17 December 2025 State and Local Tax Weekly for November 21 and November 28 Ernst & Young's State and Local Tax Weekly newsletter for November 21 and November 28 is now available. Prepared by Ernst & Young's State and Local Taxation group, this weekly update summarizes important news, cases, and other developments in U.S. state and local taxation. On October 24, 2025, the San Francisco Tax Collector officially finalized Tax Collector Regulation 2025-1 (Final Regulations), which outlines how businesses should allocate gross receipts from services, intangible property and financial instruments under the Business and Tax Regulations Code Sections 956.1(e) and 956.1(f). The Final Regulations are effective for tax years beginning on or after January 1, 2025. Background: On November 5, 2024, San Francisco voters approved Proposition M (Prop M), which effective January 1, 2025, drastically changes San Francisco's business taxes, including the gross receipts tax, the homelessness gross receipts tax, the overpaid executive gross receipts tax and the administrative office tax. (See Tax Alert 2024-1825.) Among other changes, Prop M authorizes the Tax Collector to promulgate market-based sourcing regulations to interpret whether the purchaser of services receives the benefit of the service, or whether intangible property is used, in the city. Services — general rule: Gross receipts from services are sourced to San Francisco to the extent the purchaser "received the benefit of the service in the city" (i.e., the customer's direct or indirect receipt of value from the service being delivered in the city). The location of receipt of the benefit for any service is substantiated by the taxpayer's contracts or books and records. Under the Final Regulations, the benefit of the service is received in the city when the service predominantly relates to:
Taxpayers may rebut these presumptions if they can show that the benefit of the service is received at a different location.
Asset management services: Specific sourcing rules are provided for gross receipts from asset management services. The benefit of asset management services is received at the domiciles of the assets' investors, unless the investors are holding title to the assets for beneficial owners. In that instance, the benefit of the asset management services is received at the domicile of the beneficial owners of the assets. The domicile of the investor and the beneficial owner of assets managed by an asset manager is presumed to be the investor's and the beneficial owner's billing address in the asset manager's records. There is no presumption if the asset manager knows that the investor's principal place of business is different from its billing address, while the presumption will not control if the asset manager knows that the beneficial owner's primary residence or principal place of business is different from its billing address. Receipts from asset management services are allocated to San Francisco in proportion to the average value of interest in the assets held by the asset's investors or beneficial owners domiciled in the city. If the average value of the interest is unknown, the asset manager may use a reasonable estimation to allocate receipts to the city. Large volume professional services: Taxpayers that provide any single professional service to more than 250 customers (i.e., a large volume professional service) must allocate gross receipts from such services to the customer's billing address. The rule does not apply to the receipts of a customer whose receipts are more than 5% of the taxpayer's receipts. Intangible property: The Final Regulations include extensive guidance on sourcing gross receipts from intangible property. Generally, gross receipts from intangible property, other than from sales of financial instruments, are sourced to the city to the extent the intangible property is used in the city. The Final Regulations set forth how to determine the location of the use of the intangible property for the following situations:
To the extent the use of intangible property cannot be determined, then gross receipts will be sourced using the purchaser's billing address. Mixed transactions: When there is a mixed transaction (i.e., the sale is from the provision of services and tangible or intangible property or from the provision of tangible and intangible property) and the value of each portion of the sale is readily ascertainable, then each portion is separately allocated using the applicable values. The principal purpose for entering into the contract, however, determines the allocation of the gross receipts when each portion's value is not readily ascertainable. Financial instruments: The Final Regulations allocate gross receipts from sales of financial instruments to the customer's location. For purposes of this provision, "the customer is the person, without regard to intermediaries, who gains the greatest possession of economic rights in the financial instruments." If the customer is an individual, receipts are