Ernst & Young's State and Local Tax Weekly newsletter for May 16 through May 30 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.

Maryland budget bill includes new sales tax on data and information technology services, other tax changes

On May 20, 2025, Governor Wes Moore signed into law the "Budget Reconciliation and Financing Act of 2025" — ch. 604 (HB 352). The budget bill includes several tax changes impacting businesses and individuals. Most notably, the budget bill creates a new sales tax on data and information technology services.

Starting July 1, 2025, the definition of "taxable service" for sales and use tax purposes is expanded to include:

• Data or information technology services, as described under NAICS¹ Sectors 518, 519 or 5415
• System software or application software publishing services, as described under NAICS Sector 5132

Sales and use tax under this provision does not apply to the sale of cloud computing to a qualified cybersecurity business. The tax also does not apply to a sale to a qualified company located in an emerging technology development area made in connection with the work of the company or by a qualified company located in an emerging technology development area. For purposes of this tax, the law adds definitions of "cloud computing," "qualified cybersecurity business," "emerging technology development area" and "qualified company."

The tax on the new listed services is imposed at a 3% rate, rather than the general 6% Maryland sales tax rate. If a different rate could be imposed, however, the higher of the two rates applies.

The law provides for the use of multiple points of use (MPU) certificates for digital codes, digital products, or the new taxable services described above by purchasers who, at the time of purchase, know that they will concurrently use the taxable goods and services in multiple jurisdictions or resell the goods and services in their original form to a member of an affiliated group or a related pass-through entity (PTE) of which the buyer is also a member.

Other tax changes in the bill:

• Repeal the sales and use tax exemptions for sales of custom computer software, regardless of the method transferred or accessed, or sales of services related to custom computer software that meet certain criteria
• Repeal the sales and use tax exemption for sales of snack food through a vending machine
• Repeal the sales and use tax exemption for sales of photographic materials for use in the production of an item used in composition or printing, or in the production of another items used in printing
• Limit the sales and use tax exemption for sales of precious metal bullion or coins to such sales with a price greater than $1,000 and that occur at the Baltimore Convention Center
• Modify the film tax credit, reducing the aggregate amount of credit available in 2026 to $12 million (from $20 million), with the $12 million cap applying each year thereafter (changed from beginning in 2027)
• Increase the vehicle excise tax from 6.0% to 6.5% of the fair market value (FMV) of the vehicle and imposes a 3.5% excise tax of the FMV of a rental vehicle
• Modify PTE provisions to provide that a PTE's taxable income for a resident member is equal to the member's distributive or pro rata shares of the PTE and for a nonresident member it is derived from or reasonably attributable to the trade or business of the PTE in Maryland
• Increase individual income tax rates for individuals with Maryland taxable income (MTI) over $500,000
• A 6.25% rate applies to individuals with MTI of $500,001 through $1 million (the bracket is adjusted for those filing a joint return, surviving spouse, or head of household so that the rate applies to such filers who have MTI of $600,001 through $1.2 million)
• A 6.50% rate applies to individuals with MTI in excess of $1 million (the bracket is adjusted for those filing a joint return, surviving spouse, or head of household so that the rate applies to such filers who have MTI in excess of $1.2 million)
• Impose an additional 2% tax on the net capital gain included in the individual's Maryland adjusted gross income
• Increase the maximum tax rate a county may impose to 3.30% (from 3.20%) of an individual's MTI
• Adjust the amount of the standard deduction for individuals, and provide for an annual cost-of-living adjustment
• Limit the amount of itemized tax deduction that can be claimed by an individual
• Increase the sales and use tax rate on cannabis to impose a 9% rate in 2024 and 2025 (a change from 2024 and thereafter) and a 12% rate in 2026 and thereafter

These changes have various effective dates.

Washington governor signs laws to increase business and occupation tax rates and expand the sales tax base

On May 20, 2025, Washington Governor Bob Ferguson signed several tax-related bills into law. Key changes are summarized below.

