09 February 2026 State and Local Tax Weekly for January 9 and January 16 Ernst & Young's State and Local Tax Weekly newsletter for January 9 and January 16 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. California State Controller reminds unclaimed property holders of the state's Voluntary Compliance Program The California State Controller (Controller) is sending letters to businesses that may be holding past-due unclaimed property (hereafter, holders), reminding them of the state's Voluntary Compliance Program (VCP). Under the VCP, holders of unclaimed property (e.g., uncashed payroll checks, refunds, deposits or credits) that report past-due unclaimed property and meet the requirements of the VCP will have the 12% interest assessment on past-due unclaimed funds waived. The Controller's letter also indicates that voluntary reporting now may help reduce potential audit exposure later. The VCP is ongoing, so holders may apply to the VCP at any time throughout the year, with up to an 18-month extension available post enrollment.
Holders, however, may file or refile a request to enroll in the program after resolving (paying) the outstanding interest assessment. If a holder receives an interest waiver from the Controller and acquired or merged with another entity within the five-year period preceding the interest waiver, the holder may submit a VCP enrollment request to resolve past-due unclaimed property resulting from the acquisition or merger. VCP requirements: If a holder's completed VCP application to enroll in the program is approved by the Controller, the holder must:
Other: Holders participating in the VCP will review their own records; however, the Controller reserves the right to review the holders' records. Additional information on the VCP, including the application form and the application webinar, is available here. For additional information on this development, see Tax Alert 2026-0191. California: On December 26, 2025, the California Attorney General approved the title and summary, for the "2026 Billionaire Tax Act" statewide initiative (AG Tracking No. 25-0024A1) (proposed measure) — a proposed "one-time tax on the accumulated wealth of California billionaires." If the initiative meets the requirements to appear on the November 2026 general election ballot and is approved by voters, for tax year 2026, a 5% excise tax would be imposed on individuals and applicable trusts, with a net worth of $1 billion or more. The tax rate would be reduced for individuals (other than a trust) who have a net worth of $1 billion but less than $1.1 billion. For the 2026 tax year, the proposed measure would require California resident individuals to file a declaration with their tax return, indicating whether their net assets were less than or equal to $1 billion as of the valuation date. The tax would apply to "all forms of personal property and wealth" including "shares of capital stock, bonds or other evidences of indebtedness, and any legal or equitable interest therein." Revenue from the tax would be earmarked for programs related to health care, including Medi-Cal. Specifically, the proposed measure would require 90% of the revenue to be spent on health care services for the public. The remaining 10% of the revenue would be spent on the administration of the tax, education and food assistance. The current status of the initiative is for proponents to begin collecting the required signatures for the proposed measure to be placed on the November 2026 ballot. For additional information about this development, see Tax Alert 2026-0188. Georgia: In January 2026, the Georgia Senate Special Committee on the Elimination of Georgia's Income Tax issued its final report and recommendations. The Committee is recommending that the individual income tax for single taxpayers making less than $50,000 and for joint filers making less than $100,000 be eliminated beginning in 2027. The income tax rates for "every other family and business" in Georgia would be reduced over several years. The rate of the individual and corporate income taxes would be reduced to 4.99% for tax year 2026. The individual income tax rate would be reduced to 3.99% in 2029 and would be gradually reduced to 0.00% by 2032. The Committee is recommending the inclusion of revenue triggers that would allow the state to suspend the incremental reductions in case of a downturn in state revenue. When the corporate and partnership tax rates reach 4.99%, the Committee recommends that the corporate and partnership income tax rates be decoupled from the individual income tax rate. The Committee's plan does not call for the increase to the sales and use tax or the adoption of a state property tax, but it does recommend that new or renewed tax incentives