Ernst & Young's State and Local Tax Weekly newsletter for October 10 and October 17 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

Michigan updates IRC conformity, decouples from select OBBBA provisions

On October 7, 2025, Governor Gretchen Whitmer signed into law HB 4961, which updates Michigan's date of conformity to the Internal Revenue Code (IRC) and decouples from select federal tax changes enacted by the "One Big Beautiful Bill Act" (OBBBA).¹ HB 4961 took effect immediately.

IRC conformity date: HB 4961 changes Michigan's date of conformity to the IRC for corporate and individual income tax purposes to the IRC in effect on January 1, 2025 (from January 1, 2018). The statute retains the provision that gives taxpayers the option to use the IRC in effect for the tax year.

Decoupling: For tax years beginning after December 31, 2024, for corporate income tax purposes, a taxpayer's federal taxable income (FTI) is calculated as though: (1) IRC Sections 168(k), 168(n) and 174A were not in effect; and (2) IRC Sections 163(j), 174 and 179 were in effect on December 31, 2024.

For tax years beginning after December 31, 2024, for individual income and trust and estate income tax purposes, a taxpayer's adjusted gross income (AGI) is calculated as though: (1) IRC Sections 168(n) and 174A were not in effect; and (2) IRC Sections 163(j), 168(k), 174 and 179 were in effect on December 31, 2024.

For tax years beginning after January 1, 2021, a taxpayer's FTI/AGI is calculated as if the transition rules under Section 70302 of the OBBBA, including provisions related to IRC Section 174A, do not apply.

Tip and overtime pay deduction: For tax years beginning after December 31, 2025, and before January 1, 2029, individual taxpayers can deduct from their AGI (to the extent not already deducted) an amount equal to the deduction they claimed on their federal income tax return for qualified tips under IRC Section 224 and qualified overtime compensation under IRC Section 225. Nonresidents may deduct the tips and pay only for services performed in Michigan.

For additional information on this development, see Tax Alert 2025-2077.

IRS updates list of substances subject to Superfund excise tax, time for refund claims for some exports expiring soon

The Treasury Department and IRS have published several Notices of Determination adding substances to the list of taxable substances subject to Superfund excise taxes (Notice of Determination (May 31, 2024), Notice of Determination (August 4, 2025), Notice of Determination (September 17, 2025)). Other than Polyoxymethylene, which became taxable in the fourth quarter of 2024, all the newly listed taxable substances become taxable upon import and sale on or after January 1, 2026.

Superfund taxes paid on substances that are listed in the Notices of Determination and ultimately exported are eligible for refund. The Notice of Determination listing each substance specifies how far back a taxpayer can go to claim a refund, with many eligible claims dating back to July 1, 2022. While there are basic forms for filing refund claims, the IRS is still developing procedures and documentation requirements for examining the refund claims for exported taxable substances.

The table attached in Tax Alert 2025-2080 lists the 61 newly-added taxable substances, along with the conversion factor(s), tax rate, Harmonized Tariff Schedule of the United States (HTSUS) number, and the tax effective date for each substance. Importers subject to the excise tax under IRC Section 4671(a) for selling or using these taxable substances should use this information when calculating and reporting their Superfund excise tax liability on substances imported into the United States (see Tax Alert 2022-0018).

For additional information on this development, see Tax Alert 2025-2080.

INCOME/FRANCHISE

California: New law (SB 376) modifies the definition of "incomplete gift nongrantor trust" to specifically exclude a trust, or the portion of the trust, that qualifies as a charitable remainder trust under Internal Revenue Code Section 664. SB 376 takes effect on January 1, 2026. Cal. Laws 2025, ch. 410 (SB 376), signed by the governor on October 6, 2025.

