Ernst & Young's State and Local Tax Weekly newsletter for August 15 and August 22, 2025 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

IRS generally eliminates 5% safe harbor for determining beginning of construction for wind and solar projects

In Notice 2025-42 (Notice), released on August 15, 2025, the IRS updated the rule for determining when wind and solar projects have begun construction for purposes of qualifying for tax credits under IRC Sections 45Y (clean energy production credit) and 48E (clean electricity investment credit). The "5% safe harbor" test is generally eliminated, leaving the "physical work" test as the only way to establish that the project has begun construction. The Notice is effective for applicable wind and solar projects that have not begun construction before September 2, 2025.

Background: The "One Big Beautiful Bill Act" (P.L. No. 119-21, OBBBA) eliminated the IRC Section 45Y and 48E credits for wind and solar projects placed in service after December 31, 2027, except for projects for which construction begins within 12 months of July 4, 2025 (see Tax Alert 2025-1434).

Following the legislation's enactment, President Trump issued an Executive Order (Order) on July 7, 2025, in which he directed the Department of Treasury, within 45 days of the OBBBA's enactment, to issue guidance to assure policies around the "beginning of construction" are not circumvented and to restrict the use of broad safe harbors unless a "substantial portion of a subject facility has been built." (The Order also asked for guidance implementing the OBBBA's enhanced foreign-entity-of-concern (FEOC) restrictions, which the Notice said will be issued separately).

Previously, to establish the beginning of construction, taxpayers could demonstrate that construction has begun by either: (1) starting "physical work of a significant nature" (the physical work test) or (2) paying or incurring 5% or more of the total cost of the facility (the 5% safe harbor test). In addition, taxpayers had to demonstrate either continuous construction or continuous efforts (the continuity requirement).

Physical work test: The Notice generally eliminates the 5% safe harbor test for making the beginning-of-construction determination for wind and solar facilities. Instead, the Notice states that the sole method of determining beginning of construction is the physical work test, which requires the start of physical work of a significant nature and requires a continuous program of construction. Whether physical work of a significant nature has begun before July 5, 2026, will depend on the relevant facts and circumstances.

According to the Notice, the physical work test is evaluated by the nature of the work performed, not the amount or cost. Work that is performed off-site or on-site, either by the taxpayer or by another person under a binding written contract, may be taken into account in making this determination.

Off-site work: Off-site physical work of a significant nature may include "the manufacture of components, mounting equipment, support structures such as racks and rails, inverters, and transformers (used in electrical generation that step up the voltage to less than 69 kilovolts) and other power conditioning equipment."

On-site work: The Notice contains a non-exclusive list of examples of what constitutes on-site work for wind and solar facilities. For example, for a wind facility, on-site physical work of a significant nature "begins with the beginning of the excavation for the foundation, the setting of anchor bolts into the ground, or the pouring of the concrete pads of the foundation." Construction could also begin when components are manufactured off-site, but only if the work is done under a written binding contract and the components are not in (or not normally held in) the manufacturer's inventory.

Preliminary activities: The Notice specifies that physical work of a significant nature does not include preliminary activities, even if their cost is included in the facility's depreciable basis. Preliminary activities generally include planning, securing financing, researching, and obtaining permits and licenses, among other examples.

Continuous program of construction: Taxpayers must maintain a continuous program of construction to satisfy the physical work test for wind and solar facilities. This means continuing physical work of a significant nature, either under the continuity safe harbor or the relevant facts and circumstances.

The Notice contains a non-exclusive list of construction disruptions that would not result in a taxpayer failing to satisfy the continuity requirements, such as delays due to severe weather conditions, obtaining permits or licenses, the manufacture of custom components and/or financing. Whether an excusable disruption has occurred is determined in the calendar year during which the facility is placed in service. For a project comprised of multiple facilities, an excusable disruption is determined in the calendar year during which the last of the facilities is placed in service.

The continuity safe harbor was effectively retained and applies if the facility is placed in service no more than four calendar years after its construction began (the excusable-construction-disruption rules do not apply to the safe harbor). This requirement generally prevents the potential unintended acceleration of tax credit eligibility and helps ensure that each eligible project makes ongoing, continuous progress.