Business and Occupation tax (B&O) surcharges and rate increases: Effective January 1, 2026 through December 31, 2029, HB 2081 imposes a new 0.5% surcharge on businesses with Washington taxable income exceeding $250 million. The new surcharge is "in addition to all other taxes imposed." Exemptions from the surcharge include, but are not limited to, the following:

• Taxable income that is subject to the financial institution surcharge
• Income from entities subject to the advanced computing surcharge
• Various specific manufacturing activities
• Sales of food, food ingredients, food stamp purchases, and prescription drugs
• Farmers

HB 2081 also increases:

• The B&O surcharge for financial institutions from 1.2% to 1.5%, effective October 1, 2025
• The advanced computing surcharge from 1.22% to 7.5%, with the annual cap increased from $9 million to $75 million, effective January 1, 2026
• Most standard B&O tax rates for various retail and wholesale activities, from 0.471% and 0.484% to 0.5%, effective January 1, 2027
• The service and other activities B&O tax rate for businesses and their affiliates with gross income of over $5 million taxable under this classification from 1.75% percent to 2.1%, effective October 1, 2025
• The service and other activities B&O tax rate for businesses with gross income between $1 million and $ 5 million taxable under this classification remains 1.75%.
• The B&O tax rate for operating games of chance from 1.5% to 1.8%, effective January 1, 2027

B&O tax investment income deduction: HB 2081, for purposes of the B&O tax investment income deduction, clarifies the meaning of "incidental to the main purpose of the business." Effective January 1, 2026, "investments" are considered incidental if the total worldwide gross income from the investments is less than 5% of the business's total worldwide gross income of the business annually. A full deduction, regardless of whether investments are incidental to the main purpose of a business, is available for nonprofit organizations, collective investment vehicles, retirement accounts, and family investment vehicles. Deductions are not allowed for amounts (1) derived from investments of persons who are invested in a collective investment vehicle but who are not themselves a collective investment vehicle; (2) received by persons as compensation for services rendered to the collective investment vehicle and/or the collective investment vehicle's investors; (3) derived from sources other than investments by a collective investment vehicle; or (4) amounts derived from factoring. The Washington Department of Revenue is required to adopt implementing rules.

Repeal of certain B&O tax preferences: SB 5794 repeals or allows to sunset a handful of B&O tax preferences, including the international services B&O tax credit. SB 5794 also repeals the B&O tax exemption for state-chartered credit unions that merge with or acquire a regulated bank and subject them to a 1.2% B&O tax rate beginning October 1, 2025. Effective April 1, 2026, SB 5794 repeals the exemption for renting or leasing individual storage space at self-service storage facilities. Such rental or leasing activity is subject to B&O tax at applicable Service and Other Activities tax rate of either 1.5%, 1.75%, or 2.1% depending on the total amount of taxable income.

Governor Ferguson vetoed the section of the bill that would have eliminated the B&O tax deduction for interest on real estate loans so the exemption remains intact.

New B&O tax rate for payment card processors: HB 2020 creates a new 3.1% B&O tax rate for payment card processors and allows them to deduct certain fees retained by persons other than the processor from the measure of the B&O tax. Deductible fees retained by persons other than the processor include interchange fees, network fees, and portions of fees retained by other processors.

The new tax does not apply to payment card processing activities involving credit, debit, or prepaid card transactions in which: (1) the processor also operates the payment network or is affiliated with the operator of the payment network, and makes related payments to an affiliated financial institution; or (2) the payment card processing company is also the issuer.

Payment card processing activities exempt from the new rate are subject to the rate applicable for the Service and Other Activities B&O tax classification.

The legislature made clear it was addressing the B&O taxation of payment card processors' activities on a prospective basis and that it "does not intend for inferences as to the taxability of prior periods to be drawn from the passage of this act."

Sales and use tax: SB 5814 expands the sales tax base to additional services, including:

• Custom software and customization of prewritten computer software
• Information technology (IT) consulting, training, and support
• Custom website development
• Data processing and data entry
• Advertising services
• "Advertising services" is defined as "all digital and nondigital services related to the creation, preparation, production, or dissemination of advertisements including … online referrals, search engine marketing, and lead generation optimization, web campaign planning, the acquisition of advertising space in the internet media, and the monitoring and evaluation of website traffic … ."
• Advertising services does not include web hosting services and domain name registration, and advertising services rendered in respect to newspapers, print, radio, television, and out-of-home advertising such as billboards and other place-based advertising
• Security and investigation services
• Temporary staffing services, except for qualifying hospitals
• Live presentations both in-person and via electronic means

SB 5814 expands sales of taxable digital automated services by eliminating exclusions for:

• Any service that primarily involves the seller's application of human effort
• Data processing services
• Advertising services
• Live interactive online presentations

SB 5814 creates an exclusion from sales tax for telehealth and telemedicine services and for sales of specified services between members of an affiliated group, including IT services, custom website development, data processing and entry, advertising, security and investigation services.

Capital gains tax: SB 5813 increases the capital gains tax rate on long-term capital gains exceeding $1 million to 9.9%, beginning January 1, 2025. The tax rate on capital gains of $1 million or less remains at 7%. The current $270,000 standard deduction also remains unchanged.