Iowa: The Iowa Department of Revenue proposed amendments to Iowa Admin. Regs., Rules 701-304.16, 701-501.16 and 701-602.20 to implement a 2024 law change allowing financial institutions subject to the franchise tax to elect to file combined Iowa franchise tax returns with related investment subsidiaries (hereafter, "proposed regulation). Such election can be made for tax years beginning on or after January 1, 2025. Iowa law allows a shareholder or member of a financial institution that has elected to have its income taxed directly to its shareholders or members to take a credit equal to their pro rata share of franchise tax paid by the financial institution. The proposed regulation describes how the credit is calculated by combined return filers. Under the rule, the franchise tax paid by a financial institution that elects to file a combined return with one or more investment subsidiaries, for purposes of calculating the credit would be a portion of the tax paid by the combined group equal to the portion of the combined group's total taxable income attributable to the financial institution. The credit would not be available to shareholders or members of investment subsidiaries included on a combined return for the portion of tax shown due on the return attributable to the investment subsidiary. The proposed regulation would describe the formula for determining the proportion of a combined group's tax that may be used to calculate a shareholder's/member's franchise tax credit. Proposed amendments to Rule 701-602.20, would require taxpayers addback, to the extent included, any deduction for the portion of the taxpayer's expenses computed under this rule that is allocable to an investment in an investment subsidiary; add back of such expenses, however, would not be required for financial institutions that elect to file a combined Iowa return with their investment subsidiaries. New rule 701-602.33 would provide guidance on how to make the election to file a combined return, how to discontinue filing the election, filing combined returns, calculating the combined group net income, allocating and apportioning of combined group income, and payment of tax. Iowa Admin. Bulletin, Proposed amendments Iowa Admin. Regs. 701-304.16, 701-501.16 and 701-602.20 (Vol. XLVIII, No. 9, October 15, 2025).

Maine: On September 30, 2025, the Commissioner of the Maine Department of Administrative and Financial Services sent Governor Janet Mills a report on the state's 2025 conformity with federal tax law changes made by the One Big Beautiful Bill Act (OBBBA). The report discussed the relationship between Maine and federal tax law,² described procedural alternatives available "to assure the fair and efficient administration of Maine's tax laws in light of the timing of changes of federal law," and listed conformity and nonconformity recommendations. In response to this report, the governor on October 1, issued a "Determination and Direction" letter, in which she directed the State Tax Assessor General on how "to adjust the administration of the tax laws in 2025 … ."

Following the governor's directive, the Maine Revenue Service (MRS) issued a tax alert to provide guidance on the state's conformity with federal tax law changes made by the OBBBA for the 2025 tax year.³ Per the MRS, the 2025 Maine tax forms and instructions will reflect conformity to the following federal provisions: (1) IRC Section 179 expensing; (2) the business interest deduction; (3) certain research and experimental (R&E) expenses; (4) qualified disaster losses; and (5) qualified farm property. Further, the 2025 Maine tax forms and instructions will reflect nonconformity to the following federal provisions: (1) accelerated depreciation for qualified production property; (2) accelerated expensing of R&E expenditures incurred after 2021; and (3) increased federal standard deduction. The MRS noted that Maine continues to decouple from bonus depreciation. Rather, taxpayers are required to claim depreciation over the normal life of the asset. In regard to R&E expenses, the Governor's directive to the state tax assessor reflects nonconformity with accelerated expensing for tax years beginning after 2024; the state, however, will allow certain small businesses that file amended federal returns for tax years 2022, 2023 or 2024 to claim a deduction for unamortized R&E expenditures incurred after 2021 and before 2025. Such small businesses would have to file amended Maine tax returns claiming the deduction for the same tax year(s). The MRS noted that additional guidance will be provided after the Legislature determines how the state should conform to the OBBBA changes for tax years beginning after 2025. Maine Rev. Serv., Maine Tax Alert (Vol. 35, Issue 14, October 2025-#2).

Massachusetts: The Massachusetts Department of Revenue (MA DOR) adopted amendments to 830 CMR 63.39.1: Corporate Nexus, adding an example of when in-state internet activities conducted by a vendor through a website accessible by persons within Massachusetts may not be entirely ancillary to the solicitation of orders of tangible personal property, such that the activity would not fall under the protection of P.L. 86-272. Internet activity that may not be entirely ancillary include "the placement of Internet cookies onto the computers or other electronic devices of in-state customers that gather customer search information used to adjust production schedules and inventory amounts, develop new products, or identify new items to offer for sale." Mass. Dept. of Rev., 830 CMR 63.39.1 (adopted October 10, 2025).