Low output solar facility: The 5% safe harbor can only be used for low output solar facilities that begin construction before July 5, 2026. The Notice defines a low output solar facility as having a maximum net output of not greater than 1.5 megawatt (MW) (as measured in alternating current). The Notice details how to determine which property is included in the facility and how to measure the output. For purposes of the 1.5MW maximum, it measures the nameplate capacity of two or more applicable solar facilities having integrated operations in the aggregate.

Other factors: The Notice also details how to evaluate the various factors that are included in making beginning-of-construction determinations, including whether the: (1) work is performed under contract, (2) facility is qualified under IRC Sections 45Y or 48E, (3) property is integral to the facility, (4) 80/20 rule for retrofitted facilities applies, and (5) facility was transferred after construction began.

For additional information on this development, see Tax Alert 2025-1709.

INCOME/FRANCHISE

Missouri: The Missouri Department of Revenue (MO DOR) adopted amendments to regulation 12 CRS 10-2.436 "SALT Parity Act Implication," to provide guidance on the opt-out election. Under the opt-out election, any member of an affected business entity (i.e., a partnership or S corporation (collectively, entity) that elects to be taxed at the entity level) may elect to not have tax imposed on the affected business entity with respect to the entity's separately and nonseparately computed items, to the extent such items are allocable to that member. The election to opt out by a member (i.e., an opt out member) must be filed with the MO DOR by the earlier of the original (unextended) due date, or the actual filing date, of Form MO-PTE for the tax year. The opt-out member also must furnish the opt-out election to the entity. Once an opt-out election is filed, it applies to the tax year for which it was first timely filed and for all subsequent tax years; an opt-out member, however, may revoke such election. Revocation of an opt-out election applies to the tax year for which the revocation was first timely filed and subsequent tax years. For any year the opt-out election applies, the opt-out member is not eligible for tax credits that would have otherwise been granted. The credits will be redistributed among the non-opt-out members. In addition, for a tax year in which the opt-out election applies, the entity in computing tax due, must remove the opt-out members' allocable items such as income, deductions or any other relevant items. Addition and subtraction modification are determined as though the opt-out member's allocable items did not exist. The amended regulation takes effect 30 day after publication in the Code of State Regulations. Mo. Dept. of Rev., adopted regulation 12 CRS 10-2.436 (Mo. Register, Vol. 50 No. 16, Aug. 15, 2025). The amendments were adopted as proposed (Mo. Register, Vol. 50 No. 9, May 1, 2025).

Puerto Rico: New law (Act 65-2025 (the Act)), enacted on July 17, 2025, amends various sections of Puerto Rico's Internal Revenue Code (PR Code), the General Law of Corporations and Municipal Code, among others. The Act allows single member limited liability companies (SMLLCs) to elect disregarded entity status regardless of the owner's residency starting after December 31, 2023. (Before the Act, LLCs could elect to be treated as pass-through entities or disregarded entities for tax years beginning after December 31, 2021; however, the disregarded entity election was only available to certain LLCs.)

The Act modifies the definition of engaged-in-a-Puerto-Rico-trade-or-business and clarifies the remote worker exception. The determination of whether a foreign entity is engaged in trade or business within Puerto Rico (ETBPR) for income tax purposes is based on the entity's facts and circumstances. The Act modifies the PR Code by stating that an entity selling inventory in Puerto Rico is ETBPR. The amended statute also requires the local activities to be considerable, continuous and regular, taking into account the nature of the business activities of the person in and outside Puerto Rico. Additionally, the Act amends the remote worker rules. In 2022, Puerto Rico created an exception to the definition of being ETBPR to prevent remote workers in Puerto Rico from creating income tax nexus for their employer, provided certain requirements are met. The Act clarifies that not having an office or fixed business location is not impacted by the remote worker's residence. The Act also clarifies that a remote-worker determination does not affect whether the taxpayer is a merchant under Section 4010.01(h) of the PR Code.

The Act modifies the calculation for determining the income subject to the alternative minimum tax (AMT). Under the new legislation, taxpayers must exclude from their income the total amount received as dividends from domestic corporations, foreign corporations or corporations covered under an exemption decree in the Incentives Code or any law of a similar nature, up to the amount that has not been included in net income for regular tax purposes. For tax years beginning after December 31, 2024, the Act allows a deduction for bank charges and processing fees for electronic transactions when calculating the AMT, provided these charges are reported on an informative declaration. Furthermore, the Act eliminates the requirement for taxpayers using the accrual method or fiscal year-end to include with the income tax return a reconciliation of expenses between amounts reported in their books and those in the informative returns. Instead, taxpayers should maintain the reconciliation in their records.