Other: On May 20, the governor signed other bills containing tax-related provisions. These bills do the following:

HB 2077 imposes a new excise tax on the banking and sale of surplus zero-emission vehicle credits under the state's clean vehicles program.

SB 5801 increases the tax rates on fuel and special fuels effective July 1, 2025 and provides for annual increases starting July 1, 2026 for fuel and July 1, 2028 on special fuel. SB 5801 also increases various taxes and fees on motor vehicles, luxury taxed on vehicles and aircraft, recreational vessels, rental cars, peer-to-peer car sharing, and electric vehicles.

For additional information on this development, see Tax Alert 2025-1125.

INCOME/FRANCHISE

Alabama: New law (HB 163), effective for tax years beginning on or after January 1, 2024, decouples Alabama income tax provisions from the Tax Cuts and Jobs Act's amendments to IRC Section 174 related to amortization of research and experimental (R&E) expenditures. Instead, taxpayers have the option to currently deduct the R&E expenditures or treat them as deferred expenses in the same manner as provided by IRC Section 174 before tax year 2022. The Alabama Department of Revenue may adopt rules to implement this change. HB 163 took effect immediately. Ala. Laws 2025, Act 400 (HB 163), signed by the governor on May 14, 2025.

California: The California Franchise Tax Board (FTB) on May 20, 2025, issued a Second Notice of Modifications to Text of Proposed Regulation to adopt amendments to its market-based sourcing rules for California corporate franchise and income tax purposes, to be codified at California Code of Regulations, title 18, (CCR) Section 25136-2 (Proposed Regulation). Notably, the FTB modified the applicable date of the Proposed Regulation, which now is intended to apply for tax years beginning on or after January 1, 2026. In September 2024, the FTB released an "Initial Statement of Reasons" for the amendments, as well as draft language of the Proposed Regulation. (See Tax Alert 2025-1784.) After receiving public comments on the Proposed Regulation, the FTB in January 2025, issued modifications to the text of the Proposed Regulation and held a public hearing. In addition to modifying the applicable date, the FTB also made clarifying edits based on public comments. Changes in the latest version of the draft language fix inconsistent references to "benefit of a service" and "benefit of the service" so that "benefit of the service" is consistently used. Clarifying edits were made to "reflect the proper application of the four presumption rules" in Section 25136-2(c)(1)(A) and how they interact with the other rules in Section 25136-2(c)(1). Changes also relocate certain provisions and update references to subsections. For additional information on this development, see Tax Alert 2025-1286.

Georgia: New law (HB 290) updates the state's date of federal conformity to the Internal Revenue Code as of January 1, 2025 (from January 1, 2024). This change applies to tax years beginning on or after January 1, 2024. Ga. Laws 2025, Act 370 (HB 290), signed by the governor on May 14, 2025.

Hawaii: New law (SB 1464) updates the state's date of conformity to the Internal Revenue Code to December 31, 2024 (from December 31, 2023). This change applies to tax years beginning after December 31, 2024. Haw. Laws 2025, Act 123 (SB 1464), signed by the governor on May 29, 2025.

Hawaii: New law (HB 1146) modifies the state's electing pass-through entity (PTE) tax to require qualified members claiming the credit for their share of PTE tax paid, to add to their taxable income their share of taxes paid by the electing PTE. HB 1146 applies to tax years beginning after December 31, 2024. Haw. Laws 2025, Act 58 (HB 1146), signed by the governor on May 15, 2025.

Montana: New law (SB 544) revises Montana's individual income tax laws to allow taxpayers to elect to claim net operating losses (NOLs) not provided for in legislation enacted in 2021. SB 544 applies retroactively to tax years beginning after December 31, 2023. In 2021, Montana enacted SB 399, to more closely align Montana's individual income tax laws with federal law, effective beginning with the 2024 tax year. SB 399, however, eliminated Montana-specific NOL calculations and carryovers, which resulted in some individual taxpayers having remaining Montana-specific NOL carryovers they were unable to use. SB 544 establishes an elective transition adjustment for IRC Section 172 NOL carryovers. The adjustment is the sum of all positive and negative adjustments to an individual taxpayer's Montana taxable income resulting from differences in federal and Montana law before January 1, 2024. The difference between the federal and Montana-specific NOL carryover as of December 31, 2023, becomes a positive adjustment to Montana taxable income if the federal carryover exceeds the Montana carryover. If the Montana-specific carryover exceeds the federal carryover, the difference becomes a negative adjustment to Montana taxable income. A taxpayer making the election must apply the entire carryover adjustment to the 2024 tax year until Montana taxable income reaches zero. Any unused adjustment may be similarly carried forward for up to seven years. Individual taxpayers must make the election on their 2024 income tax return, which must be filed on or before October 15, 2025. Taxpayers who have already filed their 2024 return may make the election on an amended Montana return filed by October 15, 2025. No extensions will be allowed. The 2024 return must include a completed carryforward adjustment form to be promulgated by the Montana Department of Revenue in the near future. Mont. Laws 2025, ch. 582 (SB 544), signed by the governor on May 8, 2025. For more on this development, see Tax Alert 2025-1136.