include a three- to five-year sunset. Illinois: The Illinois Department of Revenue (IL DOR) has proposed amendments to 86 Ill. Adm. Code 100.3200 through 100.9720, including new section 100.3375, which would implement legislative changes adopting the Finnigan method for apportioning sales within a unitary business group. Effective for tax years ending on or after December 31, 2025, a person is taxable in another state if any member of its unitary business group is taxable in that other state. A taxpayer is taxable in another state if (a) in that state the taxpayer is subject to a net income tax, a franchise tax measured by net income, a franchise tax for the privilege of doing business or a corporate stock tax; or (b) that state has jurisdiction to subject the taxpayer to a net income tax regardless of whether it does so. The sales factor rule under Section 100.3370 would be modified to provided that for tax years ending on or after December 31, 2025, gross receipts from sales of tangible personal property are in this state if the taxpayer is a member of a unitary business group and neither the taxpayer nor any member of the unitary business group are taxable in the state of the purchaser. If a member of a unitary business group is not taxable in the state of the purchaser, the sale is attributable to Illinois if the property is shipped from an office, store, warehouse, factory or other place of storage in Illinois and no member of the unitary business group is taxable in the state of the purchaser. Additionally, gross receipts attributed to a unitary group member's sale of services that are not taxed in the state where the services were received (or deemed to be received) would be excluded from the sales factor if no member of the unitary business group is taxable in that state. New Section 100.3375 describes when two or more persons engaged in a unitary business would be required to apportion business income attributable to the state using the combined apportionment method and how the combined apportionment method is applied. The proposed amendments also would amend nexus provisions under Section 100.9720, to provide that for tax years ending on or after December 31, 2025, the Finnigan method applies in determining whether the activities of a nonresident taxpayer conducted in Illinois are sufficient to create nexus. Only the activity conducted by or on behalf of a nonresident taxpayer would be considered for this purpose. Amendments would provide that the activity of a pass-through entity is conducted on behalf of its owners; activity conducted by any other person, whether or not affiliated with the nonresident taxpayer, would not be considered attributable to the taxpayer unless the other person was acting as a representative of the taxpayer. Several illustrative examples would be added to the regulations. Interested parties have 45 days after publication of the notice of proposed rulemaking to submit comments. 2026 Ill. Register, Vol. 50, Issue 1, January 2, 2026. Maryland: The Maryland Comptroller issued guidance on the state's automatic decoupling from certain provisions of the "One Big Beautiful Bill Act" (OBBBA) — i.e., provisions of the OBBBA that would have an impact of greater than $5 million for the fiscal year that begins during the calendar year in which the amendment is enacted or any preceding fiscal year. The Comptroller explained that Maryland decouples from full expensing of domestic research and experimental (R&E) expenditures under IRC Section 174A(a) as it applies to a tax year beginning in calendar year 2025 and Section 174A, Note (f) for any tax year preceding 2025.1 Due to the decoupling, taxpayers will have to add back the amount of the federal deduction claimed under IRC Section 174A(a) for such domestic R&E expenditures that exceeds the amount allowed under the IRC before the enactment of IRC Section 174A. Instead, for Maryland tax purposes such R&E expenditures must be capitalized and claimed as a deduction over a five-year amortization period. Deductions for domestic R&E expenditures incurred or paid in a tax year before 2025 also must continue, on the Maryland return, to be claimed over the remaining portion of the five-year amortization period. The Comptroller noted that it will not accept amended returns for prior years to claim a full deduction for domestic R&E expenditures. The guidance describes how the deduction for domestic R&E expenditures must be reported on the 2025 Maryland income tax return. Maryland also decouples from the OBBBA's modification to the limitation on business interest under IRC Section 163(j)(8)(A)(v) and the new special depreciation allowance for qualified property under IRC Section 168(n). For any taxable year beginning in calendar year 