For additional information on this development, including a discussion of the optional tax for the performance of services, the limitation on the use of the cash-basis accounting method, alternate basic tax applicable to individuals and various changes to reporting requirements, see Tax Alert 2025-1732.

Texas: In a recently issued memo, the Comptroller of Public Accounts provides guidance on the treatment of sales-type leases for purposes of determining the applicable franchise tax rate and eligible expenses for the cost of goods sold (COGS) deduction. The Comptroller stated that "[f]or purposes of determining qualification for the reduced franchise tax rate … as well as calculating eligible expenses … the terms 'sale,' 'selling,' and 'sold' include arrangements that qualify as sales-type leases under Financial Accounting Standard (FAS) 13." Under FAS 13, a sales-type lease must satisfy certain criteria and, in determining "[w]hether a lease agreement constitutes a sales-type lease is a question of fact, requiring the auditor to compare the lease terms to the requirements in FAS 13." The Comptroller further explained that sales-type leases are considered a sale for purposes of determining eligibility for the reduce franchise tax rate and tangible personal property transferred under a sales-type lease is considered goods sold when computing the COGS deduction. Tex. Comp. of Pub. Acct., STAR No. 202507015M (July 31, 2025).

SALES & USE

Georgia: The Georgia Department of Revenue recently adopted amendments to Rule 560-13-2 "State Hotel-Motel Fee." The amended rule adds a definition for "accommodation," defining it as "the 'retail sale' … of any room or lodging that is furnished for value to the public and provides physical shelter." Amendments also modify the definition of "innkeeper" and "imposition," delete the definitions of "hotel" and "hotel room," and add definitions for "marketplace innkeeper" and "marketplace seller." The amended rule explains the hotel-motel fee liability for innkeepers, customers, marketplace sellers, marketplace innkeepers and third parties. In general, the lease or rental of an accommodation is subject to the fee only if it is provided by the innkeeper; a marketplace innkeeper is an innkeeper and must remit the fee even if the owner who they are facilitating the sale for is not an innkeeper. The fee also is imposed on rental charges collected by a marketplace innkeeper for leases and rentals of accommodations it facilitates on behalf of a marketplace seller. A marketplace innkeeper may be relieved of liability for failure to collect and remit the fee in limited situations; when a marketplace innkeeper is relieved of liability, the marketplace seller is liable for the uncollected fee. Third parties that make reservations on behalf of customers must remit all hotel-motel fees it collects. The rule discusses exemptions and exclusions, extended stay rentals, guaranteed no-show revenue, applicable penalties and interest, vendors' compensation, the limitation period for assessment of the state hotel-motel fees, and refunds. The amended rule includes examples. Amended Rule 560-13-2 was adopted July 17, 2025 and took effect on August 6, 2025.

Georgia: The Georgia Department of Revenue (GA DOR) adopted amendments to Rule 560-12-2-.107, the sales tax exemption for computer equipment. The Rule was amended to conform with statutory changes enacted in 2022 (HB 1291). "Computer equipment" is defined as "any individual computer or organized assembly of hardware or software … ." The amended rule list items that are "computer equipment," including, but not limited to: server farms, mainframe or midrange computers, mainframe driven high-speed print and mailing devices, and workstation connected to those devices through a high bandwidth connectivity. "Computer equipment," starting in 2001, excludes 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, computer equipment also excludes computers or devices issued to employees (e.g., smartphones, tablets, wearables, laptops) and 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 must 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 will receive 90% of the tax imposed on the first $15 million of eligible purchases for which the exemption is claimed. Adopted amendments also describe how to calculate the $15 million threshold, and it sets forth reporting requirements that a taxpayer claiming the exemption must comply with. Amended Rule 560-12-2-.107 was adopted on August 18, 2025 and takes effect on September 7, 2025.