South Carolina: New law (HB 507) updates the date of conformity of the South Carolina income tax law to the Internal Revenue Code (IRC) to December 31, 2024 (from December 31, 2023). If IRC sections adopted by South Carolina expired (in full or in part) on December 31, 2024, are extended (but not amended) by federal enactment during 2025, they also will be extended for South Carolina income tax purposes in the same manner as extended for federal income tax purposes. HB 507 took effect upon approval by the governor. S.C. Laws 2024, Act 63 (HB 507), signed by the governor on May 22, 2025.

Tennessee: New law (HB 635/SB 439) modifies the excise tax to allow a taxpayer, at its discretion, to add back to net earnings: (1) any amounts taken as deductions from its federal taxable income that are also allowed as a deduction in determining the taxpayer's net earnings, and (2) any amounts subtracted from net earnings under present law. These discretionary additions may be made, adjusted or removed at the taxpayer's discretion for any tax year on any timely filed original or amended return. These adjustments may not reduce a taxpayer's net earnings below the amount that would have been computed for the tax year without regard to these additions. HB 635/SB 439 took effect upon becoming law. Tenn. Laws 2025, ch. 343 (HB 635/SB 439), signed by the governor on May 2, 2025.

Texas: New law (SB 1058) clarifies the application of the Texas franchise tax to stock exchanges by excluding certain securities transaction payments from the total revenue of a taxable entity that is a registered securities market operator. Specifically, the exclusion applies to rebate payments made by the operator to a broker or dealer as part of a securities transaction. The law defines key terms, including "broker," "dealer," "registered securities market operator," "securities transaction," and "transaction rebate payment." SB 1058 takes effect January 1, 2026 and it applies to reports originally due on or after that date. Tex. Laws 2025, SB 1058, signed by the governor on May 13, 2025.

Texas: New law (SB 2774) modifies the classification of certain entities as primarily engaged in retail trade for purposes of the franchise tax. Effective January 1, 2027, the definition of "retail trade" is expanded to include "activities involving the rental of industrial uniforms, industrial garments, and industrial linen supplies that are classified as Industry 7353 of the 1987 Standard Industrial Classification Manual … ." SB 2774 takes effect on January 1, 2027 and applies to reports originally due on or after that date. Tex. Laws 2025, SB 2774, signed by the governor on May 24, 2025.

Texas: Approved Joint Resolution (SJR 18) proposes an amendment to the Texas Constitution, that if approved by voters, would prohibit the legislature from taxing the realized or unrealized capital gains of an individual, family, estate or trust, including a tax on the sale or transfer of a capital asset payable by the individual, family, estate or trust selling or transferring the asset. The change does not modify or prohibit a change in the rate of an ad valorem tax on property, a sales tax on the sale of goods or services, or a use tax on the storage, use or other consumption of goods or services in the state. This constitutional amendment will be submitted to voters at the election to be held on November 4, 2025. SJR was filed with the Secretary of State on May 7, 2025.

Vermont: New law (HB 493) updates Vermont's conformity to federal law to the Internal Revenue Code as amended through December 31, 2024 (from December 31, 2023). This change took retroactive effect on January 1, 2025 and applies to tax years beginning on and after January 1, 2024. Vt. Laws 2024, HB 493, signed by the governor on May 21, 2025.

SALES & USE

Alabama: New law (HB 386) on September 1, 2025 reduces the state sales and use tax rate on food to 2% (down from 3%). The law also eliminates the provision that limited the amount by which a county or municipal governing body could reduce the general or retail sales tax rate on food for local sales and use taxes to 25% in any year a growth threshold was met. HB 386 takes effect on June 1, 2025. Ala. Laws 2025, Act 305 (HB 386), signed by the governor on May 9, 2025.