2025, taxpayers are required to add back to federal adjusted gross income or federal taxable income: (1) any amount of depreciation, amortization or depletion used to calculate a business's adjusted taxable income in determining the deductible business interest limitation; and (2) any amount deducted on the federal return as special deprecation for qualified production property under IRC Section 168(n). The guidance includes several examples and explains how to report these modifications on the Maryland income tax returns. Lastly, the Comptroller noted provisions of the OBBBA that are not subject to automatic decoupling and cannot be claimed as a deduction on an individual's Maryland income tax return include the following: (1) income from tips (IRC Section 224), (2) income from overtime pay (IRC Section 225), (3) interest paid on an automobile loan (IRC Section 163(h)(4)), and (4) the additional deduction for individuals aged 65 years or older (IRC Section 151(d)(5)(C)). Md. Comp., Maryland Tax Alert "Maryland Impacts of the One Big Beautiful Bill Act (PL 119-21)" (January 6, 2026). South Carolina: The South Carolina Department of Revenue (SC DOR) issued general information on the state's conformity to the Internal Revenue Code (IRC) for individual income tax purposes. The state currently conforms to the IRC as of December 31, 2024. The state legislature adjourned its 2025 legislative session before the enactment of the federal One Big Beautiful Bill Act (OBBBA) and the legislature has not yet considered the changes in the OBBBA for state income tax purposes. The SC DOR said that until the legislature addresses IRC conformity, taxpayers will have to adjust their South Carolina income tax return if they claim any of the following OBBBA related changes on their 2025 federal return: (1) research and experimental expenditures (IRC Section 174A), (2) business asset expensing (IRC Section 179), (3) state and local tax deduction, (4) car loan interest, (5) overtime, (6) tips, (7) standard deduction and (8) senior deductions. The SC DOR also noted that the state specifically does not adopt the OBBBA's changes to bonus depreciation (IRC Section 168(k)) that take effect for the 2025 tax year. S.C. Dept. of Rev., SC Information Letter #26-4 (January 12, 2026). Colorado: The Colorado Department of Revenue (CO DOR) announced that on February 18, 2026, it will hold a second workgroup meeting to discuss the adoption of a new rule regarding the application of sales and use tax on leases and the acquisition of leased property — Special Rule 47. Under the general rule, leases of tangible personal property in Colorado are retail sales that generally are subject to Colorado state and state-administered local sales taxes, with certain exemptions. The draft rule provides that a lessor's purchase of property for a long-term lease is a wholesale sale that would be exempt from sales and use tax if it falls within the definition of a "wholesale sale" under C.R.S. 39-26-102(19)(a) and meets the requirements for the exemption in C.R.S. 39-26-713(2)(b). To be considered a wholesale sale, the primary purpose for acquiring the property would have to be to lease the property in an unaltered condition and basically unused by the lessor, except as otherwise provided. The exemption would not apply if the lessor uses or intends to use the property. The exemption would be allowed only with respect to property acquired by the lessor and leased to a lessee in the regular course of the lessor's business. Under the proposed rule, use by the lessor would be presumed if the lessor leases the property to a related party without charge or a charge below an arm's length rental charge. Regarding short-term leases, the lessor would be able to purchase the property tax free only if the CO DOR grants written permission to do so, and the lessor agrees to collect applicable Colorado and state-administered local sales taxes on lease payments. Permission to purchase tax-fee property for short-term lease would apply to all property subsequently purchased by the lessor for short-term leases. The draft rule would provide that long-term lease payments are subject to Colorado and state-administered local sales taxes. Short-term lease payments also would be subject to Colorado and state-administered local sales taxes if the lessor did not pay the applicable Colorado and state-administered local sales or use taxes on the property's acquisition. The proposed rule would provide guidance on the taxability of long-term and short-term sublease payments. Generally, sale-leaseback transactions that serve to finance the purchase of the property would not be considered a lease for sales tax purposes. The draft rule would provide guidance on a lessor's