Ernst & Young's State and Local Tax Weekly newsletter for June 6 and June 13 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

Maryland Comptroller releases draft regulations implementing new 3% tax on data and information technology services

On May 29, 2025, the Maryland Comptroller released draft regulations implementing the new 3% sales and use tax on data and information technology services, which takes effect on July 1, 2025.¹ The draft regulations list all services that will be subject to the new tax by referencing the NAICS² codes noted in HB 352 and include examples of how the new tax will apply to relevant transactions.

The new tax will apply to transactions involving software as a service (SaaS), data processing, and custom computer software publishing. Under current law, SaaS is excluded from the state's 6% sales tax if used in an enterprise environment solely for commercial purposes. Such SaaS transactions will be subject to the new 3% tax, while SaaS transactions that do not meet the legacy exclusion will continue to be subject to tax at the 6% rate. A sale of cloud computing to "qualified cybersecurity businesses"³ is exempt from the new tax.

The draft regulations provide for the use of multiple points of use (MPU) certificates 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 related entity. Purchasers must be authorized by the Comptroller to issue the MPU certificates to their vendors, and vendors who receive the MPU certificates are relieved from collecting the tax. The purchaser must use a reasonable and uniform apportionment methodology to determine the amount of tax due in Maryland and must self-assess and pay the tax upon purchase.

The regulations note that for contracts and licenses entered into before July 1, 2025, the tax will not apply even if payment and/or delivery are made after that date. However, if the contract or license calls for periodic subscription payments to be made, any post-July 1 payments will be treated as separate transactions and be subject to the new tax. For contractors making purchases to fulfill a third-party contract, the operative date for determining whether the tax applies is the date of purchase of the taxable goods or services by the contractor, and not the date of the third-party contract.

The Comptroller also issued a bulletin that provides answer to frequently asked questions on the new tax (Tech. Bulletin No. 56 , June 2025), including a description of services subject to the tax.

For additional information on this development, see Tax Alert 2025-1189.

New Jersey adopts new and amended corporate business tax regulations

The New Jersey Division of Taxation has adopted, without change, proposed regulations that create new and amend existing corporate business tax (CBT) regulations.⁴ The new and amended regulations implement recent statutory changes to the CBT.

The adopted changes, among other things:

• Clarify the treatment of net operating losses and their carryovers, more closely aligning the state's provisions with IRC Section 172, and establish a pooling system for combined group members
• Add a new subsection to incorporate the new bright-line nexus rule and clarify whether activities of unitary partnerships are considered when determining nexus at the corporate owner level
• Modify and add new definitions related to combined returns and clarify the treatment of, and add definitions for, various entities, such as captive investment companies, captive real estate investment trusts, and captive regulated investment companies
• Repeal prior rules that set forth the ordering of tax credits and replace them with a simplified method for the use of tax credits, that the taxpayer earned, purchased, or was awarded
• Prospectively incorporate parts of, and expand on, the Multistate Tax Commission's updated guidelines on P.L. 86-272⁵
• Clarify that financial products, instruments and services are not considered tangible personal property
• Clarify the treatment of IRC Section 959 (previously taxed earnings and profits) dividends
• Clarify how to source capital gains when they are integrated or not integrated in business and operational income
• Clarify that capital gains from the sale of bonds, digital assets, or other financial products/instruments sold for trading purposes are not treated as capital gains and includable in the receipts fraction
• Clarify that a place of business in New Jersey also includes employees who routinely work from home

Several outdated provisions have been repealed, and technical corrections have been made to ensure clarity and compliance with current laws.

The new and amended regulations take effect on June 16, 2025. For additional information on this development, see Tax Alerts 2025-1364 and 2025-0561.

INCOME/FRANCHISE

Illinois: The Illinois Department of Revenue has proposed amendments to 86 Ill. Adm. Code 100.3405 and 100.9710 to modify the apportionment method for investment income of financial organizations as provided by Pub. Act 103-0592.⁶ The proposed changes would provide guidance on which receipts from investment assets and activities and trading assets and activities are included in the receipts factor for tax years ending before December 31, 2025 and for tax years ending on or after December 31, 2024. "Investment assets and activities and trading assets" would include, but would not be limited to, investment securities, trading account assets, federal funds, securities purchased and sold under agreements to resell or repurchase, options, futures contracts, forward contracts, notional principal contracts (e.g., swaps), equities, and foreign currency transactions. Proposed amendments would modify the meaning of entities engaged in the business of a "savings bank" or a "savings and loan association." Additionally, proposed amendments would update the limit for an entity engaged in business as a "small loan company" to making loans in a principal amount not exceeding $40,000 (from $25,000). Ill. Dept. of Rev., proposed amendments to 86 Ill. Adm. Code 100.3405 and 100.9710 (Ill. Register, Vl. 49, Issue, May 30, 2025).