Indiana: In response to a ruling request from a company regarding the taxability of its sales of generative artificial intelligence (AI) services, the Indiana Department of Revenue (IN DOR) determined that the chatbot AI, which is offered to customers through the web or application programing interface (API), is considered a service and not subject to sales and use tax. In so finding, the IN DOR explained that because the AI is accessed electronically and customers do not have a permanent ownership of the chatbot, the AI would not be subject to sales tax. Further, the chatbot AI service is not subject to sales tax "as it does not meet the definition of prewritten software or specifically enumerated digital products." Ind. Dept. of Rev., Revenue Ruling # 2025-02-RST (July 23, 2025).

Louisiana: The Louisiana Department of Revenue (LA DOR) issued updated guidance on the application of sales and use tax on digital products and related services. Starting January 1, 2025, Louisiana state and local sales and use tax is imposed on the sale or use of digital products, prewritten computer access services and information services. The LA DOR noted that some products and services that fall within the definition of digital products may have been taxable under pre-2025 law. The guidance: (1) includes definitions of digital products, software, and non-digital products; (2) describes taxable, non-taxable and professional services, taxable digital services, prewritten computer software access services, and information services; (3) discusses exemptions and exclusions for digital products and services; and (4) other topics such as sourcing sales of digital products, bundled transaction, sales price of digital products, and sales of digital products and services before 2025. La. Dept. of Rev., "Sales and use tax on digital products and related services" (updated August 2025).

Maine: New law (LD 936) provides a sales tax refund for purchases or leases of depreciable machinery or equipment for use in commercial mining. In addition, a purchaser will not have to pay sales tax on purchases of electricity, fuel or machinery or equipment if the purchaser has received from the assessor a certificate stating that the purchaser is engaged in commercial mining. To qualify for the exemption, the electricity, fuel or depreciable machinery and equipment must be used directly in commercial mining. In addition, the law expands the definition of "depreciable machinery and equipment" to include "new or used machinery and equipment for use directly and primarily in commercial mining." These provisions apply to purchases made on or after January 1, 2026. Maine Laws 2025, ch. 469 (LD 936), signed by the governor on July 1, 2025.

BUSINESS INCENTIVES

Connecticut: New law (HB 5004) allows the commissioner in considering an application under the JobsCT tax rebate program to give a preference to applications that: (1) make significant investments in environmentally sustainable practices including zero-carbon energy and energy efficiency; (2) are in the renewable energy, zero-emission vehicles and energy efficiency economic sectors; or (3) are for sustainable farming operations. This change took effect July 1, 2025. Conn. Laws 2025, Pub. Act 25-125 (HB 5004), signed by the governor on July 1, 2025.

Maine: New law (LD 146) increases the maximum amount of the historic property rehabilitation tax credit that may be claimed during a year. For tax years beginning on or after January 1, 2025, the maximum amount of the credit allowed in the first year it may be claimed may not exceed the greater of: (1) $10 million for the portion of a certified rehabilitation placed in service in Maine in the tax year, and (2) $10 million for each building that is a component of a certified historic structure for which a credit is claimed. In the second year the credit may be claimed, the amount of credit claimed may not exceed the greater of: (1) $10 million minus the credit allowed in the first year for the portion of a certified rehabilitation placed in service in Maine in the tax year, and (2) $10 million minus the credit allowed in the first year for each building that is a component of a certified historic structure for which a credit is claimed. In the third and subsequent years the credit may not exceed the greater of: (1) $5 million for the portion of a certified rehabilitation placed in service in Maine in the tax year, and (2) $5 million for each building that is a component of a certified historic structure for which the credit is claimed. Maine Laws 2025, ch. 444 (LD 146), signed by the governor on July 1, 2025.

Maine: New law (LD 125) increases the total amount of credits that may be claimed under the Maine Seed Capital Tax Credit Program to $10 million (from $5 million) starting with investments made in calendar years beginning in 2027. Maine Laws 2025, ch. 442 (LD 125), signed by the governor on July 1, 2025.