Alabama: New law (HB 152) temporarily exempts from state sales and use tax purchases of baby formula, baby bottles, baby wipes, other baby-related supplies, maternity clothing and menstrual hygiene products for personal use. The state sales tax exemption applies to periods beginning on September 1, 2025 and ending on August 31, 2028. Local governments, by resolution or ordinance, may exempt these products from county or municipal sales or use taxes. The Alabama Department of Revenue is authorized to adopt rules and develop any necessary forms, worksheets and instructions. HB 152 takes effect on September 1, 2025. Ala. Laws 2025, Act 152 (HB 152), signed by the governor on May 9, 2025.

Alabama: New law (HB 191) changes how local tax jurisdictions conform to new or amended state sales and use tax exemptions. Under HB 191, any new law that enacts or amends a sales and use tax exemption will apply only to the state-level sales and use tax. The new or amended exemption does not apply to county or municipal sales and use taxes (collectively, "local sales and use tax"), unless all of the following are met: (1) the law provides for an exemption of local sales and use tax; and (2) a county or municipality by resolution or ordinance approves the exemption. The resolution or ordinance also must (1) include an effective date of September 1 of a given year for the local sales and use tax exemption and (2) provide for a duration that is in fiscal year increments or in perpetuity. A county commission must give the Alabama Department of Revenue notice of the resolution or ordinance by the July 1 before the local sales and use tax exemption's effective date. A county or municipality through the same resolution or ordinance process, may rescind a local sales and use tax exemption, provided certain conditions are met. The Alabama Department of Revenue will maintain a list of local jurisdictions adopting each new and amended sales and use tax exemption. These provisions do not modify or supersede the process by which state and local sales and use tax exemption certificates are issued. HB 191 took effect immediately. Ala. Laws 2025, Act 280 (HB 191) signed by the governor on May 6, 2025.

Arizona: New law (HB 2639) extends through December 31, 2028 (from December 31, 2026) the transaction privilege tax exemption for purchases of qualifying equipment by a qualified business for harvesting or processing qualifying forest products removed from qualifying projects. To receive the exemption, the qualified business at the time of purchase must present its certification approved by the department. The law takes effect 90 days after the legislature adjourns sine die. Ariz. Laws 2025, ch. 135 (HB 2639), signed by the governor on May 6, 2025.

Georgia: New law (HB 153) extends through June 30, 2031 (from June 30, 2026) the sales and use tax exemption for maintenance and replacement parts for machinery and equipment, stationary or in transit, used to mix, agitate, and transport freshly mixed concrete in an unhardened state. Items the exemption applies to includes, but is not limited to, mixers and components, engines and components, interior and exterior operational controls and components, hydraulics and components, all structural components, and all safety components. The exemption does not apply to motor fuel used as energy in the concrete mixer truck. HB 153 takes effect on July 1, 2025. Ga. Laws 2025, Act 80 (HB 153), signed by the governor on May 9, 2025.

Indiana: New law (HB 1601) expands the state's sales and use tax exemption for data centers to include projects for investments in quantum computing research, advanced computing, and defense infrastructure network. Quantum computing research, advanced computing, and defense infrastructure network means "quantum safe fiber network between two … or more facilities using qualified equipment to create and connect qualified facilities to a quantum safe fiber network" that create minimum qualified investment of at least $50 million within five years of the issuance of the specific transaction award certificate. The specific transaction award certificate, which allows for tax exempt purchases, will expire 25 years after it is issued, or 50 years in the case of a qualified data center user that invests $750 million or greater or for quantum computing research, advanced computing, and defense infrastructure network operator that makes a $50 million or greater investment within three years of the issuance of the certificate. The law defines new terms, including "quantum safe fiber network equipment," and modifies several existing definitions and data center-related provisions to include references to quantum computing research, advanced computing, and defense infrastructure network. HB 1601 took effect upon passage. Ind. Laws 2025, P.L. 178 (HB 1601), signed by the governor on May 1, 2025.

The effective date related to "eligible costs" for quantum computing research, advanced computing, and defense infrastructure network has been modified by HB 1001 (enacted May 6, 2025). Specifically, the sales and use tax exemption for eligible costs applies to expenditures made after January 1, 2026 (from May 1, 2025) for the development, acquisition, construction and operation of a facility to be used as part of a quantum computing research, advanced computing, and defense infrastructure network that is connected by quantum safe fiber network equipment and used for specified purposes. Ind. Laws 2025, P.L. 213 (HB 1001), signed by the governor on May 6, 2025.