allocated to the city if the customer's billing address, at the end of the tax year, is in the city. If the customer is a corporation or business entity (collectively, "business"), receipts are allocated to the city if the business's commercial domicile is in the city. The business's commercial domicile is presumed to be in the city as determined at the end of the tax year in the taxpayer's books and records. The taxpayer may be able to rebut the presumption by providing documentation that shows that its commercial domicile is outside the city. If the taxpayer uses the commercial domicile of the business as provided in its books and records kept in the normal course of business to allocate sales to the city, the tax collector may have to accept this allocation method. Reasonable approximation is used to determine the location of the customer when the customer's billing address/commercial domicile cannot be determined. Special rules: The Final Regulations create several special rules, including rules that may apply in determining the method of reasonable approximation of the location of the receipt of the benefit of the services, the location of the use of intangible property or the location of the customer in regard to the sale of financial instruments. Industry specific special rules apply to: (1) franchisors; (2) motion picture and television film producers, distributors and television networks; (3) print media; and (4) mutual fund service providers and asset management service providers. The Final Regulations also define several terms. For additional information on this development, see Tax Alert 2025-2398. Delaware: New law (HB 255) decouples Delaware income tax law from select federal tax law changes made by the "One Big Beautiful Bill Act" (OBBBA, PL 119-21).1 In determining Delaware entire net income under Del. Code Section 1903 for any income year, corporate taxpayers must make the following adjustments:
These changes took effect upon enactment and apply to tax years beginning on or after January 1, 2022. In determining taxable income under Del. Code Section 1106, individuals with business income must modify federal taxable income for such year as follows:
HB 255 also directs the Department of Finance to prepare and present a report on the actual impact of the tax changes in the new law on State revenue. The report must provide an update on any changes to federal bonus depreciation provisions, including recommendations regarding the continuation of the bonus depreciation provisions in HB 255. Del. Laws 2025, HB 255, signed by the governor on November 19, 2025. New Jersey: The New Jersey Division of Taxation (NJ DOT) updated its technical bulletin on the state's research and development (R&D) tax credit that can be claimed against the state's Corporation Business Tax (CBT) to add guidance related to the One Big Beautiful Bill Act (OBBBA). The NJ DOT explained that the OBBBA allows for a different timing application for the deduction of research expenditures. If there is a timing difference in deducting New Jersey research expenditures, taxpayers will account for this difference on their CBT return by deducting their New Jersey research expenditures in accordance with N.J.S.A. 54:10A-4(k)(11). Taxpayers who amend their federal returns under IRS Revenue Procedure 2025-28 (i.e., IRS guidance on making accounting method changes for research or experimental expenditures)2 also must amend their New Jersey CBT return. The NJ DOT further said that taxpayers filing a federal amended return to initiate a federal Credit for Increasing Research Activities (Form 6765) not originally claimed cannot use any qualifying research expenditures already used to calculate other New Jersey tax credits when calculating a New Jersey R&D Credit. This bar applies where such expenses are statutorily prohibited from being used toward an additional New Jersey credit. Lastly, references to IRC Section 174A are added throughout the bulletin (the bulletin already references IRC Section 174). N.J. Div. of Taxn., TB-114 "The New Jersey Research and Development Tax Credit" (revised November 25, 2025). Iowa: The Iowa Department of Revenue (IA DOR) issued guidance to retailers regarding rounding the amount collected on cash transactions due to the penny shortage caused by the US Mint ending the penny's production. The IA DOR said that retailers that round the amount collected to the nickel must calculate sales tax on the taxable sales price; rounding after calculating tax due does not affect the amount of sales tax collected, reported and remitted. The amount reported on the sales and use tax return is the amount of gross sales and sales tax before any rounding. The IA DOR said that this guidance only applies to Iowa sales tax, noting that rounding may present issues for other Iowa taxes. Iowa Dept. of Rev., Rounding (November 12, 2025). Maine: The Maine Revenue Service (MRS) issued a notice to remind taxpayers with an active service provider tax (SPT) account that effective January 1, 2026, the SPT is repealed