New Jersey: New law (S. 3189) makes various modifications to the New Jersey Angel Investor Tax Credit. The amount of credit allowed is increased from 20% to 35% of the qualified investment made by the taxpayer in a New Jersey emerging technology business; with an increase from 25% to 40% if the taxpayer's investment satisfies additional requirements (such as being located in an opportunity zone or low-income community, being a minority or women's business, or if a qualified venture fund commits to invest 50% of its funds in diverse entrepreneurs). The law also reduces the maximum number of employees that a business may employ in order to qualify for the credit from "fewer than 225 employees" to "fewer than 150 employees." Lastly, the law reduces the aggregate amount of credit that may be approved by the New Jersey Economic Development Authority in any calendar year from "$35 million" to "$25 million plus the value of any unused tax benefits from the Technology Business Tax Certificate Transfer Program in the immediately preceding State fiscal year." S. 3189 took effect immediately and applies to any Angel Investor Tax Credit applications that are approved for tax years and privilege periods beginning on or after January 1 of the year following the date of enactment (i.e., January 1, 2026). N.J. Laws 2025, ch. 71 (S. 3189), signed by the governor on June 30, 2025.

New Jersey: New law (A. 5687) establishes the Next New Jersey Manufacturing Program, which will be administered by the New Jersey Economic Development Authority (EDA). The intent of the program is "to attract new investment to New Jersey in key industries, create new jobs and economic opportunities, and position New Jersey as a leader in the manufacturing economy." The board of the EDA may approve the credits to an eligible business upon application of the business's chief executive officer (or an equivalent officer) and the payment of specified fees. To be eligible for the credit, an eligible business must: (1) make, acquire or lease a capital investment at a qualified business facility of at least $10 million; (2) create at least 20 new full-time jobs in New Jersey; (3) provide a median salary for the full-time jobs at the qualified business facility that is at least 120% of the median salary for manufacturing employees in the county in which the project is located; (4) be primarily engaged in manufacturing or clean energy manufacturing at the qualified business facility; (5) enter into a collaborative relationship with New Jersey colleges, universities, high schools or workforce development organizations (this relationship is evidenced by providing opportunities for workforce hiring, training, apprenticeship or other measures); (6) be in compliance with minimum environmental and sustainability standards; among other requirements.

A tax credit under this program will not be awarded to a business that has received a tax credit under the Business Retention and Relocation Assistance Act, the Business Employment Incentive Program Act, Grow New Jersey Assistance Act, Emerge Program Act, Next New Jersey Program Act, relating to the same capital investment and employees. An application for the credit may be submitted on or after August 13, 2025, but before March 1, 2029. An eligible business must pay the EDA the full amount of the direct costs for an analysis of the credit application. If during the eligibility period the EDA determines that the eligible business made a material misrepresentation on its application, the business will forfeit all tax credits awarded under the program. After the EDA board approves an application, the eligible business will have to enter into a project agreement (the terms of which are described by the law). The EDA may recapture all or part of a tax credit if the business does not remain in compliance with the requirements of the project agreement for the duration of the commitment period. Upon project completion an eligible business will be allowed a tax credit equal to the lesser of: (1) 0.1% of the eligible business's total capital investment multiplied by the number of new full-time jobs; (2) 25% of the eligible business's total capital investment, or (3) $150 million. The EDA may establish one or more bonus credit awards, not to exceed a total of 5% of the award approved. The eligibility criteria for the bonus credit will be established by rules and regulations.

The tax certificate holder may transfer the tax credit amount on or after the date of issuance for use by the transferee in the tax period for which it was issued, for the period it was issued or the next three successive tax periods. The tax certificate holder or transferee may carry forward unused credits for up to 10 years, after which the unused credit will expire. The law defines key terms related to the credit, including "capital investment," "clean energy product manufacturer," "commitment period," "eligibility period," "new full-time job," "project," "project agreement," "qualified business facility" and "targeted industry." A.5687 took effect immediately. N.J. Laws 2025, ch. 123 (A. 5687), signed by the governor on August 13, 2025.

New York City: New law (A. 8676) extends the existing Relocation and Employment Assistance Program (REAP) for three years, through July 1, 2028 (from July 1, 2025). The law also establishes a new incentive — the Relocation Assistance Credit Per Employee Program (RACE) — to entice out-of-state businesses to relocate to New York City (NYC). The RACE program provides an annual refundable credit against NYC taxes. The amount of the credit is determined by multiplying $5,000 per eligible employee for up to 11 years. The credit is not allowed for the relocation of retail activity or hotel services. Overall eligibility criteria includes moving operations into NYC and signing a lease/contract to purchase a premises of at least 10,000 square feet or more and if the property is in Manhattan, the final certificates of occupancy for the property were issued before 2000. A business is not eligible for the credit if it had employees assigned to premises in New York State (NYS) during the period beginning January 1, 2025, and ending on the date the business enters a lease/contract to purchase eligible premises. The business also must have been conducting substantial operations outside NYS for 24 consecutive months before the move. These provisions took effect July 1, 2025. N.Y. Laws 2025, ch. 171 (A. 8676), signed by the governor on June 26, 2025.

