11 March 2026 State and Local Tax Weekly for January 23 and January 30 Ernst & Young's State and Local Tax Weekly newsletter for January 23 and January 30 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. Ohio Supreme Court issues decisions on application of CAT situsing statute to sales of tangible personal property The Supreme Court of Ohio (court) issued decisions in two cases1 denying taxpayers refunds of Commercial Activity Tax (CAT) paid on gross receipts from property sold to purchasers that had the property pass through Ohio distribution centers. These cases, while taxpayer losses, provide some guidance on the application of ORC 5751.033(E), the CAT rule governing situsing receipts from tangible personal property. VVF Intervest: VVF Intervest (VVF) is a contract manufacturer of personal care products located in Kansas. VVF's largest wholesale customer placed monthly orders with VVF based on demand forecasts. The wholesale customer contracted with third parties to transport goods from VVF's Kansas facility to one of three distribution centers, one of which was in Ohio. These distribution centers were owned and operated by unrelated third parties. The wholesale customer held about two months of inventory at the Ohio distribution center, and when one of its retail customers placed an order, it would use its third-party transportation provider to transport the product to the retail customer's distribution center, including some outside Ohio. In initially allowing the refund claim, the Board of Tax Appeals (BTA) had concluded that the shipment to the Ohio distribution center was merely "one leg" of the transportation of the goods with the final destination being outside of Ohio.2 The Department of Taxation (Department) had unsuccessfully argued that the "second sale" (i.e., the sale by the wholesale customer to the retail customer) should not have been considered. In reversing the BTA's holding, the court agreed with the Department's "second sale" argument because ORC 5751.033(E) provides that property received in Ohio "by the purchaser" is a sale that is subject to CAT. While ORC 5751.033(E) provides that receipt takes place when all transportation is completed, the court concluded that the statute focuses on where the property is received by the purchaser, not where a purchaser may subsequently ship it because of a second sale. Since it concluded that the taxpayer's gross receipts were sitused to Ohio, the court did not address the Department's argument that "contemporaneous knowledge" of the destination of the goods was required. The court also rejected constitutional arguments raised by the taxpayer. A lone dissenting opinion asserted that the delivery of the goods occurred in Kansas, not Ohio. The dissent focused on a phrase from the statute that says "direct delivery outside this state to a person or firm designated by a purchaser does not constitute delivery to the purchaser in this state." The dissent concluded that both delivery and receipt were in Kansas, because the purchaser designated the motor carrier that picked up the goods in Kansas and also assumed full control over the property in Kansas. Jones Apparel/Nine West: Jones Apparel/Nine West (Nine West) is a designer, marketer and wholesaler of apparel, footwear, jewelry and other accessories, such as handbags. Nine West sells products through its own retail locations and online, as well as through other major retailers. Nine West ships products to Ohio-based distribution centers of major retailers. Nine West paid CAT on receipts for all goods shipped to Ohio distribution centers, including those ultimately received by customers in locations outside of Ohio. Like VVF, Nine West filed a refund claim, which was partially denied by the Department. Nine West appealed the denied refund claim to the BTA and presented testimony from its Vice President and Assistant Treasurer who indicated that the company would hold meetings to discuss marketing campaigns, distribution methods and other information that tracked performance and sales trends to see if customers' retail stores were doing better than expected. He testified that 80% of the taxpayer's sales were outside Ohio. Nine West also presented testimony describing its use of business intelligence applications that determined the cities in which its retail customer was located, which stores were in those cities, and which products were available at each store. This information was intended to corroborate Nine West's contention that it had knowledge of the ultimate destination of the goods without a "mark-for" designation, but not necessarily from the time of sale. The BTA first noted that subjective knowledge of the ultimate destination at the time of shipping was not required by ORC 5751.033(E). The BTA indicated that it could consider evidence provided by a taxpayer that shows the goods were ultimately received outside of Ohio. The BTA, however, concluded that Nine West did not meet its burden of proof in this case. The evidence presented by Nine West was based on data collected for periods outside of the period covered by the refund claim. The BTA said that "the data submitted … was too far removed and reflected too narrow a time frame to establish the goods … were ultimately received outside Ohio." The court, in affirming the BTA's decision, agreed with the BTA's conclusion that contemporaneous knowledge of the destination of goods is not required for the "simple reason" that such a requirement is not in the statute. The court also observed that CAT refund claims generally must be submitted within four years after the date of the overpayment. While noting that the refund claim must be accompanied by "documentation to support" it, the court found that the statute does not specify the type of documentation that must be furnished to support the claim. Turning to the issue of the sufficiency of the taxpayer's documentation, the court observed that one could "reasonably infer" from the testimony of the taxpayer's