and services subject to the SPT become subject to the state's 5.5% sales and use tax. Such services include: (1) cable and satellite television or radio services; (2) fabrication services; (3) telecommunications services; (4) installation, maintenance or repair of telecommunications equipment; (5) ancillary services, which are services related to telecommunications services; (6) the rental of video media and video equipment; and (7) the rental of furniture, audio media and audio equipment under a rental-purchase agreement. The MRS noted that the rental services are subject to sales tax as leases or rentals of tangible personal property. Taxpayers that are currently registered for a sales and use tax account under the same entity ID as their current SPT account, may use the existing sales and use tax account to report services that were subject to SPT. Alternatively, they can elect to register a new sales and use tax account under the same entity ID or add a separate branch location to their existing sales and use tax account. Taxpayers currently not registered for a sales and use tax account, or whose SPT account is operating under a different entity ID, will need to register for a sales and use account before January 1, 2026. Maine Rev. Serv., Notice to Service Provider Tax Accounts Service Provider Tax Repealed Effective January 1, 2026 (November 21, 2025). Illinois: New law (HB 1437) extends the sunset date for River Edge Redevelopment Zone tax credits for qualified historic preservation and new construction jobs to January 1, 2029 (from January 1, 2027). The law also extends the sunset date for the apprenticeship education expense credit to January 1, 2027 (from January 1, 2026). Ill. Laws 2025, Pub. Act 104-0434 (HB 1437), signed by the governor on November 21, 2025. Mississippi: The Mississippi Department of Revenue (MS DOR) issued a notice on the income and franchise tax broadband technology tax credit, which is available to telecommunications enterprises. The credit is a percentage of the cost of equipment used in the deployment of broadband technology. Starting in 2025, the aggregate amount of credit that may be claimed by all taxpayers during the calendar year is limited to $15 million, with the credit capped at $1.5 million for a single telecommunications enterprise per calendar year (the $1.5 cap does not include any credit carried forward from a prior year). If the amount of credits requested exceeds the $15 million cap, the MS DOR must allocate the available credits on a prorated basis. To receive an allocation, an eligible telecommunications enterprise must submit a request to the MS DOR by March 20 of the calendar year following the year in which the eligible equipment was deployed. The MS DOR noted that submissions received after March 20 may not be eligible for an allocation. The notice lists the information and documentation that must be submitted with the allocation request. Miss. Dept. of Rev., Tax Policy and Economic Development Notice 80-25-01 (November 14, 2025). Nebraska: The Nebraska Department Revenue (Department) issued guidance on a recently enacted statutory provision, Nebraska 77-3,114, which effective October 1, 2025, prohibits certain entities from receiving benefits from Nebraska tax incentive programs. Specifically, the new law prohibits "foreign adversarial companies" from receiving any benefit from Nebraska incentive programs. This includes entities applying for credits, investors who would claim the entity's credits on their tax returns, and all other taxpayers who would claim incentive credits from said companies. A "foreign adversarial company" is defined as any corporation, partnership, association, organization or other combination of persons that: (1) is organized under the laws of a foreign adversary; (2) has its principal place of business within a foreign adversary; (3) is owned in whole or in part, operated, or controlled by the government of a foreign adversary; or (4) is a subsidiary or parent of any company otherwise described. The Department's guidance indicates that the new law will apply retroactively to any credits or incentives from past years that have been carried forward. The foreign adversarial company will not earn any future credits. For more information on this development, see Tax Alert 2025-2317. Oklahoma: In response to a ruling request, the Oklahoma Tax Commission (OTC) said that the taxpayer, a manufacturer, that receives quality jobs incentive payments (jobs credit) under the Oklahoma Quality Jobs Program may simultaneously claim the Oklahoma Investment Credit for the same project if certain criteria is met. The OTC explained that Oklahoma law (68 O.S. Section 3607(A)) generally prohibits a taxpayer receiving jobs credits from claiming other credits for the same activity. An exception to the general rule under Section 3607(B) permits concurrent eligibility for establishments that qualify to receive jobs credits for a 10-year period under Section 3604(B) if the following conditions are met: (1) the quality job