South Carolina: The South Carolina Department of Revenue issued a revenue ruling on the state's new jobs tax credit, including discussions of the "traditional" jobs tax credit requirements and the "annual" and "accelerated" credits provided under the small business credit provisions. The ruling addresses the following topics: (1) the types of facilities that may be eligible for the jobs tax credit; (2) the number of new jobs that must be created to qualify for the credit; (3) the definition of full-time jobs that qualify for the credit; (4) the amount of credit available, which is based on the tax year and the location of the facility; (5) the special rules for certain large investors; (6) county tier designations; (7) how credits are claimed for pass-through entities and how they are passed to the owners of the entities; and (8) small business credit provisions. The ruling also includes responses to frequently asked questions and examples. S.C. Dept. of Rev., Revenue Ruling #25-5 (July 11, 2025).

PROPERTY TAX

California: New law (AB 1516) modifies provisions related to the active solar energy system new construction exclusion. Starting January 1, 2027, the initial purchaser of a building from the owner-builder has three years from the date of purchase to file a claim for the active solar energy exclusion. An otherwise valid claim filed after the deadline will be applied prospectively, beginning on the lien date of the assessment year in which the claim is filed. Cal. Laws 2025, ch. 72 (AB 1516), signed by the governor July 28, 2025.

Connecticut: New law (SB 4), effective for assessment years commencing on and after October 1, 2025, creates a property tax exemption for Class I renewable energy sources consisting of equipment and devices that have the primary purpose of collecting solar energy and generating electricity by photovoltaic effect. The exemption only applies to equipment and devices with such primary purpose and does not apply to any real property on which such equipment and devices are located or installed. Conn. Laws 2025, Pub. Act 25-173 (SB 4), signed by the governor on July 1, 2025.

Delaware: New law (SB 203) codifies a longstanding recognition of Delaware county governing bodies to adopt separate tax rates for different classes of real property if the classification is reasonable. Tax rates for real property in the same classification must be uniform. SB 203 applies to county tax rates adopted before, on, or after August 12, 2025. Del. Laws 2025, ch. 132 (SB 203), signed by the governor on August 12, 2025.

Nebraska: The Nebraska Department of Revenue (NE DOR) issued guidance on the requirements a Housing Agency with Controlled Affiliates must satisfy to receive the property tax exemption in Neb. Rev. Stat. Section 71-1590. In order to qualify for the tax exemption on certain real and personal property, an agency and its controlled affiliates must met the following conditions: (1) the property at issue is owned by a project entity (i.e., "[a]n entity which is used by the Agency and Tax Credit Investors to structure a Low-Income Housing Tax Credit (LIHTC) Project"), with an agency being a general partner in a limited partnership (LP) or a managing member in a limited liability company; (2) the project entity meets the statutory definition of being a controlled affiliate; (3) the property is used solely for (a) the administrative offices of the Agency or its controlled affiliates, or (b) to provide housing for people and qualifying tenants; and (4) the Agency or its controlled affiliates provided notice of the exemption to the county assessor on or before December 31 of the year before the year in which the exemption is first sought. The guidance includes examples of controlled affiliates. Neb. Dept. of Rev., Directive 25-5 (August 7, 2025).

COMPLIANCE & REPORTING

Puerto Rico: New law (Act 65-2025 (the Act)) changes the due date for conduit entity returns from March 15 to March 31 for calendar-year taxpayers. For taxpayers following a fiscal year-end, the due date will be the last day of the third month following the close of the tax year. These same due dates will apply to reports to partners, composite returns and grantor trust returns. For tax years beginning after December 31, 2024, the due date for filing combined pass-through entity returns is also March 31 or the last day of the third month after the close of the fiscal year. P.R. Laws 2025, Act 65-2025, enacted on July 17, 2025. For additional information on this development, including a discussion of other tax changes made by the Act, see Tax Alert 2025-1732.