witnesses that some portion of its sale eventually ended up outside Ohio. However, the court said that the taxpayer did not provide "documentary evidence that establishes the amount of gross receipts for the merchandise that was actually transported out of Ohio." The court concluded that the testimony from the taxpayer's Vice President and Treasurer was an "educated guess" with no quantitative evidence supporting it. The taxpayer's study using business intelligence applications, while "comparatively more rigorous," was also deemed insufficient because it was computed based on a three-month period that postdated a seven-year refund period. A dissenting opinion would have found the taxpayer's evidence sufficient. The dissent observed that the taxpayer only had one distribution center that serviced the entire United States; yet, only 17-18 of its 500 retail stores were in Ohio. Accordingly, saying that 80% of the taxpayer's goods were sold outside Ohio was "no stretch of the imagination." For additional information on this development, see Tax Alert 2026-0246. Calendar-year taxpayers that want to make a new Montana water's-edge election — or renew an existing election that expired at the end of 2025 — must file Form WE-ELECT by March 31, 2026. A taxpayer must establish reasonable cause for the Montana Department of Revenue (MT DOR) to provide relief for untimely water's-edge elections. Montana corporate income tax law requires members of a unitary business to file returns on a worldwide combined basis, unless a water's-edge election is made to exclude foreign affiliates from the combined group. Taxpayers that make a Montana water's-edge election pay an elevated tax rate of 7% instead of the standard 6.75% rate. While many states require a water's-edge election to be made by the due date — or extended due date — of the return for the year for which it is intended to be effective, Montana is unique in that a water's-edge election must be made within 90 days of the beginning of the tax year in which it is intended to become effective. The water's-edge election is only effective if all affiliated corporations subject to Montana tax consent, with consent by the common parent of an affiliated group deemed consent by all members of that group. A water's-edge group generally includes corporations organized in the United States that have a unitary relationship and are eligible to be included in a federal consolidated return, except that Montana substitutes a greater-than-50%-ownership test for the 80% federal test. Other affiliated corporations that may be included are domestic international sales corporations (DISCs) and foreign sales corporations (FSCs), export trade corporations, foreign corporations that derive gain or loss from real property interests in the United States, corporations incorporated outside the United States that have more than 20% of their average payroll and property assignable to a location inside the United States. Timely filed elections, if approved, are binding for three years, absent MT DOR permission to change the filing methodology. Taxpayers wishing to continue the election for an additional three years must file Form WE-ELECT within 90 days of the beginning of the new three-year period for which the election is intended to be effective. After an election is filed, the MT DOR will send a letter confirming the election has been approved or explaining why it was denied. If a reply is not received within two weeks of submission or within two weeks of the deadline, taxpayers should contact the MT DOR to ascertain if there is a problem with the request. For additional information on this development, see Tax Alert 2026-0247. Arizona: On January 12, 2026, Governor Katie Hobbs delivered her state of the state address. The governor proposed a $200 million tax cut package for the middle class, which would include the immediate increase to the standard deduction, a tax cut on eligible overtime and tip incomes, and deductions for seniors and car loan interest. The governor also proposed eliminating the data center tax exemption, imposing a water usage fee on data centers, and imposing a $3.50 nightly fee on short-term rentals. These proposals are reflected in the governor's FY2027 Executive Budget, which was released on January 16, 2026. California: Governor Gavin Newsom's proposed budget for FY26-27, which was released on January 9, 2026, includes several tax changes. These proposed changes would: (1) create a new light-duty zero-emission vehicle incentive program, (2) require delivery network companies with at least $500,000 in annual state sales through their platform to register as marketplace facilitators starting in 2027, (3) extend for five years the CalCompetes tax credit program through fiscal year 2032/2033 (from FY 2027/28), and (4) create a tax credit against diesel excise tax liability to incentivize the in-state production of sustainable aviation fuel. The governor's budget also proposes rebuilding rainy-day reserves. Florida: Governor Ron DeSantis's FY 2026—2027 Budget, which was presented on December 10, 2025, includes proposed sales tax holidays and "sets aside $300 million to support ongoing policy considerations, ensuring that any statewide property tax relief framework is implemented in a stable and fiscally sound manner … ." Georgia: On January 15, 2026, Governor Brian Kemp presented his 2026 state of the state address. The governor noted that state taxes imposed on Georgians "are low and going lower" and that the "rainy day fund is at a record high." The governor budget proposal includes a "fourth, one-time" tax rebate of around $250 to single filers and $500 to married filers. The governor also said that his administration is proposing to reduce the state's personal and corporate income tax rates 4.99%. Idaho: On January 12, 2026, Governor Brad Little presented his FY 2026/2027 budget. The governor's budget would conform Idaho tax law to the federal tax changes in the One Big Beautiful Bill Act. The governor