Indiana: New law (HB 1427) creates sourcing rules for adjusted gross income of investment partnerships and modifies provisions related to the elective pass-through entity tax (PTET). Effective for tax years beginning after December 31, 2025, in the case of an investment partnership, any qualifying investment partnership income⁷ distributable to a nonresident partner will be: (1) allocated to the partner's state of residence (individuals, estates and trusts) or commercial domicile (corporations or entities), and (2) treated as business income and apportioned as if such income had been received by the partner provided that such income is from investment activity (a) that is directly or integrally related to any other business activity conducted in Indiana by the nonresident partner, (b) that serves an operational function to any other business activity of the nonresident partner, or (c) where assets of the investment partnership were acquired with working capital from a trade or business activity conducted in Indiana in which the nonresident partner (or another corporation or entity that is unitary with the partner) owns an interest. An entity permitted to allocate qualifying investment partnership income must exclude from the sales factor denominator receipts derived from the investment partnership and attributable to investment partnership income. An entity required to treat qualifying investment partnership income as apportionable income must include in the sales factor denominator its share of receipts from the investment partnership and attributable to the investment partnership and must attribute such income to its state of domicile. The law describes when a corporation or other entity will be treated as unitary with the partner.

The law also modifies provisions related to the elective PTET, providing that an electing entity or PTE may claim a credit for taxes withheld or paid on the entity's behalf. An electing entity that has direct owners who would be allowed to claim a credit under IC 6-3-3-3 for taxes paid to another state with regard to a taxable year may elect to claim the credit for tax withheld or paid. An electing entity also may elect to claim a credit for any credit under IC 6-3-3 or IC 6-3.1 (with some exceptions) and arising from the operations of the electing entity, or that are passed through to or assigned to the electing entity. Certain requirements apply to PTEs electing to claim the credits. The PTET related changes are retroactively effective to January 1, 2025. Ind. Laws 2025, P.L. 230 (HB 1427), signed by the governor on May 6, 2025.

Oklahoma: New law (HB 2764) reduces the individual income tax rates starting in 2026 and provides for future rate reductions that are contingent on revenue thresholds being met. For 2024 and 2025, there are six income tax brackets, with the individual income tax rates ranging from 0.25% up to 4.75%. In 2026, the number of brackets is reduced to four, with rates ranging from 0% up to 4.5%. The law provides for additional reductions to the individual income tax rates if rate reduction triggers are met. In December 2026, the State Board of Equalization (SBE) will make a preliminary certification of whether the comparison year total collections exceeds the base year total collections plus the income tax reduction cost threshold; if so, the individual income tax rates across all brackets will be reduced by 0.25% for the tax year starting January 1 following the final February certification by the SBE that the rate reduction is authorized. HB 2764 takes effect on November 1, 2025. Okla. Laws 2025, ch. 307 (HB 2764), signed by the governor on May 28, 2025.