project start date and the Oklahoma investment credit investment date occurs after January 1, 2010; (2) the taxpayer holds a valid manufacturing sales tax exemption permit; (3) the taxpayer's qualifying investment is at least $40 million; (4) the taxpayer pays an average annualized wage that equals or exceeds the state average wage; and (5) the Oklahoma Department of Commerce issues a positive net-benefit determination letter confirming that the project yields a positive net-benefit rate to the state. Okla. Tax Comm., Letter Ruling LR-25-006 (November 14, 2025). California: The California State Board of Equalization (SBE) issued a letter to county assessors to inform them that as of January 1, 2026 the SBE's jurisdiction will extend to Voice Over Internet Protocol (VoIP) companies. The SBE said that this expansion of jurisdiction is "consistent with the [California Public Utilities Commission's] recent decision to regulate VoIP companies as telephone companies." The SBE explained that instead of VoIP service providers being issued a non-telecommunication service category identifier, VoIP companies will now be classified under the new interconnected VoIP service category as either digital voice fixed or digital voice nomadic. Because VoIP service providers will now be classified as telecommunications companies, they are subject to state assessment and must file a property tax statement with the SBE annually by the March 1 deadline. Cal. St. Bd. Equal., Letter to Assessors: 2025-040 "State Assessment Jurisdiction of Voice Over Internet Protocol (VoIP)" (November 20, 2025). Puerto Rico: New law (Law 78-2025) modifies the Puerto Rico Municipal Code of 2020 (Municipal Code), as amended, to exempt prescription drugs from personal property tax at the municipal level. Because the sales and use tax does not apply to prescription drugs, as defined in subsection (a) of Section 4030.12 of Puerto Rico Internal Revenue Code of 2011, as amended, Law 78-2025's Statement of Motives states that it is unfair for those prescription drugs to be subject to personal property tax at the municipal level. Therefore, Law 78-2025 adds paragraph (ii) to Article 7.092 of the Municipal Code to exempt those prescription drugs from municipal personal property tax. Law 78-2025 took effect on July 27, 2025, and applies to the January 1, 2026 assessment date for fiscal year 2025—2026. For more on this development, see Tax Alert 2025-2337. New Hampshire: The New Hampshire Department of Revenue Administration (NH DRA) issued guidance on the state's tax amnesty program that runs December 1, 2025 through February 15, 2026.3 The tax amnesty program applies to taxes administered and collected by the NH DRA that were due but unpaid on or before June 30, 2025. Applicable taxes include, but are not limited to, the following: Business Enterprise Tax, Business Profits Tax, Interest and Dividends Tax, Meals and Rooms Tax, Communications Services Tax, Real Estate Transfer Tax, Utility Property Tax, and Railroad Tax. Fees, such as lien or bank fees, are not included in the amnesty program. Eligible taxpayers that report and pay such taxes in full and one-half of the interest due during the amnesty period will have all penalties4 and 50% of applicable interest waived. Taxpayers may apply for amnesty regardless of whether the NH DRA assessed tax due or the taxpayer filed a return, or if the taxpayers have filed an appeal or intends to appeal. Only returns and payments received by the NH DRA during the tax amnesty period may qualify for amnesty; previously paid penalties and interest will not be refunded. The tax commissioner may consider a taxpayer's failure to pay such taxes during the amnesty period a factor when considering a future penalty and interest abate request. To participate in the amnesty program, taxpayers must file any required outstanding tax returns and pay all unpaid taxes and 50% of the interest due during the amnesty period. Taxpayers do not forfeit their tax notice appeal if the pay tax due under the amnesty program. N.H. Dept. of Rev. Admin., TIR 2025-006 (November 21, 2025). Washington: The Washington Department of Revenue (WA DOR) has issued guidance on its temporary International Remote Seller Voluntary Disclosure Program (VDP), which will run February 1, 2026 through May 31, 2026. This VDP is open to unregistered foreign remote businesses that have established substantial nexus in Washington and are required to register and report taxes pursuant to WAC 458-20-101. To be eligible for the VDP, a business must be headquartered outside the US and meet all of the following: (1) it has not had an active registration with or reported taxes to the WA DOR with the current statutory period; (2) it has not been contacted by the WA DOR for enforcement purposes within the current statutory period; and (3) it has not engaged in evasion or misrepresentation in reporting tax liabilities. (The current statutory period is four years plus the current year.) In exchange for participating in the VDP, the WA DOR will limit the