Tennessee: New law (SB 925/HB 1181) extends through June 30, 2027 (from June 30, 2025) the exemption from sales and use tax for purchases and leases of all equipment, machinery, software, ancillary components, appurtenances, accessories or other infrastructure that is used in whole or in part to provide broadband communications services or internet access. The exemption does not apply to a retail sale of personal consumer electronics (e.g., smartphones, computers and tablets, Wi-Fi routers, consumer-grade modems). Broadband communications services are defined as telecommunications services, mobile telecommunications services, video programming services and direct-to-home satellite television programming services. Tenn. Laws 2025, ch. 449 (SB 925/HB 1181), signed by the governor on May 9, 2025.

Texas: The Texas Comptroller of Public Accounts (Comptroller) issued a memo to provide guidance on the application of the state's sales and use tax to solid materials extracted or severed from the earth such as sand, dirt, gravel and rock. The Comptroller said that "taxability determinations discussed … in this memo will be applied prospectively beginning July 1, 2025." The Comptroller noted that some materials that were previously determined to be nontaxable may be treated as taxable, processed materials because they were extracted from the earth and/or washed, dried or separated in a way that caused a chemical or physical change. The Comptroller further said the guidelines in the memo "should be followed by Audit and Hearings and Tax Litigation to resolve open and future assignments." The memo addresses taxability determinations for sellers of materials and purchasers of materials, for periods before July 1, 2025 and for periods on or after July 1, 2025. The Comptroller indicated that it would amend Rule 3.300 to incorporate the content of this memo. The Comptroller also lists several letter rulings and Comptroller's Decisions this memo supersedes or partially supersedes. Tex. Comp. of Pub. Accts., Star No. 202505004M (May 16, 2025).

BUSINESS INCENTIVES

Federal: The IRS has released the 2025 inflation adjustment factor and reference prices for calculating the IRC Section 45 production tax credit (PTC) for qualified energy resources. The PTC originally allowed taxpayers to claim a credit equal to 1.5 cents (adjusted annually for inflation) per kilowatt hour of renewable electricity produced at a qualified facility. The inflation adjustment factor for calendar-year 2025 is 1.9971. The 2025 reference price for facilities producing electricity from wind is 3.1 cents per kilowatt hour; because this price does not exceed the 8 cents multiplied by the inflation adjustment factor in IRC Section 45(b)(1), the phaseout of the credit under IRC Section 45(b)(1) does not apply for calendar 2025. Reference prices for facilities producing electricity from closed-loop biomass, open-loop biomass, geothermal energy, municipal solid waste, qualified hydropower production, and marine and hydrokinetic renewable energy have not been determined for 2025. For additional information on this development, see Tax Alert 2025-1160.

Alabama: New law (SB 177) amends the Entertainment Industry Incentive Act by expanding "qualified production" to include music albums. A qualified production company is entitled to a rebate for production expenditures for a qualified project that is limited to the production of a music album if the production expenditures equal or exceed $30,000. A rebate will not be provided for production expenditures incurred after the first $200,000 of such expenditures in Alabama. For fiscal year (FY) ending September 30, 2015 through FY ending September 30, 2025, the aggregate amount of entertainment industry incentives that may be grated is capped at $20 million. For FY ending September 30, 2026 and thereafter, the cap is increased to $22 million for all qualified production expenditures. SB 177 takes effect on October 1, 2025. Ala. Laws 2025, Act 414 (SB 177), signed by the governor March 18, 2025.

Georgia: New law (HB 475) modifies the income tax credit for film, gaming, video or digital productions by expanding the definition of "qualified production activities" to include the production of commercial advertisements (changed from televised commercial advertisements). The list of channels on which projects recorded in the state can be viewed or reproduced is expanded to include paid subscription-based platforms and free advertiser supported streaming television (FAST) channel, but removes advertiser supported sites from the list. "User-generated content distributed exclusively via social media platforms" has been added to the list of activities that are not "qualified production activities." Lastly, the law allows the Department of Economic Development to charge a reasonable fee for credit certification. HB 475 takes effect on January 1, 2026 and applies to tax years beginning on or after that date. Ga. Laws 2025, Act 124 (HB 475), signed by the governor on May 12, 2025.

PROPERTY TAX

Alabama: New law (HB 543) increases the ad valorem tax exemption for tangible personal property owned by a business so that the exemption applies to $100,000 (from $40,000) in market value. HB 543 takes effect on October 1, 2025. Ala. Laws 2025, Act 344 (HB 543), signed by the governor on May 13, 2025.