Wisconsin: In Skechers USA, Inc.,⁸ the Wisconsin Court of Appeals (Court) upheld a determination by the Wisconsin Tax Appeals Commission⁹ (WTAC) that certain intercompany royalty and interest expenses paid to an affiliate were not deductible expenses. The taxpayer, a California-based corporation that sells branded footwear, has developed and purchased intellectual property, including trademarks, service marks, copyrights, patents, and patent applications throughout the time it has operated. In 1999, the taxpayer engaged an outside tax advisor to design and implement an intellectual property holding company structure, under which the taxpayer contributed all its intellectual property to a wholly owned subsidiary formed under Delaware law and headquartered in California. The subsidiary then licensed the intellectual property back to the taxpayer and charged the taxpayer interest on unpaid balances of net royalty fees. The taxpayer deducted the royalty payments and interest expenses on its Wisconsin income/franchise tax return, as Wisconsin was a separate-company-reporting state for the tax years at issue. The Wisconsin Department of Revenue (Department) denied the royalty and interest expense deduction after auditing the taxpayer's 2000–2003 tax returns on the basis that the intercompany transactions were sham transactions or otherwise lacked a valid business purpose. The taxpayer appealed to the WTAC after the Department denied the taxpayer's protest to the assessment. In affirming the Department's assessment, the WTAC focused on the tax advisor's planning documents, which stressed the reduced state tax liability without any substantive changes to the taxpayer's business resulting from implementing the strategy. The Circuit Court upheld the WTAC's decision.¹⁰ On appeal, the Court focused its inquiry on the WTAC's determination that the company did not have a valid business purpose for creating the subsidiary. The Court said the WTAC's determination that the evidence associated with the formation of the subsidiary "pointed to one reason for its creation — 'tax savings'" was "amply supported by the record." The record showed that the creation of the subsidiary was prompted by a recommendation from its outside auditor as part of a larger strategy to minimize state tax liabilities and that the specific transfer and license transactions did not have a valid nontax business purpose. The Court also echoed the WTAC's observation that the taxpayer's facts were a "near textbook example" of what the statute was designed to prevent. For more on this development, see Tax Alert 2025-1307.

SALES & USE

Georgia: The Georgia Department of Revenue (GA DOR) issued proposed amendments to Rule 560-12-2-.107, the sales tax exemption for computer equipment. The Rule is being amended to conform with statutory changes enacted in 2022 (HB 1291). "Computer equipment" would be defined as "any individual computer or organized assembly of hardware or software … ." The proposed rule list items that are "computer equipment," which would include server farms, mainframe or midrange computers, mainframe driven high-speed print and mailing devices, and workstation connected to those devices. "Computer equipment," starting in 2001, does not include telephone central office equipment or other voice data transport technology and equipment with imbedded computer hardware or software that is primarily used for training, product testing or in a manufacturing process. Starting in 2024, it does not include computers or devices issued to employees (e.g., smartphones, tablets, wearables, laptops) or prewritten computer software. Starting July 1, 2024, taxpayers claiming the exemption must pay 10% of all state and local sales and use tax on the first $15 million of computer equipment purchased each year for which the exemption is claimed. Taxpayers making a tax-free purchase would report and remit the tax to the GA DOR on the sales and use tax return due after the purchase. Taxpayers claiming the exemption by refund would receive 90% of the tax imposed on the first $15 million of eligible purchases for which the exemption is claimed. Proposed amendments would also (1) describe how to calculate the $15 million threshold, (2) amend and repeal various definitions, and (3) set forth reporting requirements that a taxpayer claiming the exemption must comply with. Ga. Dept. of Rev., Notice SUT-2025-001: "Proposal to Adopt Rule 560-12-2-.107" (June 2, 2025).

Hawaii: New law (SB 1396) increases the transient accommodations tax rate for transient accommodations and resort time shares to 11% (from 10.25%). The law also imposes an 11% transient accommodations tax on gross rental or gross rental proceeds from cruise fares. The tax imposed on all such gross rental proceeds is prorated by the percentage of days docked at any port in Hawaii compared to the total number of days of the voyage. The law defines "cruise fare" as "the total amount paid by a transient for a cruise ship cabin on a cruise ship, inclusive of any mandatory fees imposed by a cruise ship operator, owner, or representative … on a transfer for the use of shipboard, services, facilities, meals, and onboard entertainment beyond the mandatory fee amount." Following this law change, the Hawaii Department of Taxation (HI DOT) discussed the rate changes and expansion of the tax to include cruise ships. The HI DOT explained that determining the proper transient accommodations tax will depend on the taxpayer's accounting method (cash basis or accrual basis) and when the gross rental or gross rental proceeds are actually or constructively received. Haw. Laws 2025, Act 96 (SB 1396), signed by the governor on May 27, 2025; see also, Haw. Dept. of Taxn., Announcement No. 2025-03 (June 9, 2025).