responsibilities, including licensing and registration and collection of tax. Sales of previously leased property would be subject to Colorado and state-administered local sales taxes in the same manner as any other sales of used property. The rule would define key terms, including "lease" (and lists what the "lease" does not include), "long-term lease," "related party," "state-administered local sales taxes," "short-term lease" and "sublease." Information on how to attend the workshop and how to submit comments by the February 18 deadline, is available here. Kentucky: The Kentucky Department of Revenue (KY DOR) in its Winter issue of Sales Tax Facts, said that due to the penny shortage caused by the U.S. Treasury's end of the penny production, some retailers when giving change back to customers in a cash transaction may need to round to the nearest nickel. The KY DOR said that "any rounding must not impact the calculation of the … Kentucky sales and use tax because … the tax must be calculated to the nearest penny … ." If rounding is necessary, the KY DOR recommends the use of the standard rounding rule: (1) round down to the nearest nickel if the last digit is 1, 2, 6 or 7 cents; and (2) round up to the nearest nickel if the last digit is 3, 4, 8 or 9 cents. The KY DOR noted that rounding occurs after the calculation of sales tax due. Ky. Dept. of Rev., Sales Tax Facts (Winter 2025/2026). Kentucky: The Kentucky Department of Revenue (KY DOR) in its Winter issue of Sales Tax Facts, said that the state's sales and use tax applies to sales of prewritten computer software and prewritten computer software access service that include Artificial Intelligence (AI) components. The KY DOR noted that an AI software program's ability to alter its responses or output based on data it receives from users without being explicitly programmed, is not custom software. Ky. Dept. of Rev., Sales Tax Facts (Winter 2025/2026). New Jersey: The New Jersey Division of Taxation (NJ DOT) explained that the penny shortage caused by the U.S. Treasury's end of the penny production, is affecting how businesses provide exact change in a cash transaction. The New Jesey Division of Consumer Affairs said that businesses/sellers that choose to adopt a policy rounding the cash transaction up or down to the nearest nickel, must disclose the rounding "clearly and conspicuously prior to the consumer incurring any charge for the goods or services purchased." The NJ DOT further explained that rounding applies to the final transaction total after all taxes and/or fees have been added and payment is made in cash. Further, sales tax is collected "based on the purchase price, regardless of whether the consumer or seller provided exact change." N.J. Div. of Taxn., "Cash Transaction Rounding Guidance Due to Penny Supply Changes" (January 9, 2026); N.J. Div. of Consumer Aff., Consumer Alert "Pennies and Cash Transactions" (January 9, 2026). Oklahoma: In response to a ruling request from a remote online retailer whose sales are made through its own website and third-party marketplaces, the Oklahoma Tax Commission said that the storage of the retailer's inventory at a marketplace facilitator's Oklahoma warehouse for which the remote retailer has no control or management authority, does not create substantial nexus for the retailer. The remote retailer also does not have economic nexus in the state as sales through its online website are below the $100,000 nexus-creating threshold. Accordingly, the online retailer is not required to collect and remit Oklahoma sales and use tax on sales made through its own website. Sales and use tax on sales made through the marketplace are collected and remitted by the marketplace facilitators. Okla. Tax Comm'n, Letter Ruling 25-006 (January 7, 2026). Tennessee: The Tennessee Department of Revenue (TN DOR) issued guidance to retailers that are rounding cash transactions to the nearest nickel due to the penny shortage caused by the U.S. Treasury's end of the penny production. The TN DOR explained that under Tennessee law, retailers are required to calculate sales tax to the exact cent, regardless of the payment method used by the customer. The TN DOR said this "includes remitting the exact amount of sales tax shown on the receipt or invoice." For cash transactions, the retailer may choose its own rounding procedures — e.g., round up or down to the nearest nickel, round all transactions up to the nearest nickel, round all transactions down to the nearest nickel. Sales tax is due on the sales price before rounding is applied. Thus, the amount of sales tax due is the same for cash transactions and other payments, such as credit card transactions. The TN DOR noted that this guidance is for Tennessee sales and use tax purposes only