Indiana: New law (HB 1601) allows a designating body (i.e., a fiscal body of a county that does not contain a consolidated city or a municipality) to enter into an agreement with an eligible business to grant such business a property tax exemption for qualified property (i.e., quantum safe fiber network equipment and any additions to or replacements to such property). To qualify for the property tax exemption, an eligible business must operate or lease qualified property for use in one or more facilities in Indiana, and the entity and all lessees of the qualified property (1) must invest an aggregate of at least $100 million in real and personal property at one or more Indiana facilities and (2) the average wage of employees at the facility is at least 125% of the average county wage for the county in which the facility operates. The agreement entered into between the designating body and eligible business must specify the duration of the property tax exemption. These provisions took effect upon passage. Ind. Laws 2025, P.L. 178 (HB 1601), signed by the governor on May 1, 2025.

A later enacted bill (HB 1001) changes the effective date of these provisions to January 1, 2026, and not upon passage. Ind. Laws 2025, P.L. 213 (HB 1001), signed by the governor on May 6, 2025.

Indiana: New law (HB 1427) repeals the increase to the acquisition cost threshold for the business personal property tax exemption from $80,000 to $1 million that was set to take effect for the 2025 assessment date as provided by P.L. 2025-68 (SB 1). As revised by HB 1427 the acquisition cost threshold for the business personal property tax exemption will remain $80,000 for assessments dates before 2026. The threshold is increased to $2 million (from $80,000) for the 2026 assessment date and thereafter. Ind. Laws 2025, P.L. 230 (HB 1427), signed by the governor on May 6, 2025.

CONTROVERSY

Indiana: On May 6, 2025, Indiana Governor Mike Braun signed HB 1001, the state's biennial budget bill, which will require the Indiana Department of Revenue (Department) to establish a tax amnesty program for taxpayers with an unpaid tax liability for a listed tax due and payable before January 1, 2023. HB 1001 provides that the amnesty provisions are effective on July 1, 2025, with the amnesty period to be determined by the Department. The amnesty program may not exceed eight weeks and must end on the earlier of the date set by the Department or January 1, 2027. HB 1001 calls for the waiver of interest and penalties for participating taxpayers. The amnesty program appears to apply to most Indiana taxes except those related to riverboat or racetrack gambling. Taxpayer may not participate in this new amnesty program if they have participated in any prior Indiana amnesty program or special amnesty program for use tax on claimed racehorses. For additional information on this development, see Tax Alert 2025-1121.

PAYROLL & EMPLOYMENT TAX

Alabama: On May 15, 2025, Alabama Governor Kay Ivey signed into law HB 379, which effective January 1, 2026, provides an exemption from state and local nonresident income tax for compensation paid to nonresident employees for 30 or fewer days of employment in the state during the calendar year and compensation paid to nonresidents temporarily present in the state for disaster/emergency-related services. Under HB 379, compensation paid to nonresident employees for services performed within the state for 30 or fewer days is exempt from Alabama state and local income tax and withholding if the following conditions are met:

• The employee performed employment duties in more than one state during the calendar year.
• The compensation was not paid to employees working in their capacity as a professional athlete, professional entertainer or public figure.
• The nonresident employee's state of residence provides a substantially similar exclusion, does not impose an individual income tax, or the employee's income is tax exempt under the US Constitution or federal statute.

If the nonresident employee performs services within Alabama for more than 30 days in the calendar year, all compensation paid to the employee for the calendar year is subject to Alabama state and local income tax and withholding.

As a supplement to existing Alabama Code Section 40-31-3, HB 379 states that compensation paid to nonresidents temporarily in Alabama in connection with providing services pursuant to a disaster or emergency declared by the US President or the Alabama Governor is exempt from Alabama state and local income tax and withholding.

The Alabama Department of Revenue will not assess interest and penalties for failing to withhold and remit nonresident income tax under this provision, provided the employer adopts one of the specified procedures. For additional information on this development, see Tax Alert 2025-1106.

Idaho: The Idaho Tax Commission has updated its Table for Percentage Computation Method of Withholding to reflect the drop in the personal income tax rate from 5.695% to 5.3%, which took effect retroactive to January 1, 2025, under HB 40. In 2025, Idaho lawmakers passed the largest tax cut in the state's history and retroactively lowered the personal income tax rate for the fourth consecutive year. For additional information on this development, see Tax Alert 2025-1070.