Massachusetts: In recently issued Directive 25-1, the Massachusetts Department of Revenue (MA DOR) addressed the application of the state's sales and use tax to cable converter boxes, set-top boxes, and cable system terminal devices that connect a cable system to a television (TV) or other equipment designed to receive broadcast TV pictures. Previously issued Directive 08-5 concluded that sales and rentals of cable TV converter boxes to Massachusetts cable TV customers were exempt from sales and use taxes. The converter boxes at issue functioned only for the purpose of receiving programming or information from the cable provider or implementing parental controls or required for on-demand or premium cable programming. In Directive 25-1 the MA DOR said that the sale or rental of a device that can do more than connect a cable system to a TV broadcast receiver does not qualify for the exemption because such device is not used exclusively in the operation of commercial television transmission. Devices that can perform such other functions include those that enable on-demand video rentals, game play, recording, storage, program playback, and access to third party software applications. Mass. Dept. of Rev., Directive 25-1: Taxation of Sale or Rental of Cable Television Converter Boxes, Set-top Boxes, Cable System Terminal Devices, and Other Similar Devices (June 13, 2025).

New Jersey: The New Jersey Division of Taxation (NJ DOT) posted to its website information on the application of sales tax to tariffs. The NJ DOT said that when a seller passes the cost of a tariff to the consumer/purchaser, the charge is subject to the state's sales tax as part of the taxable sales price. Tax applies even if the tariff is separately stated to the purchaser. "Sales price," the NJ DOT explained, is the total amount of consideration for which personal property or services in sold, leased, or rented, without any deduction for "[t]he cost of materials used, labor or service cost, interest, losses, all costs of transportation to the seller, all taxes imposed on the seller, and any other expense of the seller … " N.J. Div. of Taxn., "Sales Tax Treatment of Tariff Mark Ups" (last updated May 20, 2025).

Oklahoma: New law (SB 1112) modifies county lodging and municipal lodging taxes to exclude from gross receipts or gross proceeds subject to tax any discounts or the provision of lodging or rooms at no charge to the customer or employee when the seller does not receive any consideration or reimbursement from a third party. SB 1112 takes effect on January 1, 2026. Okla. Laws 2025, SB 1112, became law without the governor's signature on May 15, 2025.

South Carolina: New law (HB 3800) modifies the sales tax exemption on durable medical equipment (DME) by deleting an eligibility requirement that the DME and related supplies be sold by a provider whose principal place of businesses is located in South Carolina. As revised, the seller is required to have a South Carolina retail sales license. In Information Letter # 25-10, the South Carolina Department of Revenue said that in light of this change, as of May 12, 2025, both out-of-state and in-state sellers of DME may seek the sales and use tax exemption for DME under S.C. Code Section 12-36-2120(74), provided that all other requirements of the exemption are met. The SC DOR noted that the Act does not have a retroactive effect. S.C. Laws 2025, Act 45 (HB 3800), signed by the governor on May 12, 2025; see also, S.C. Dept. of Rev., Information Letter #25-10 (June 2024).

Texas: The Texas Comptroller of Public Accounts (Comptroller) issued an updated 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 October 1, 2025." The October 1 application date is a change from July 1, 2025 application date previously provided in Star No. 202505004M (May 16, 2025). The Comptroller noted that some materials that were previously determined to be nontaxable may be treated as taxable, processed materials after October 1, 2025, 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 October 1, 2025 and for periods on or after October 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. 202506001M (June 13, 2025).

Washington: In response to the enactment of SB 5814, provisions of which make live presentations a retail sale subject to the state retail sales tax and retailing business and occupation tax, the Washington Department of Revenue (WA DOR) issued an interim statement regarding the taxability of live presentations for schools and institutions of higher education. The WA DOR said that public and private elementary and secondary schools that provide lectures, seminars, workshops, courses or other programs are not considered to be engaged in providing live presentation and charges made by these schools for such programs are not retail sales. Similarly, institutions of higher education are not considered to be engaged in live presentations for educational programs encompassed within the institution's accreditation. Thus, charges made by these institutions for lectures, seminars, workshops, course or other programs are not retail sales if encompassed within the institution's accreditation. Both the schools and the institutions, however, may owe sales tax on live presentations they purchase from third parties. The interim statement includes several examples. The WA DOR noted that this interim statement does not address whether electronically transferred presentations may be considered a sale of digital automated services that may be subject to an exclusion. It also said that this interim statement will remain in effect until it issues final guidance or if new legislation is enacted. Wash. Dept. of Rev., "Interim Statement regarding live presentations for schools and institutions of higher education" (June 9, 2025).