lookback period to four years plus the current year for business and occupation (B&O) tax and 12 months for uncollected retail sales tax. The WA DOR also will waive up to 39% in potential penalties, include the following: (1) 5% assessment penalty for substantially underpaid tax, (2) 5% unregistered penalty, and (3) 29% late payment of a return penalty. The WA DOR noted that if business has collected retail sales and use tax but not remitted it, an unlimited lookback period and the 29% late payment of a return penalty will apply to the collected and unremitted amounts. VDP applications must be made online through the WA DOR's online application; the WA DOR's guidance lists items that should be submitted with the application. Businesses approved for VDP must enter a formal agreement with the WA DOR that must be signed and returned to the WA DOR within 30 calendar days of the original application date. While businesses with an active registration do not qualify for this VDP, the WA DOR said that they may, however, qualify for a waiver of the 5% assessment penalty. Wash. Dept. of Rev., "Internation Remote Seller Voluntary Disclosure Program" (November 2025). Ohio: New law (HB 96) implements a new employer state unemployment insurance (SUI) surcharge of 0.15% on taxable wages up to $9,000 per employee, per year. This SUI surcharge, termed the Technology and Customer Service Fee, is effective for years 2026 and 2027 and is paid quarterly together with the base SUI tax, which for 2025, ranges from 0.4% to 10.1% on wages up to $9,000 per employee. For additional information on this development, see Tax Alert 2025-2360. New Jersey: New law (A. 5688) imposes a $3 per day surcharge on every occupancy of a room in a hotel that is located in a city of the first class in which there is located an international airport — currently the City of Newark. The surcharge is in addition to any other tax or fee imposed by statute, local ordinance or resolution by any governmental entity for occupancy of a hotel room in the municipality. The surcharge will be collected and administered by the New Jersey Division of Taxation. A.5688 takes effect January 1, 2026. N.J. Laws 2025, ch. 158 (A.5688), signed by the governor on November 13, 2025. Federal: On November 13 and 14, 2025, the United States (US) Trump Administration announced several bilateral Frameworks for Agreements on Reciprocal Trade with El Salvador, Argentina, Ecuador, Guatemala, Switzerland and Liechtenstein. Separately, President Trump signed an Executive Order titled "Modifying the Scope of the Reciprocal Tariff with Respect to Certain Agricultural Products," expanding the list of agricultural products excluded from the US tariffs. As frameworks, these announcements address market access, tariff treatment and removal of non-tariff barriers, with detailed implementation expected to follow in agency guidance. For additional information on this development, see Tax Alert 2025-2308. International - Kenya: In Pesapal Limited v. Commissioner of Domestic Taxes the High Court, on August 27, 2025, overturned a previous Tribunal's decision that had upheld a value-added tax (VAT) assessment. In issuing the assessment, the Kenya Revenue Authority (KRA) contended that commissions Pesapal earned for facilitating payments were not exempt from VAT because payment service providers are not recognized as financial institutions licensed under the Banking Act and Pesapal mainly provided a platform rather than financial services. The High Court, however, determined that commissions Pesapal earned arose from facilitating payments classified as financial services eligible for VAT exemption, regardless of the provider's licensing status. For more on this case, see Tax Alert 2025-2348. International - Kenya: In Kenswitch Limited v. Commissioner of Domestic Taxes the Tax Appeal Tribunal (TAT), on October 24, 2025, ruled in favor of Kenswitch (the Appellant) affirming that its switching services qualify to be financial services, and hence are exempt from value-added tax (VAT). The Commissioner (Respondent) had imposed a VAT assessment on the Appellant's switch income on the basis that it was providing software services rather than financial services, as the Appellant asserted. Specified financial services are exempt from VAT in Kenya. The Respondent's argument was premised on the assertion that the Appellant's services were akin to software, and that only financial institutions licensed under the Banking Act could provide a financial service. In its decision, the Tribunal rejected the Respondent's attempt to split the financial transaction facilitated by the Appellant into financial and nonfinancial components, affirming that the role played by each of the parties to the transaction was functionally integrated, and each party performed a specific role necessary for the completion of a single financial service. For more on this case, see Tax Alert 2025-2352. 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.
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