and does not address other state or federal laws related to rounding. Tenn. Dept. of Rev., Notice #26-01 "End of Penny Production" (January 2026). Texas: In response to a ruling request from a business that develops and constructs modular data centers powered by hydrogen, the Texas Comptroller of Public Accounts concluded that hydrogen is not a "gas" exempt from sales and use tax under Tex. Tax Code Section 151.317. Texas law provides sales and use tax exemptions for certain uses of gas and electricity as a utility, including gas or electricity sold for use directly by a data center. The Comptroller said that it has "consistently interpreted" gas to mean natural gas. Because hydrogen is not an exempt gas, the business's purchases of hydrogen or hydrogen fuel cells to power its data centers are purchases of tangible personal property subject to the state's sales and use tax. Tex. Comp. of Pub. Accts., Star No. 202511012L (November 21, 2025). Iowa: The Iowa Department of Revenue adopted new rule, Iowa Admin. Code 261 — 69.1, to implement the business incentives for growth (BIG) program, which was created by 2025 Iowa Acts, SF 657 and replaces the High Quality Jobs program. The BIG program provides tax incentives to businesses that locate, expand or modernize an Iowa facility. The new rules describe eligibility requirements. Eligible business includes those primarily engaged in the business of retail of tangible personal property or taxable services in Iowa or online. A service business "is not eligible for the program unless a significant proportion of its sales … are outside this state." A foreign business must demonstrate that it is not associated with a "foreign adversary or foreign adversary entity." Other eligibility requirements include job creation and retention, providing a sufficient benefits package, demonstrating that the project has a sufficient economic impact, among other considerations. The new rule lists projects that are ineligible as they are presumed by the economic development authority as lacking a sufficient economic impact to accomplish the goals of the program. The new rules also: (1) define key terms; (2) describe the application process and applicable wage, job and investment requirements; (3) discuss the amount and terms of awards under the BIG program; (4) describe tax incentives that may be approved for a business; (5) outline the agreement that must be executed under the program and describe repayment and/or reduction of credits if job and investments fall short of the required amount; (6) explain how jobs created and retained are counted; and (7) describe qualifying wage threshold requirements. The new rule is effective on January 28, 2026. New York: The New York Department of Economic Development adopted updates to its Excelsior Jobs Program regulations, 5 NYCRR 190.2, 191.1, 191.3 and 193.1. Amendments to Section 190.2 add definitions of "semiconductor supply chain project" and "full-time wage-paying job or equivalent to a full-time wage-paying job." Section 193.1 "Calculation of tax credits" is amended to provide that for semiconductor supply chain projects, the amount of the credit per job equals the product of the gross wages paid and up to seven percent. The amended regulations took effect on December 31, 2025. N.Y. State Register, Vol. XLVII, Issue 52, December 31, 2025. Illinois: New law (SB 25) modifies the property tax code by adding a new section to provide valuation procedures for commercial energy storage systems.2 Starting with assessment year 2026, the fair cash value of commercial energy storage system improvements is determined by subtracting the allowance for physical depreciation from the commercial energy storage system trended real property cost basis. The fair cash value may be further reduced by functional obsolescence and external obsolescence of the commercial energy storage system improvements; combined depreciation from such obsolescence may not exceed 70% of the trended real property cost basis. The chief county assessment officer may make reasonable adjustments to the actual age of the commercial energy storage system to account for routine replacement or upgrade of system components. Commercial energy storage systems subject to assessment under this provision are not subject to equalization factors applied by the Department of Revenue, any review board, assessor or chief county assessment officer. The law makes clear that the owner of a commercial energy storage system is liable for real estate taxes for the land and real property improvements of the commercial energy storage system. These provisions apply for assessment years 2026 through 2040. For purposes of this provision, the law defines several key terms, including "allowance for