BUSINESS INCENTIVES

Colorado: New law (HB 25-1021) creates tax incentives for businesses that convert to an employee-owned business. A business owner that establishes a qualified employee-owned business may deduct from its income tax any qualified capital gains realized during the tax year of a qualified sale of a qualified business. The law defines a "qualified sale" as "the conversion to a qualified employee-owned business; except that the conversion must be by an increment of at least … [20%] of the total ownership of the entire qualified employee-owned business." The law also allows worker-owned cooperatives to deduct from its taxable income an amount equal to its federal taxable income, not to exceed $1 million. The law (1) extends through 2031 (from 2026) the Employee Ownership Tax Credit (EOTC); (2) provides an EOTC for up to 75% of the conversion costs of a business that converts to a worker-owned cooperative, an employee stock ownership plan, or an employee ownership trust; and (3) for purposes of the EOTC, modifies definitions of "employee ownership trust" and "qualified employee-owned business" and adds definitions of "corporate headquarters," "qualified support entity" and "support costs." The law also creates the qualified support entity income tax credit. The credit is refundable and may be claimed by an entity that assist in converting a qualified business to an employee-owned business. The amount of the credit equals 75% of support costs but not to exceed $167,000 per tax year. The amount of tax credit available is capped at $10 million for tax years 2022 through 2025 and $2 million for tax years 2026 through 2031. A support entity may claim only one credit per tax year. The deductions and incentives may be taken in income tax years beginning on or after January 1, 2027 but before January 1, 2038. HB 25-1021 takes effect on August 6, 2025. Colo. Laws 2025, ch. 311 (HB 25-1021), signed by the governor on May 30, 2025.

Georgia: New law (HB 129) renews tax credits for postproduction expenditures. The credit, which had sunset January 1, 2023, will be available for tax years beginning on or after January 1, 2026 and before January 1, 2031. The amount of credit available is capped at $10 million. Ga. Laws 2025, Act 251 (HB 129), signed by the governor on May 14, 2025.

Indiana: New law (HB 1007) creates the small modular nuclear reactor manufacturing expense tax credit, effective for tax years beginning after December 31, 2024. The amount of credit available is 20% of the amount of a taxpayer's qualified investment (i.e., a taxpayer's expenditures incurred in the manufacture of a small modular nuclear reactor in Indiana). The taxpayer may claim the credit against their state tax liability in the tax year in which they make a qualified investment. Excess credit may be carried forward; excess credit may not be carried back or be refunded. Taxpayers will claim the credit on their annual state tax return in the manner prescribed by the Indiana Department of Revenue. Ind. Laws 2025, Pub. Law 217 (HB 1007), signed by the governor on May 6, 2025.

Iowa: New law (SF 657), effective for tax years beginning January 1, 2026, replaces the current research activities tax credit for individual and corporate income taxpayers with a new R&D tax credit program. The new R&D tax credit program, administered by the Iowa Economic Development Authority (IEDA), will provide tax credits to eligible businesses that incur qualified research expenses in Iowa for tax years beginning on or after January 1, 2026. SF 657 defines eligible expenditures as qualified research expenses under IRC Section 41 to the extent the expenditures occurred in Iowa. SF 657 caps the total credits that IEDA can issue in a fiscal year at $40 million. The IEDA may approve and issue a tax credit certificate to qualified businesses for up to 3.5% of eligible expenditures. The credit will be claimed by the business in the tax year immediately following the tax year in which the eligible expenditures were incurred.

SF 657 also makes the R&D tax credit refundable for credits that exceed a business's tax liability or allow taxpayers to use the refundable portion creditable in the following year, and prohibits the R&D tax credit from being transferred. A qualified business may claim the tax credit for up to five years, with recertification available upon application to the IEDA. A qualified business is required to apply to the IEDA each year during the five-year period the business is qualified for the tax credit to seek review by a certified public accountant for eligible research expenditures. SF 657 specifies that the tax credit is available to businesses actively engaged in qualified research and development primarily engaged in advanced manufacturing, bioscience, insurance and finance, and technology innovation. Business sectors that are not eligible for the tax credit, including agriculture producers, contractors, finance or investment companies, retailers, wholesalers, transportation companies, ethanol biorefineries, agricultural cooperative associations, real estate companies, collection agencies, accountants, architects, and publishers.