New Jersey: The New Jersey Division of Taxation (NJ DOT) issued a technical bulletin to describe a casino licensee's corporation business tax (CBT) obligations. The NJ DOT explained that before the state's enactment of mandatory combined reporting, casino licensees, licensed to operate in New Jersey, were required to file consolidated New Jersey CBT returns. Under mandatory combined reporting, every casino licensee, regardless of entity type, is included on the combined group return (Form CBT-100U) as a taxable member of the New Jersey combined group. The NJ DOT made clear that for mandatory combined return purposes, "[t]here is no statutory exemption for casino licensees." The NJ DOT noted that the inclusion of pre- and post-combined reporting years in the CBT regulations do not create an exemption from mandatory combined reporting for casino licensees. Rather, the pre-combined reporting provisions were included in the rules because the statute of limitations had not expired for some tax filings. The bulletin describes the combined group income or loss, including (1) filing methods, (2) allocation methods for combined returns, (3) market-based sourcing, and (4) net operating losses. Some casino licensees that are a taxable member of a New Jersey combined group also may be subject to gross income tax (GIT). The NJ DOT said "[t]hese entities should not report any income (loss) from New Jersey casino operations that are taxed for CBT purposes pursuant to the Casino Control Act or their … GIT return. However, the non-casino portion of their income (loss) is still required to be reported for GIT purposes." The bulletin describes what income/loss various resident/nonresident individuals, partners or shareholders must include on their tax returns. Lastly, the bulletin discusses miscellaneous issues, including tax credits, the pass-through business alternative income tax (BAIT) and casinos, tax treaties, federally recognized tribes, and allocation factor relief requests. N.J. Div. of Taxn., TB-117 "Casino Licensees' Corporation Business Tax Obligations" (October 9, 2025).

Wisconsin: The Wisconsin Legislative Fiscal Bureau issued a report discussing federal tax law changes enacted by the One Big Beautiful Bill Act (OBBBA) that could modify state individual and corporate income tax liability. Currently, Wisconsin generally references the Internal Revenue Code (IRC) in effect on December 31, 2022. The tax changes made by OBBBA would take effect for Wisconsin tax purposes only after action by the Legislature. The report describes the relevant provisions of the OBBBA and how they relate to Wisconsin tax law. In addition, the report describes provisions affecting businesses and individuals, provisions that are automatically adopted and those that would require legislative action, and previously considered but not adopted Tax Cuts and Jobs Act (TCJA) provisions that were modified by the OBBBA and could be reconsidered by the Legislature for adoption. Business provisions that are automatically adopted by Wisconsin include the Section 179 expensing, the deduction for state and local tax, the de minimis payments by third-party settlement organizations, and the energy efficient commercial building deduction. Business provisions that would require legislative action to adopt for state tax purposes include, but are not limited to, the following: (1) permanent bonus depreciation; (2) immediate expensing for qualified production property; (3) partnership payments to partners for property or services; (4) termination of cost recovery period for energy property; and (5) special expensing for sound recording in 2025. Previously considered, but not adopted, TCJA provisions that have been modified by OBBBA, that could be reconsidered by the Legislature include: (1) research and experimental expenses; (2) limit on business interest deduction; (3) deduction for pass-through income; (4) deduction for entertainment, amusement and recreation expenses; (5) limit on the deduction for excess compensation; and (6) excess business losses of noncorporate taxpayers. Provisions affecting individuals that would require legislative action to adopt for state tax purposes relate to qualified opportunity funds, transportation fringe benefits, itemized deduction credit, exclusion of tip income and overtime pay, car loan interest deduction, and charitable contribution deduction. Lastly, the report includes the estimated fiscal impact of coupling to the federal change. Wis. Leg. Fiscal Bureau, "Federal Tax Law Changes Enacted in P.L. 119-21 (the One Big Beautiful Bill Act of 2025) that Could be Considered to Modify State Tax Liability" (October 8, 2025).

SALES & USE

Illinois: The Illinois Department of Revenue (IL DOR) issued an informational bulletin, explaining upcoming changes to the application of sales and use tax on grocery sales. Effective January 1, 2026, the state's 1% sales and use tax on grocery sales is eliminated. The IL DOR said that due to this change, retailers will have to report their grocery sales differently on Form ST-1 "Sales and Use Tax and E911 Surcharge Return." Municipalities and counties by ordinance may impose a 1% local grocery tax. Ordinances filed by April 1 will take effect on July 1 of the same year and those filed by October 1 will take effect on January 1 of the following year. (Click here for the Local Government Grocery Tax Ordinance Information webpage.) The state's 1% sales and use tax will continue to apply to items such as alcoholic beverages, food infused with adult use cannabis, soft drinks, candy and food that is prepared for immediate consumption. Retailers making destination-based sales of groceries must collect and remit applicable local grocery taxes. Ill. Dept. of Rev., FY 2026-03 "Illinois Grocery Tax Changes Effective January 1, 2026" (October 9, 2025).

