be implemented through the introduction of an import-adjustment offset amount for manufacturers. For additional information on this development, see Tax Alert 2025-0970. Federal/International — United Kingdom: On May 8, 2025, President Trump and Prime Minister Starmer unveiled the General Terms for the United States (US)-United Kingdom (UK) Economic Prosperity Deal (EPD), marking a significant step toward strengthening bilateral trade relations and market access. However, both sides recognize that the EPD is a framework to deepen their trade partnership and should not be treated as a legally binding agreement. The EPD has three key objectives: (1) boost bilateral trade and job growth; (2) remove business barriers; and (3) strengthen the economic relationship between the two nations. Tax Alert 2025-1026 summarizes the EPD's major provisions. International — European Commission: The European Commission, on May 7, 2025, initiated a public consultation regarding potential countermeasures to US President Trump's Reciprocal Tariffs and the Section 232 measures on automobiles and automotive parts, as the outcome of ongoing negotiations with the United States (US) over tariffs are uncertain. After receiving and analyzing the inputs from EU industry, the European Commission may submit a formal proposal for countermeasures to the EU Member States. The aim is to have countermeasures ready to enter into force as soon as the running negotiations with the US have come to an end without acceptable results. For additional information on this development, see Tax Alert 2025-1043. International — South Africa: The South African Minister of Finance issued a media statement announcing that the proposed value-added tax (VAT) rate increase will be reversed. Thus, the VAT rate will remain at 15% from May 1, 2025. The Minister expects to introduce a revised version of the Appropriation Bill and Division of Revenue Bill within the next few weeks. For more on this development, see Tax Alert 2025-0943. 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 American Catalog Mailers Association v. Dept. of Taxn. and Fin., Index No. 903320-24 (N.Y. Sup. Ct., Albany Cnty., April 28, 2025). 2 P.L. 86-272 is a federal law that prohibits states from imposing state income tax on out-of-state sellers whose in-state activities do not exceed soliciting orders of tangible personal property. 3 In an amended motion filed in August 2024, the trade association asserted that the Department lacked the authority to rewrite P.L. 86-272 and, citing the US Supreme Court ruling in Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244 (2024), contended that the "Department's interpretation of P.L. 86-272 should be accorded no deference." 4 A "qualified facility" is one that is owned or operated by a qualified firm that: (1) creates a qualified investment of at least $100 million within Arkansas no later than 10 years after the start of the facility's construction; (2) annually pays total direct and indirect compensation of at least $3 million to employees within Arkansas over two calendar years following the calendar year in which the facility commences operations; and (3) has received a positive cost-benefit analysis from the Arkansas Economic Development Commission for the facility. 5 MCF is defined as "an amount equal to 1,000 cubic feet of gas at a pressure of 14.73 pounds per square inch and at a temperature of 60 degrees Fahrenheit." Document ID: 2025-1320 |