also said that the state "won't raise taxes to balance the state budget." Iowa: In her 2026 condition of the state address on January 13, 2026, Governor Kim Reynolds said that eight years ago the state made the decision to match all federal tax cuts at the state level. Thus, residents will get the same tax relief on their state income tax return as they get on their federal return, including no tax on tips and overtime. The governor further stated that even though the state has made progress on tax relief, property tax continues to impact Iowa residents, noting that property taxes had gone up more than 10% over the past two years. The governor said that she is introducing a property tax bill that will cap overall revenue growth for local governments, move property tax assessment from every two years to every three years, cap property tax bills for those 65 and older and whose home value does not exceed $350,000, and create a tax-deductible savings account for first-time homebuyers. The governor indicated that she is also going to introduce legislation to modernize and expand the beginning-farmer tax credit program. Massachusetts: On January 15, 2026, Massachusetts Governor Maura Healey, filed for legislative consideration of a bill (HB 4975) that would phase-in conformity to certain "One Big Beautiful Bill Act" (OBBBA) provisions, automatically decouple from federal tax changes under certain conditions and extend the state's elective pass-through entity tax (PTET) to include the surtax on high-income earners. OBBBA provisions: HB 4975 would disallow the deduction under IRC Section 174A "for [tax] years beginning in 2025." The Governor's letter to Senate and House members recommends that taxpayers "will be able to utilize the [research and experimental] (R&E) change on their payments for tax year 2026. … " The proposed bill also would disallow the deductions created by OBBBA Section 70302(f) "[applicable] for tax years beginning on or after January 1, 2025." HB 4975 would disallow the following deductions for tax years beginning in 2025 and 2026: (1) IRC Section 163(j)(8)(A)(v) modification of limitation on business interest; (2) IRC Section 179(b) increased dollar limitation for expensing certain depreciable business assets; and (3) IRC Section 168(n), the special depreciation allowance for qualified production property. For tax years beginning in 2025 or 2026, HB 4975 would allow taxpayers to apply IRC Section 1400Z-2 as in effect for tax years beginning before January 1, 2026. The proposed bill would define a "qualified opportunity zone" as "an area located entirely within the commonwealth that is designated as a qualified opportunity zone under [IRC Section 1400Z-2]. This change would apply to tax years beginning on or after January 1, 2026. The Governor's letter to Senate and House members recommends Massachusetts implement conformity to the four above mentioned OBBBA provisions in 2027. IRC conformity: The proposed bill would automatically decouple from certain amendments to the IRC that otherwise would apply under chapter 62 (income tax) or chapter 63 (corporate excise tax) if such amendments affect the determination of Massachusetts gross income or deductions under chapter 62 or gross income or net income under chapter 63 Section 30 paragraphs 3 and 4, respectively. This change would apply to tax years beginning on or after January 1, 2026. PTET: Under the existing PTET program, eligible pass-through entities (PTEs) may annually elect to pay a 5% excise tax on their "qualified income taxable in Massachusetts". The proposed bill would extend the state's elective PTET to include the 4% surtax on high-income earners. The PTET is intended to enable Massachusetts taxpayers who are PTE owners to deduct, for federal income tax purposes, state and local taxes (SALT) that exceed the annual SALT deduction limitation. Applicable to tax years beginning on or after January 1, 2026, new chapter 63E would allow eligible PTEs to make an annual election to pay an excise tax on its qualified taxable income at a 4% rate. Qualified members of a PTE making this election would be allowed a refundable credit against the PTET. For more on this proposal, see Tax Alert 2026-0326. Missouri: Governor Mike Kehoe on January 13, 2026, delivered his 2026 state of the state address, setting forth his legislative priorities and budget for the upcoming fiscal year. The governor is supportive of phasing-out and eliminating the individual income tax through a sustainable plan and wants to include a measure that would do such on the ballot this year. Voter approval of this ballot measure would allow the legislature to enact implementing legislation in the next legislative session. The governor suggested that new revenue and safeguards "to ensure fiscal responsibility and protect against economic downturns" could include the expansion of the sales and use tax base to include certain services. The governor said he would "never support extending sales taxes on agriculture, healthcare or real estate … ." Nebraska: On January 15, 2026, Governor Jim Pillen presented his 2026 state of the state address. During his address, the governor introduced the "Grow the Good Life Incentive" package, which would provide "significant tax credits to businesses of all sizes that grow their business and bring new, high paying careers here to Nebraska." Such businesses would be eligible for a 10% tax credit that would be available for a 10-year period. The governor also said that the state's "tax policy system is broken" and needs to be fixed. While noting that the state has made progress in the last few years, including providing tax cuts, he said that over the last four decades the state has created several carveouts, subsidies, loopholes and exemptions. The governor asked the legislature to pass a budget that provides "lasting and transformative tax relief" to homeowners, ranchers and farmers. New Mexico: In her 2026 state of the state address, delivered on January 20, New Mexico