Indiana: In response to a ruling request from a company that operates in-state distribution centers and provides various services to customers, the Indiana Department of Revenue (IN DOR) determined that the state's sales tax applies to the company's purchases of non-returnable packaging materials (e.g., bags, boxes, bubble wrap, cardboard pads, labels, stretch wrap, tape, pallets, and crates) for use in its packaging services because it did not meet the requirements for the sales tax exemption for wrapping material and containers for use in the shipping or delivery of tangible personal property. The IN DOR also concluded that the company's purchases of packaging equipment used to package or repackage products for customers in the provision of certain services are not exempt from sales tax as manufacturing machinery, tools, or equipment for direct use in direct production. The company does not transform their customer's products into new marketable products and, as such, it is not engaged as an industrial processor. Ind. Dept. of Rev., Revenue Ruling #2025-04-RST (September 25, 2025).

Louisiana: The Louisiana Department of Revenue (LA DOR) issued a revenue information bulletin "to clarify the application of Louisiana state and local sales and use taxes to transportation charges (including shipping, freight, and delivery) in transactions involving the sale or purchase of tangible personal property and digital products." Under Louisiana law, transportation charges are expressly included in the definitions of "cost price" and "sales price." Thus, transportation charges paid to a seller for the delivery of such property or products are subject to state and local sales and use tax, regardless of whether the charges are separately stated or included in the total price. If the underlying transaction is excluded or exempt from tax, the associated transportation change also is excluded or exempt from tax. In regard to mixed transactions, if a single transportation charge is applied, the entire transportation charge is taxable if any portion of the transaction is taxable. Transportation charges are not taxable if the purchaser uses a third-party carrier for delivery or the seller uses a third-party carrier but does not charge the purchaser for delivery. Such delivery charges, however, will be taxable if the seller passes them on to the purchaser. The LA DOR noted that the definitions of "cost price" and "sales price" do not apply to leases, rentals or services. The bulletin includes illustrative examples. La. Dept. of Rev., Revenue Information Bulletin No. 25-025 (October 1, 2025).

Maine: The Maine Revenue Services adopted new Rule 326 "Leases and Rentals of Tangible Personal Property" to implement previously enacted legislative changes related to the collection and remittance of sales and use tax on leased or rented tangible personal property. Starting January 1, 2025, sales tax is imposed on each periodic lease or rental payment paid by the lessee; prior to this change, tax was paid upfront on the full value of the lessor's purchase price of the leased or rented property. The new rule sets forth the requirements for leases and rentals of tangible personal property in regard to the state's sales and use tax laws. The rule: (1) defines various terms, including "lease or rental;" (2) outlines registration requirements for lessors engaged in the leasing of tangible personal property located in Maine; (3) describes how to calculate the taxable sales price of a lease or rental — specifying inclusions and exclusions from sales price; (4) lists exclusions from "lease or rental," such as leases that are "in lieu of purchase," the transfer of possession or control of property under a security agreement, the provision of tangible personal property along with an operator, and leases and rentals subject to the service provider tax; (5) discusses the treatment of purchases for resale; and (6) describes exempts leases and rentals. The rule also provides specific guidance for short-term and long-term leases and rentals of automobiles, leases and rentals between related entities/parties and casual leases and rentals, and leases and rentals of computer software and products transferred electronically. The new rule is effective for leases and rental transactions occurring on and after January 1, 2025. Maine Rev. Serv., New Rule 326 (adopted on October 6, 2025).

Michigan: New law (HB 4180 and HB 4182), beginning January 1, 2026, exempts the sale, storage, use or consumption of eligible fuel from the state's sales and use taxes. For purposes of the exemption, "eligible fuel" means "motor fuel, alternative fuel, and leaded racing fuel" with exceptions for certain motor or aviation fuel for which privilege tax under the aeronautics code was paid, certain aviation fuel, certain motor fuel or alternative fuel sold for use in heating, cooling or ventilation purposes, and liquified petroleum gas unless the liquefied petroleum gas is used, or for use, as defined in the Motor Fuel Tax Act. Mich. Laws 2025, Pub. Act Nos. 17 and 19 (HB 4180 and HB 4182), both signed by the governor on October 7, 2025.

Michigan: New law (HB 4181) amends the Streamlined Sales and Use Tax Revenue Equalization Act by sunsetting the 6% specific tax levied on interstate motor carriers for the privilege of using or consuming motor fuel and alternative fuel in a qualified commercial motor vehicle in this state. The tax will be imposed through the tax period ending December 31, 2025. The law also ends the credit for 6% of the price of motor fuel or alternative fuel purchased in Michigan and used in a qualified commercial motor vehicle. The credit is available for purchases made before January 1, 2026. Mich. Laws 2025, Pub. Act No. 18 (HB 4181), signed by the governor on October 7, 2025.