physical depreciation," "commercial energy storage system," "commercial energy storage system real property cost basis," "rated kWh energy capacity," and "trending factor." Ill. Laws 2025, Pub. Act 104-0458 (SB 25), signed by the governor on January 8, 2026. Texas: The Texas Comptroller of Public Accounts said that the U.S. Postal Service change regarding the timing of postmarks from when the mail is first received to later when it is being sorted and processed at regional distribution centers, could mean a delay in mail being postmarked by a few days after it is received by the post office. Such delay could cause date sensitive payments and reports to be late if it is mailed close to the deadline. To avoid possible delinquency, the Comptroller suggests taxpayers to use automated report or payment systems, mail items earlier, or request a manual postmark at a Postal Service retail location. Tex. Comp. of Pub. Acct., Star Nos. 202512008W, 202512009W and 202512010W (December 17, 2025). Louisiana: The Louisiana Department of Revenue (LA DOR) notified taxpayers and practitioners that it will now enforce the penalty for underpayment of estimated corporation income taxes. The LA DOR explained that previously it did not assess the penalty because the corporation income and franchise taxes were reported together. With the repeal of the corporate franchise tax, the LA DOR said the underpayment penalty will be assessed against all entities taxed as a corporation starting with the 2026 Form CIT-620 and all future returns. Estimated tax payments must be made by corporations that expect to owe $1,000 or more in income tax for the year. S corporations and other pass-through entities that have made a pass-through entity tax election also must make estimated tax payments. The LA DOR's bulletin includes a table listing the due dates and amount of the installment payments. The underpayment of estimated tax penalty equals 12% per year on the on amount of the underpayment. The penalty will not be imposed if each quarterly installment equals or exceeds the portion calculated under one of the safe harbors. La. Dept. of Rev., Revenue Information Bulletin 26-006 (January 13, 2026). New York: New law (S. 52/A.249) authorizes the use of an electronic signature by a person who has been granted a valid power of attorney form by a taxpayer in regard to documents used by the New York Department of Taxation and Finance and the New York City Department of Finance. This Act takes effect on the 120th day after it became law. N.Y. Laws 2025, ch. 667 (S.52/A.249), signed by the governor on December 19, 2025. Multistate: State unemployment insurance (SUI) trust funds are largely financed by employer contributions (employees also make contributions in Alaska, New Jersey and Pennsylvania). States are required to maintain a SUI taxable wage base of at least the limit set under the Federal Unemployment Tax Act (FUTA). The 2026 FUTA wage limit of $7,000 has remained unchanged since 1983, despite increases in the federal minimum wage and annual cost-of-living adjustments over the last 43 years. Some states are conservative in their approach to maintaining adequate SUI trust fund reserves. Consequently, the SUI wage base is flexible in those states, meaning it is indexed to the average wage and/or varies based on the trust fund balance. For 2026, 28 jurisdictions have a flexible wage base. See Tax Alert 2026-0124 for a list of state SUI taxable wage bases. Multistate: Six jurisdictions (California, Hawaii, New Jersey, New York, Puerto Rico and Rhode Island) operate state disability insurance (SDI) programs. Another 16 jurisdictions (California, Connecticut, Colorado, Delaware, District of Columbia, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New Jersey, New York, Oregon, Rhode Island, Vermont and Washington) now have, or soon will have, paid family and medical leave (PFML) insurance programs. Washington is currently the only jurisdiction with a long-term care (LTC) insurance program. Depending on the jurisdiction, the employee may pay all contributions to the SDI, PFML or LTC program through wage withholding, or the employer and the employee may share the cost of the insurance coverage. Most states allow employers to use a private insurance company or self-insured plan in lieu of paying into the state insurance fund(s). The chart in Tax Alert 2026-0131 shows the state SDI, PFML and LTC rates and taxable wage limits for 2026 based on information currently available. Washington: The Washington Department of Revenue issued an excise tax advisory (ETA) on the application of the business and occupation (B&O) tax on the production of self-produced fuels such as biomass, diesel, biodiesel, hydrogen, catalyst coke, green coke and refinery fuel