CONTROVERSY

Alabama: New law (HB 505) extends the time period in which a taxpayer has to appeal to the Alabama Tax Tribunal or the circuit court from any final assessment entered by the Alabama Department of Revenue from 30 days to 60 days, from the date of mailing or personal services, of the final assessment. This change takes effect on October 1, 2025. Ala. Laws 2025, Act 343 (HB 505), signed by the governor on May 13, 2025.

Oregon: New law (SB 799) establishes uniform statute of limitations for taxpayers to request a refund or for the Oregon Department of Revenue to adjust tax due, for taxes administered by the Department (changed from referencing specific statutory provisions). "Tax" does not include ad valorem property taxes, which are collected by counties. These changes apply to tax years beginning January 1, 2022 or later for Corporate Activity Tax and for tax years beginning on or after January 1, 2025 for all other tax programs. SB 799 takes effect on the 91st day after the date on which the 2025 regular session adjourns sine die. Ore. Laws 2025, ch. 371 (SB 799), signed by the governor on June 20, 2025.

Puerto Rico: New law (Act 65-2025 (the Act)) amends various sections of Puerto Rico's Internal Revenue Code (PR Code), the General Law of Corporations and Municipal Code, among others. The Act clarifies that amended returns or declarations will not be accepted if the taxpayer is under audit or investigation, or if the filed return has already been audited and the tax debt assessed. The Act also codifies estimated-tax-underpayment-penalty calculation for certain entities. For entities with a tax decree under Act 135-1997, Section 3A of Act 73-2008 or Section 2062.01(a)(3) and (b)(4) of Act 60-2019, the Act codifies previously issued administrative guidance establishing that the estimated tax for those entities is the lesser of: (1) 90% of the tax for the tax year, or (2) the greater of the following: (i) the total tax determined from the income tax return of the previous year, including the tax paid under Act 154-2010, or (ii) an amount equal to the tax calculated based on applicable rates and laws using data from the prior year's corporate return. In addition, tarting with tax year 2025, the Act will no longer require domestic and foreign corporations to file an annual report with the Puerto Rico Department of State. Even though the filing of a report will no longer be required, the corresponding annual charges still apply and must be paid to the Puerto Rico Department of State. P.R. Laws 2025, Act 65-2025, enacted on July 17, 2025. For additional information on this development, including a discussion of other tax changes made by the Act, see Tax Alert 2025-1732.

PAYROLL & EMPLOYMENT TAX

Multistate: The July 2025 monthly publication summarizing the latest employment tax and other payroll developments is now available. The July 2025 issue highlights developments in US federal, state and local payroll and human resources matters, and it features the insight "Exemption from nonresident income tax is not automatic under state reciprocal agreements." The July 2025 edition is available via Tax Alert 2025-1653.

Louisiana: New law (HB 567) increases the threshold for nonresident employee income tax and withholding from 25 to 30 days, effective January 1, 2026. This change allows nonresident employees to work in Louisiana for up to 30 days without triggering state income tax or employer withholding obligations. For additional information on this development, see Tax Alert 2025-1707.

Maryland: The Comptroller of Maryland has updated its income tax withholding formula to reflect recently-enacted HB 352 which, retroactive to January 1, 2025, adds two new tax brackets, increases the standard deduction and allows for a higher maximum county tax rate. Employers should implement the updated withholding formula as soon as possible. For more on this development, see Tax Alert 2025-1680.

Missouri: Governor Mike Kehoe signed into law HB 567 which, effective on and after August 28, 2025, reverses Missouri's paid sick leave requirement. In addition, effective in 2027, the law eliminates annual cost of living increases to the minimum wage. Both repealed provisions were enacted under Proposition A. For additional information on this development, see Tax Alert 2025-1657.

Wisconsin: On July 3, 2025, Wisconsin Governor Tommy Evers signed the state's budget bill, officially known as 2025 Wisconsin Act 15 (SB 45), which includes an income tax cut for middle-income individuals and income tax relief on retirement income. (Wisconsin Tax Bulletin, July 2025, Number 230.) For additional information on this development, see Tax Alert 2025-1727.