SF 657 also allows the IEDA to reduce or eliminate some or all of the financial assistance it has awarded to entities that experienced a business closure or mass layoff for which notice is required under Chapter 48C. This provision applies to an entity awarded a tax incentive or other financial assistance under any program administered by the authority. Iowa Laws 2025, SF 657, signed by the governor on June 6, 2025. For additional information on this development, see Tax Alert 2025-1123.

Montana: New law (SB 326) extends film tax credit under the Montana Economic Development Industry Advancement (MEDIA) Act through December 31, 2045 (from December 31, 2029). The Act is expanded by providing a credit equal to 30% of compensation paid per production or season of a television series to each crew or production staff member who is a Montana resident veteran of the US military or an enrolled member or descendant of an Indian tribe not to exceed a $150,000 credit for each person. The law also modifies the definitions of "qualified production" and "qualified production activity" and adds a definition of "qualified Montana facility." SB 326 took effect on approval and it applies retroactively to income tax years beginning on or after January 1, 2025. Mont. Laws 2025, ch. 598 (SB 326), signed by the governor on May 12, 2025.

Oklahoma: New law (HB 2110) establishes the Bringing Sitcoms Home from Hollywood Pilot Program Act (the Act), which creates an incentive rebate program for live audience episodic series that are filmed or produced in Oklahoma. The aggregate amount of rebate available in a fiscal year is capped at $10 million. The law sets forth eligibility requirements as well as the amount of credit available. The rebate program will be administered by the Oklahoma Department of Commerce and the Oklahoma Tax Commission. HB 2110 takes effect on November 1, 2025. The provisions of the Act terminate on July 1, 2032. Okla. Laws 2025, HB 2110, became law without the governor's signature on May 25, 2025.

PROPERTY TAX

Indiana: New law (HB 1427) creates a property tax exemption for the gross assessed value of tangible property attributable to such property owned and used by an employer (or a parent, subsidiary or affiliate company) to provide child care for the employer's employees. To qualify for the exemption, the following must be met: (1) the child care is provided at a facility located on the employer's property; (2) the child care is provided only for the children of the employees' of the employer, with an exception for certain children of another business; (3) the child care facility is licensed by the Division of Family Resources; and (4) a portion of the employer's property used to provide child care meets specified child care standards. The child care facility may be operated by the employer or under a contract described in IRC Section 45F(c)(1)(A)(iii) to provide child care services to the employer's employees. This provision takes effect on January 1, 2026. Ind. Laws 2025, P.L. 230 (HB 1427), signed by the governor on May 6, 2025.

Texas: Proposed constitutional amendment, HJR 1, would authorize the Texas legislature to exempt from ad valorem taxes a portion of the market value of tangible personal property a person owns that is held or used for the production of income. This constitutional amendment will be submitted to voters during the election to be held on November 4, 2025. HJR 1 was approved by the General Assembly and filed with the Secretary of State on May 20, 2025.

If HJR 1 is approved by voters, HB 9 would exempt from ad valorem tax $125,000 of the appraised value of tangible personal property held or used for the production of income and has taxable situs at the same location as the taxing unit. The exemption would apply to each separate location in a taxing unit in which the person holds such tangible personal property. The ad valorem tax exemption also would be available to a person who leases tangible personal property. The exemption would apply to $125,000 of the total appraised value of all the tangible personal property the person owns that is held or used for the production of income and is subject to a lease, regardless of where such property is located in the taxing unit. Notwithstanding these provisions, the exemption would apply if the property had a taxable situs within the taxing unit at any location that is not owned or leased by the owner, regardless of where such property is located in the taxing unit. If the person is a related business, the person's property would be aggregated with the property that has a taxable situs at the same location in the taxing unit and that is owned by each other related business entity that is part of the same unified business enterprise to determine taxable value for the entity. Additionally, a person would be required to render tangible personal property they own that is held or used for the production of income if, in their opinion and as applicable: (1) the aggregate market value of the property that has a taxable situs in the same location in at least one taxing unit that participates in the appraisal district (taxing unit) is greater than the exempted amount, or (2) the aggregate market value of the property in at least one taxing unit is greater than the exempted amount. A person who elects not to render property would have to file a rendition statement or property report. The law describes the information that must be included in the rendition statement. The provisions of HB 9 would apply to ad valorem taxes imposed for a tax year beginning after January 1, 2026 only if HJR 1 is approved by voters. Tex. Laws 2025, HB 9, signed by the governor on June 12, 2025.