MISCELLANEOUS TAX

Texas: Approved Joint Resolution (HJR 4) proposes an amendment to the Texas Constitution, that if approved by voters, would prohibit the legislature from enacting a law that would impose an occupation tax on a registered securities market operator or impose a tax on securities transactions conducted by a registered securities market operator. A "a registered securities market operator" would include certain entities subject to registration with and regulation by the United States (US) Securities and Exchange Commission or the US Commodity Futures Trading Commission, such as an exchange that is registered as a national securities exchange; a self-regulatory organization, financial institution, broker, dealer, clearing agency or transfer agent as those terms are defined by the Securities Exchange Act of 1934; an alternative trading system, board of trade, commodity pool operator, derivatives clearing organization, electronic trading facility, or organized exchange as they are defined in the Commodity Exchange Act; affiliates, subsidiaries or facilities of these described entities, or; a trade reporting facility. The change would not prohibit the imposition of a general business tax measured by business activity, a tax on the production of minerals, a tax on insurance premiums, a sales and use tax on tangible personal property or services, a fee based on the cost of processing or creating documents, or a change in the rate of an existing tax. This constitutional amendment will be submitted to voters at the election to be held on November 4, 2025. HJR 4 was filed with the Secretary of State on May 5, 2025.

GLOBAL TRADE

Federal — International: On May 12, 2025, the United States (US) and China released a Joint Statement outlining the outcomes of their recent trade negotiations. The US and China agreed, to revise their additional ad valorem duties on each other's goods, suspending 24 percentage points of the duty rate for 90 days while maintaining a 10% rate, and eliminating certain modified duties to enhance their trade relationship. This change effectively brings the US tariff on goods imported from China down to a baseline of 30%. For additional information on this development, see Tax Alert 2025-1051.

International — Canada: On May 20, 2025, the Canada Border Services Agency (CBSA) released a revised version of Customs Notice 25-19, United States Surtax Remission Order (2025) (Customs Notice). This notice, which was originally published on April 17, 2025, contains new information about the application of the United States Surtax Remission Order (2025) (Remission Order). The Remission Order provides a six-month relief period for surtaxes on certain goods imported from the United States, including goods used to support public health, health care, public safety and national security objectives, as well as goods imported for use in Canadian manufacturing, processing, and food and beverage packaging. The Customs Notice contains guidance on the eligibility of goods for remission under the Remission Order. The information does not have the force of law and reflects the CBSA's interpretation of the relevant provisions of the Remission Order. For additional information on this development, see Tax Alert 2025-1219.

Federal — International: In a May 29, 2025 order, the US Court of Appeals for the Federal Circuit (CAFC) granted an immediate administrative stay that prevents a US Court of International Trade (CIT) decision from going into effect while the Trump Administration's appeal of the CIT decision is pending. Further, the CAFC temporarily reinstated certain US tariffs. On May 28, 2025, a CIT three-judge panel held that President Trump had exceeded his authority in imposing certain tariffs under the International Emergency Economic Powers Act (IEEPA). (See Tax Alert 2025-1155.) The CIT halted President Trump's Reciprocal Tariff Policy, issued in his April 2, 2025 "Liberation Day" announcement, finding that the President does not have unrestricted authority to impose tariffs under the IEEPA. Further, the CIT found that President did not have authority to enact the "Trafficking Tariffs" implemented on imports from Canada, Mexico and China in response to asserted drug smuggling concerns because the duties did not address the threats outlined in the relevant executive orders. For additional information on this development, see Tax Alert 2025-1163.

VALUE ADDED TAX

International — Algeria: Algeria has amended the value-added tax (VAT) code to clarify when (1) the VAT credit refund request for cessation of activity must be submitted and (2) the tax administration must notify a taxpayer that the refund request was rejected. In accordance with the new provisions, requests for refunds of VAT credits related to cases of cessation of activity must be submitted when filing the final balance sheet. The tax administration is required to notify the taxpayer of decisions either by (1) a registered letter with acknowledgment of receipt by personal delivery, or (2) registered mail. If the tax administration rejects a VAT refund request, it must formally justify that decision, within a reasonable time, by clearly stating the legal and factual grounds upon which the decision is based, so the taxpayer may appeal before the litigation department. For additional information on this development, see Tax Alert 2025-1140.

International — Uruguay: Through Decree No. 93/025 The Ministry of Economy and Finance has extended the 9% value-added tax (VAT) reduction for certain tourism activities, effective April 28, 2025, provided that payment are made via credit card, debit card or e-money payment instrument. This initiative aims to support the tourism sector by providing financial incentives for transactions made through electronic payment methods. (For background, see EY Global Tax Alert, Uruguay extends application of reduced VAT rate for tourism sector until 30 April 2025, dated September 27, 2024.) For more on this development, see Tax Alert 2025-0989.

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.