MISCELLANEOUS TAX

Connecticut: New law (SB 4) creates a municipal uniform solar capacity tax that beginning July 1, 2026 will be imposed at a rate of $10,000 per megawatt of nameplate capacity on solar photovoltaic systems. The tax is imposed annually for 20 solar capacity tax years. A "solar photovoltaic system" is equipment and devices (1) that have the primary purpose of collecting solar energy and generating electricity by photovoltaic effect; (2) that have a nameplate capacity over one megawatt in size and such nameplate capacity exceeds the load for the location where the generation is located; and (3) the owner of such equipment and devices, on or after July 1, 2026, receives permission to operate from an electric distribution company or a municipal utility furnishing electricity. For purposes of calculating nameplate capacity of a solar photovoltaic system, SB 4 lists items that are deemed to be part of the same photovoltaic system. The new tax does not apply to in-state solar facilities that are (A) located on state-owned land, brownfields, landfills, solar canopies, or residential, commercial or industrial rooftops; or (B) are part of a microgrid serving a critical facility (e.g., hospital, water and sewage treatment plants, fire and police stations). The law requires the system owner to notify the finance department/tax collector of each municipality in which the system is located of the effective date of the permission to operate; this notification must be made within seven days of receiving said permission. A municipality may require a single annual payment or semiannual or quarterly payments; the tax is due and collectible as other property taxes and subject to the same liens and collect processes. Interest will be imposed on tax not timely paid. Conn. Laws 2025, Pub. Act 25-173 (SB 4), signed by the governor on July 1, 2025.

Maine: New law (LD 936) imposes an annual excise tax on a mining company for the privilege of conducing mining in Maine, applicable to tax years beginning on or after January 1, 2026. The annual excise tax rate is 0.05 multiplied by the mining company's gross proceeds. In calculating tax due, a mining company's gross proceeds must be computed as if each mining property were separate taxpayers. If the company's property is located in Maine and other states or Canada, gross proceeds must be allocated or apportioned in a reasonable manner. A taxpayer will be required to file an amended return if the IRS changes or corrects any item on the federal return that affects the taxpayer's liability under this provision. Such amended return must be filed within 180 days from the final determination of the change or corrections or the filing of the amended return. The amended Maine return must describe the change or correction and the reason for the change or correction. The law includes provisions on accounting periods and methods of accounting and making estimated tax payments. Maine Laws 2025, ch. 469 (LD 936), signed by the governor on July 1, 2025.

Oklahoma: New law (HB 1183) modifies how the value of a vehicle is determined for purposes of the motor vehicle excise tax. Effective July 1, 2026, the value of any vehicle will be the actual sales price of the vehicle, eliminating the provision that the value of the vehicle before the subtraction of discounts or credits for trade in be within 20% of the average retail price value of such vehicle. Okla. Laws 2025, HB 1183, signed by the governor on May 21, 2025.

GLOBAL TRADE

Federal — International: United States (US) President Trump issued an Executive Order on August 6, 2025, imposing an additional 25% ad valorem duty on certain imports from India due to its indirect importation of Russian oil, increasing the cumulative additional tariff on Indian goods to 50% ad valorem. The new tariffs will take effect August 27, 2025, with specific exceptions for goods already in transit. For additional information on this development, see Tax Alert 2025-1663.

VALUE ADDED TAX

International — China: On August 11, 2025, China's Ministry of Finance and the State Administration of Taxation jointly released the draft Value-Added Tax (VAT) Law Implementation Regulations, providing key operational details for the VAT Law coming into effect on January 1, 2026. Tax Alert 2025-1729 discusses key proposed changes relevant to foreign-invested enterprises and foreign companies operating in China.

WEBCASTS

Tuesday, September 30. Domestic tax quarterly webcast series: A focus on state tax matters (1:00-2:30 p.m. ET; 10:00-11:30 a.m. PT). In the coming months, extended filing periods for the 2024 tax year will come due and the fourth estimated tax payment for the 2025 tax year will have to be made. For our third quarterly webcast in 2025, panelists will discuss state tax compliance considerations for corporations and partnerships filing their 2024 returns. They will also highlight recently enacted state tax law changes that take effect in 2025 and may impact quarterly estimated tax payments. We will round out the webcast with a discussion with select state tax desks from Illinois, Louisiana and Washington. They will describe key issues in their states as well as recent state and local legislative, regulatory and administrative direct and indirect state and local tax developments of interest to multijurisdictional entities, including state responses to the One Big Beautiful Bill Act. Register.

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.