BUSINESS INCENTIVES

California: New law (SB 863) clarifies the ability of a disregarded single member limited liability company (SMLLC) to assign the Motion Picture and Television Production Tax Credit to affiliated corporations. Provisions of SB 863 prohibits a motion picture credit 3.0 generated by a disregarded SMLLC from being ineligible for assignment to a corporation that, directly or indirectly, owns the disregarded SMLLC (or an affiliate of that corporation) based on either of the following: (1) the disregarded SMLLC is not considered a qualified taxpayer, as defined in Cal. Rev. and Tax Code (CRTC) Sections 23685(b) and 23695(b), and Section 23698(b) as it read on January 1, 2025, or (2) the amount of credit does not exceed the tax liability of the disregarded SMLLC. These provisions apply to credits that were assigned and claimed on a timely filed tax return with the California Franchise Tax Board for tax years beginning on or before January 1, 2025. Cal. Laws 2025, ch. 462 (SB 863), signed by the governor on October 7, 2025.

California: New law (AB 480) modifies the manner in which a taxpayer may elect to sell (also known as certificate) low-income housing tax credits (LIHTC). Previously, taxpayers had to make an election to sell the LIHTC in their application for funds to the California Tax Credit Allocation Committee (CTCAC). AB 480 deletes this requirement, instead allowing taxpayers to make an election to sell LIHTCs in the manner prescribed by the CTCAC any time before the final LIHTC amount is awarded. AB 480 takes effect January 1, 2026. Cal. Laws 2025, ch. 492 (AB 480), signed by the governor on October 10, 2025.

Oregon: On October 6, 2025, Governor Tina Kotek issued Executive Order No. 25-25, directing specified state agencies "to accelerate and prioritize siting and permitting reviews, approvals, and processes necessary to expedite the permitting and development of solar and wind energy projects in Oregon that seek to qualify for federal clean energy tax credits that require construction to commence by July 4, 2026 … " The Executive Order gives the Director of the Oregon Department of Energy and the Energy Siting Council the authority to waive civil penalties for solar or wind energy projects that meet certain criteria. The Executive Order will remain in effect until July 4, 2030.

PROPERTY TAX

Illinois: The Illinois Department of Revenue (IL DOR), as required by legislation enacted in 2024, is currently conducting a study that evaluates the state's property tax system. The IL DOR is seeking comments from individuals, organizations and associations that represent commercial and residential property owners, local governments and Illinois labor unions. Comments are due by December 1, 2025. The final report is due July 1, 2026. The IL DOR noted that it is not accepting comments related to individual property assessments or billing complaints, which should be addressed locally. Ill. Dept. of Rev., News Release "Public Act 103-1002: Property Tax System Study" (October 2025).

Oklahoma: The Oklahoma Tax Commission (OTC) adopted emergency Rule 710:10-7-5 regarding the ad valorem tax exemption for qualifying manufacturing facilities. The amended rule provides that qualifying manufacturing facilities engaged in manufacturing under NAICS Industrial Group No. 3364 — Aerospace Product and Parts Manufacturing — in Oklahoma on January 1 may file an application for the ad valorem manufacturing exemption for tax years 2024 and/or 2025 by March 15, 2026. This deadline only applies to facilities that filed their initial exemption applications after January 1, 2020 and before March 16, 2021. The county assessor will file approved applications with the OTC by June 15, 2026. The OTC will declare incomplete applications filed after that date to be null and void. The emergency rule is effective through September 14, 2026. Okla. Tax Comm., Emergency Rule 710:10-7-5 (Dkt. No. 25-673, adopted August 19, 2025.)

PAYROLL & EMPLOYMENT TAX

Colorado: New law (SB 144) addresses the funding structure for the state's paid family and medical leave insurance (PFMLI) program for 2025 and future years. Specifically, under SB 144, the PFMLI contribution rate for 2025 is unchanged at 0.9%, decreases to 0.88% for 2026 and will be determined annually by the Program Director beginning in 2027. SB 144 also extends an additional 12 weeks of paid leave to parents of newborns receiving inpatient care in a neonatal intensive care unit. For additional information on this development, see Tax Alert 2025-2090.