gas. Self-produced biomass fuel is subject to B&O tax under the wood biomass fuel manufacturing classification, while refinery fuel gas is subject to the B&O tax under the manufacturing classification. The creation of catalyst coke is not subject to the manufacturing B&O tax; however, the use of such coke is subject to the state use tax but is exempt from local use tax. Other self-produced fuels, such as diesel, biodiesel, hydrogen and green coke, are subject to the manufacturing B&O tax. The ETA also describes when self-produced fuels are subject to or exempt from state and local use tax. Wash. Dept. of Rev., ETA 3014–2025 (December 22, 2025). Washington: The Washington Department of Revenue issued an excise tax advisory (ETA) on the application of the state's business and occupation (B&O) tax and retail sales tax on the preparation and delivery of entrees, meals and other food products prepared by meal assembly kitchens or meal delivery businesses. The ETA provides that a meal, entrée, side dish or other food product generally is a "prepared food" if it meets any of the following tests: (1) the food is sold with utensils provided by the seller — utensils include plates, knives, forks, spoons, glasses, cups, napkins or straws, but not containers or packaging use to assemble or transport food; (2) the food is sold in a heated state unless it is a bakery item; or (3) two or more food ingredients are mixed or combined by the seller for sale as a single item unless the food or food ingredients are (a) bakery items, or (b) only cut, repackaged or pasteurized by the seller, or (c) items that contain eggs, fish, meat or poultry, in in a raw or undercooked state requiring cooking to prevent food-borne illness, or (d) sold in an unheated state and sold by weight or volume. Gross income from sales of meal kits, consumer-assembled food, kitchen-assembled food and ready-to-eat prepared foods is subject to the retailing B&O tax classification. Gross income includes all charges for all income related to such sales. In addition, retail sales tax applies to sales of entrees, meals, side dishes and other food products that fall within the definition of "prepared foods." The ETA explains when retail sales tax does and does not apply to consumer-assembled food, kitchen-assembled food, ready-to-eat food, meal kits and packages containing both taxable and nontaxable products for one nonitemized price. Wash. Dept. of Rev., ETA 3168.2026 (January 5, 2026). Federal: On January 14, 2026, United States (US) President Donald Trump issued a proclamation, titled "Adjusting Imports of Semiconductors, Semiconductor Manufacturing Equipment, and their Derivative Products into the United States" (the Proclamation). As a result, effective 12:01 a.m. EST on January 15, 2026, a 25% ad valorem tariff applies to certain advanced computing chips and specified derivative products if their importation does not contribute to building out the US technology supply chain. The 25% tariff is in addition to other duties, fees, exactions and charges unless otherwise stated. The particular Harmonized Tariff Schedule of the United States codes covered include 8471.50, 8471.80 and 8473.30; however, the imported products covered are limited to a logic integrated circuit, or an article that contains a logic integrated circuit, that meets the technical parameters of having either a:
For additional information on this development, see Tax Alert 2026-0209. International — Canada: The Canada Border Services Agency (CBSA) has released its January 2026 update to the trade compliance verification priorities list. The updates include tariff classification, enforcement of surtax orders, and other compliance strategies. For more on this development, see Tax Alert 2026-0204. International — Italy: Italy's 2026 Budget Law (Law n. 199 of 2025), which the Italian Parliament approved, and the Official Gazette published on December 30, 2025, included indirect tax provisions of interest to businesses. Furthermore, on December 22, 2025, the Italian Council of Ministers had approved a new consolidated value-added tax (VAT) code, which is expected to be published soon in the Official Gazette. Tax Alert 2026-0150 summarizes key indirect tax measures included in the 2026 Budget Law, including: (1) VAT taxable base for barter transactions; (2) new administrative levy on small shipments; (3) automatic VAT settlement in the event of failure to submit annual VAT return; and (4) new postponement of the entry into force of the plastic-tax and the sugar-tax. The main features of the new consolidated VAT code, which will come into effect on January 1, 2027, are also addressed. 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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