Texas: New law (HB 22) exempts all intangible personal property from ad valorem taxation starting in 2026. Generally, intangible personal property is exempt from ad valorem tax, except certain intangible personal property owned by insurance companies (governed by Article 4.01 of the Insurance Code) or savings and loan associations (governed by Section 89.003 of the Finance Code). HB 22 deletes this exception to the general exemption. This change applies to ad valorem tax years beginning on or after January 1, 2026.

Vermont: New law (HB 493) changes the repeal date of the telephone personal property tax under 32 V.S.A. Section 8521 from July 1, 2025 to July 1, 2026. The final monthly installment payment for this tax, which is levied on the net book value of the taxpayer's personal property as of December 31, 2025, is due by July 25, 2026. Starting in fiscal year 2026 (from 2025), the law provides that the Division of Property Valuation and Review of the Department of Taxes and all communications service providers with taxable communications property in Vermont will be subject to the inventory and valuation provisions in 32 V.S.A. Section 4452. Certain communications property tax provisions that were set to take effect on July 1, 2025 will now take effect on July 1, 2026 and apply to grand lists lodged on or after April 1, 2026 (from April 1, 2025). These changes take effect retroactively to March 31, 2025. Vt. Laws 2025, Act 27 (HB 493), signed by the governor on May 21, 2025.

CONTROVERSY

Georgia: New law (SB 141) extends the period in which to file a protest of a denied refund claim or a proposed assessment or license fee to 45 days (from 30 days) from the date of the notice of a refund denial or a proposed assessment or fee. When the commissioner is required by law to provide the taxpayer with an opportunity to appeal an assessment, the assessment of tax or license fee will become final if no written appeal is filed by the taxpayer within 45 days (from 30 days) of the date of the assessment notice. A taxpayer also will have 45 days (from 30 days) from the date of the commissioner's decision to file a petition with the Georgia Tax Tribunal or superior court. Taxpayers seeking use of an alternative apportionment method will have 45 days (from 30 days) to appeal a denial of petition to use the alternative method. In regard to reporting a federal income tax adjustment, the law defines "final determination date" as "the day on which the amended return, refund claim, administrative adjustment request, or other similar report was filed." SB 141 takes effect on July 1, 2025. Georgia laws 2025, Act 290 (SB 141), signed by the governor on May 14, 2025.

Georgia: New law (HB 392) changes the date the Georgia Tax Court will begin accepting cases and the date cases pending in the Georgia Tax Tribunal will automatically transfer to the Georgia Tax Court. Beginning July 1, 2026 (changed from August 1, 2026) persons may petition the Georgia Tax Court for relief. All contested cases pending before the Georgia Tax Tribunal as of June 30, 2026 will automatically transfer to the Georgia Tax Court on July 1, 2026. (Under prior law, cases pending before the Georgia Tax Tribunal on and before December 31, 2025 and cases in which any party made a written demand for a hearing before August 1, 2026, would not be transferred to the Georgia Tax Court.) The Georgia Tax Court must establish rules for the automatic transfer of any written petitions filed with the Georgia Tax Tribunal on or after July 1, 2026 but before December 31, 2026. Petitioners who have a case pending before the Georgia Tax Tribunal and do not want their case automatically transferred to the Georgia Tax Court have until December 31, 2025 to make a written demand to the Georgia Tax Tribunal not to transfer the case. If a case that is not transferred at the request of the petitioner is not resolved by June 30, 2026, it will be dismissed. HB 392 takes effect on July 1, 2025. Georgia laws 2025, Act 263 (HB 392), signed by the governor on May 14, 2025.

Oregon: New law (HB 2119) gives an association or organization (collectively, "association") standing to seek declaratory relief in the Oregon Tax Court (court). Standing will be granted if: (1) at least one member of the association is adversely affected or aggrieved by the subject of the requested declaration; (2) the interests the association seeks to protect are germane to the association's purpose; and (3) the nature of the claim and the relief requested does not require that the members of the association who are adversely affected or aggrieved participate in the proceedings before the court. HB 2119 takes effect on January 1, 2026. Ore. Laws 2025, ch. 250 (HB 2119), signed by the governor on May 28, 2025.