Chicago, IL: Mayor Brandon Johnson included in his FY2026 city budget proposal a "Community Safety Surcharge," which would be paid by corporations in the form of a $21 per employee head tax. Revenues would be used to support programs such as youth employment, violence intervention and mental health assistance for police. The proposal for an added corporate tax comes at a time when the city faces a $1.2 billion shortfall. The head tax would apply to Chicago corporations that employ 100 or more full-time employees who perform 50% or more of their work within the city limits of Chicago. The rate, effective January 1, 2026, would be $21 per employee with annual increases thereafter of the lessor of the Consumer Price Index (CPI) or 5%. (City of Chicago, 2026 Budget Overview, p. 190.) For more on this development, see Tax Alert 2025-2124.

MISCELLANEOUS TAX

Chicago, IL: On October 16, 2025, Chicago Mayor Brandon Johnson announced his proposed budget, which includes several proposed tax changes as well as some new taxes. Proposed new taxes include the following: (1) the community safety surcharge would be imposed on businesses with 100 or more employees at a rate of $21 per employee per month (e.g., a head tax); (2) a social media amusement tax, which would be imposed on social media companies at a rate of $0.50 per the number of Chicago consumers per calendar month in excess of 100,000; (3) a 10.25% online sports wagering tax would be imposed on adjusted gaming receipts from online sports betting licensees; and (4) the cannabinoid hemp tax at a rate of $2 per unit. Proposed changes to existing taxes would: (1) increase the vacant building mortgage renewal fees for property owners that hold and neglect vacant properties; (2) adjust the personal property lease tax; (3) change the ground transportation fee from a flat fee to a 10.25% tax; and (4) increase the boat mooring tax to 23.25% (from 7%).

Michigan: New law (HB 4183) increases the rate of the motor fuel tax imposed on gasoline and diesel fuel. For calendar year 2026, the cents-per-gallon rate on motor fuel equals the product of 51 cents adjusted by the lesser of 5% or the inflation rate, rounded to the nearest tenth of a cent. For calendar year 2027 and each year thereafter, the Michigan Department of Treasury will adjust the rate annually, by modifying the cents-per-gallon rate in effect during the immediately preceding year by 5% or the inflation rate, whichever is less, and rounded to the nearest tenth of a cent. The law includes transition provisions under which the motor fuel tax at a rate equal to the difference between the rate in effect on January 1, 2025 and January 1, 2026 will be imposed on certain motor fuel held in storage as of a specified time on December 31, 2025. Persons in possession of fuel subject to this tax must report the number of gallons of taxable fuel to the Department; the report is due by February 20, 2026. Mich. Laws 2025, Pub. Act No. 20 (HB 4183), signed by the governor on October 7, 2025.

Minnesota: The Minnesota Department of Revenue (MN DOR) issued guidance on MinnesotaCare Rebates, explaining that due to a recent law change, starting July 1, 2025, wholesale drug distributors must include all rebates paid to customers in their gross revenues. In regard to the 2025 annual return, the MN DOR said that wholesale drug distributors may factor certain rebates when calculating their gross revenues received from January 1, 2025 to June 30, 2025, specifically those allowed by the Minnesota Supreme Court in its 2024 ruling in Dakota Drug Inc. v. Commissioner of Revenue.⁴ Wholesale drug distributors must include rebates in their gross revenues received from July 1, 2025 to December 31, 2025. The MN DOR indicated that it would be updating tax return instructions for this change. In addition, starting July 1, 2025, all rebates received must be included in the price paid for legend drugs that are subject to the Legend Drug Use Tax. The MN DOR said that "[e]ntities subject to the Legend Drug Use Tax should no longer reduce the price paid by rebates received." The MN DOR also said that (1) hospitals, providers and surgical centers no longer have to subtract rebates received from prescription drug purchases when calculating the Legend Drug Exemption, and (2) pharmacies requesting a refund for the purchase of legend drugs in Minnesota that were later shipped outside the state no longer have to subtract rebates received from the purchase price. Minn. Dept. of Rev., MinnesotaCare Rebates and Gross Revenues (October 9, 2025).

GLOBAL TRADE

Federal — Nicaragua: On October 20, 2025 the Office of the U.S. Trade Representative (USTR) announced its determination under Section 301 of the Trade Act of 1974 that Nicaragua's acts, policies, and practices related to abuses of labor rights, abuses of human rights and fundamental freedoms, and dismantling of the rule of law are unreasonable and burden or restrict U.S. commerce. USTR is proposing a range of responsive actions, including withdrawal of preferential treatment under the Dominican Republic-Central America-United States Free Trade Agreement or 100% tariffs on imports from Nicaragua. USTR is inviting written comments on the proposed actions by November 19, 2025. For more on this development, see Tax Alert 2025-2122.

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.