PAYROLL & EMPLOYMENT TAX

Alabama: On June 4, 2025, the Alabama Department of Revenue (DOR) announced that the exemption of qualified overtime wages from Alabama state income tax and withholding ends on June 30, 2025. Thus, effective July 1, 2025, any amounts paid or received for overtime compensation is subject to Alabama income tax and withholding. To support employer calculations of the overtime exemption, the DOR requires that Alabama employers provide monthly and quarterly overtime wage data. This reporting obligation no longer applies once the final exempt overtime wages are reported. Because the overtime pay exemption applied from January 1 to June 30, 2025, Alabama employers will continue to be required to report the exempt overtime wages an employee earned in Box 14 of the 2025 Alabama Form W-2 with the label "EX OT Wages." Exempt overtime wages are excluded from the amount reported in Box 16 of the Alabama Form W-2. For additional information this development, see Tax Alert 2025-1234.

Kansas: New law (SB 269) retroactive to January 1, 2025, allows for decreases in the personal income tax rate if the state budget stabilization fund ("rainy day fund") is equal to or exceeds 15% of the prior fiscal year's balance. Kansas personal income tax rates currently range from 5.2% to 5.58%. S.B. 269 will, if applied, gradually lowers the 5.2% rate and the 5.58% rate until they reach 4.0%. The law directs the state's Budget Director to determine by August 15, 2025, whether an income tax rate reduction applies for tax year 2025. For additional information on this development, see Tax Alert 2025-1266.

MISCELLANEOUS TAX

Colorado: New law (HB 25-1311) for purposes of the sports betting tax, phases out the deduction for free bets placed by players that sports betting operators may take in calculating their net sports betting proceeds. On and after July 1, 2025 through December 31, 2025, the deduction is limited to 2% of the total amount of all bets placed by players with the sports betting operator or internet sports betting operator each month. The deduction is limited to 1% of such bets, effective on and after January 1, 2026 through June 30, 2026. On and after July 1, 2026, the deduction for free bets is no longer available. HB 25-1311 takes effect on August 6, 2025. Colo. Laws 2025, ch. 195 (HB 25-1311), signed by the governor on May 15, 2025.

Vermont: New law (HB 493) provides that in determining an organization's tax-exempt status, Vermont laws for tax year 2025, will follow IRC Sections 501-506 and all other federal statutory provisions and regulations as well as federal case law on determining an organization's tax-exempt status for federal tax purposes. The law also follows other federal changes affecting the implementation or interpretation of IRC Sections 501-506 between April 1, 2025 and December 31, 2025, due to any federal legislative, regulatory, judicial, administrative or executive action. This provision takes effect retroactively on January 1, 2025 and applies to tax years and periods beginning on and after January 1, 2025 and ending on or before December 31, 2025. Vt. Laws 2025, Act 27 (HB 493), signed by the governor on May 21, 2025.

Vermont: New law (HB 493) changes the repeal date of the alternative telephone gross revenues tax under 32 V.S.A. Section 8522 from January 1, 2026 to January 1, 2027. The final quarterly payment of this tax is due by January 25, 2027. Taxpayers that paid the alternative telephone gross revenues tax before its repeal will become subject to Vermont's income tax beginning with the taxpayer's first income year starting on or after January 1, 2026. Alternative tax will not be due for any period included in the taxpayer's income tax filing for tax years starting on or after January 1, 2026. These changes take effect retroactively to March 31, 2025. Vt. Laws 2025, Act 27 (HB 493), signed by the governor on May 21, 2025.

GLOBAL TRADE

Federal: On June 3, 2025, President Donald J. Trump issued a proclamation titled "Adjusting Imports of Aluminum and Steel into the United States." This proclamation follows a series of investigations conducted under Section 232 of the Trade Expansion Act of 1962, which determined that imports of steel and aluminum articles pose a threat to national security. The Secretary of Commerce had previously reported that these imports are being brought into the United States (US) in such quantities and under such circumstances as to impair national security. The proclamation builds on earlier actions, including Proclamations 9704 and 9705 (dated March 8, 2018), which imposed 25% ad valorem tariffs on aluminum and steel imports, as well as derivative articles. For additional information on this development, see Tax Alert 2025-1192. Federal: On May 31, 2025, the Office of the United States Trade Representative (USTR) announced a three-month extension of certain product exclusions from Section 301 tariffs on Chinese imports. This decision affects 164 exclusions previously extended in May 2024 and 14 exclusions granted in September 2024, including items such as solar manufacturing equipment. For more on this development, see Tax Alert 2025-1186.

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.