Governor Michelle Lujan Grisham asked the Legislature to consider approving $150 million in tax credits for future-forward technologies such as quantum and fusion energy. She also recommended eliminating the gross receipts tax on medical services to help make health care more accessible and affordable. New York: Governor Kathy Hochul on January 21, kicked off the first step in New York State's budget process by releasing her proposed New York State (NYS) fiscal year 2026—2027 revenue legislation (S.9009 and A.10009) (hereafter, Governor's Bill).3 The Governor's Bill would decouple from select federal tax changes enacted by the "One Big Beautiful Bill Act" (OBBBA), retroactively effective so that the federal provisions are not applicable for tax years beginning on or after January 1, 2025. Mechanically, the changes would operate by disallowing the current expense allowed for federal income tax purposes and then allowing an alternative amount for NYS and New York City (NYC) purposes. Specifically, the Governor's Bill would:
Other tax proposals in the Governor's Bill that are of interest to business taxpayers would do the following:
For more on the NYS governor's budget proposal, see Tax Alert 2026-0294. Rhode Island: Governor Dan McKee presented his FY 2027 budget on January 15, 2026. Tax changes in the budget would: (1) add a new, fourth individual income tax bracket that would impose an 8.99% income tax on income over $1 million, starting in 2027; (2) decouple from accelerated research and experimentation expensing in the One Big Beautiful Bill Act; (3) establish a tax amnesty program in FY 2027; (4) create the state's first permanent child tax credit equal to $325 per child; (5) repeal the two cent gas tax increase enacted last year; (6) phase-out over three years the state tax on social security benefits; and (7) increase the cigarette tax, eliminate the cigarette stamp discount for distributors, and raise the cigar tax cap. Washington: In his state of the state address (presented January 13, 2026), Governor Bob Ferguson said the state's facing an affordability crisis, noting that the state's "regressive, upside-down tax code, does not help." The governor called upon the legislature to approve a Millionaires Tax; the tax would be imposed at a rate of 9.9% on income exceeding $1 million. Revenue collected from the Millionaires Tax would be used to expand eligibility for the working families tax credit and to lower taxes on small business owners. On December 23, 2025, the governor released a supplemental budget proposal based on current revenue projections without new business tax impositions, but in part relying on reducing certain tax preference items for targeted business. These include: (1) eliminating a sales tax exemption for data center replacement server equipment, effective July 1, 2026; (2) increasing the business and occupation (B&O) tax rate for prescription wholesalers from 0.138% to the general 0.5% wholesaler rate; and (3) restricting a B&O tax exemption for insurance providers subject to the state's gross premiums tax to those entities that actually pay the premiums tax. West Virginia: Governor Patrick Morrisey on January 14, 2026, delivered his 2026 state of the state address. The governor is seeking a 10% across-the-board income tax cut (introduced in the legislature as SB 392 and HB 4019), the expansion of the Historic Rehab Tax Credit, and conformity to the permanent tax changes in the One Big Beautiful Bill Act, including immediate expensing of domestic research and experimental expenditures and the more generous treatment of business interest deductions and full bonus depreciation for qualified property. Iowa: The Iowa Department of Revenue adopted 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, "amended 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 amended regulation describes how the credit is calculated by combined return filers. For purposes of calculating the credit, the franchise tax paid by a financial institution that elects to file a combined return with one or more investment subsidiaries, is 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 is not 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 amended regulation includes a formula that should be used to determine the portion of a combined group's tax that may be used to calculate a shareholder's/member's franchise tax credit. Amended Rule 701-602.20, requires 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, is not required for financial institutions that elect to file a combined Iowa return with their investment subsidiaries. New rule 701-602.33 provides guidance on how to make the election to file a combined return, how to discontinue the election to file combined return, filing combined returns, calculating the combined group net income, allocating and apportioning of combined group income, and payment of tax. The rulemaking was adopted on December 31, 2025. The amended rule takes effect on February 25, 2026. Iowa Admin. Bulletin, Iowa Admin. Regs. 701-304.16, 701-501.16 and 701-602.20 (Vol. XLVIII, No. 16, January 21, 2026). Pennsylvania: The Pennsylvania Department of Revenue issued general guidance on the One Big Beautiful Bill Act provisions that PA Act 45 of 20254 decouples from for corporate net income tax purposes — specifically research and experimentation (R&E) expenditures (IRC Section 174A), depreciation of qualified production property (IRC Section 168(n)) and interest expenses (IRC Section 163(j)). The guidance describes how Pennsylvania decouples from these provisions, how adjustments related to these provisions should be reported and on which form such adjustment must be reflected on, and which forms will be updated for these adjustments. Pa. Dept. of Rev., Act 45 of 2025: Corporate Net Income Tax (CNIT) provisions (January 16, 2026). Puerto Rico: Recently enacted laws amend the Puerto Rico Internal Revenue Code of 2011 (PR Code) to create savings accounts for people with disabilities (ABLE accounts), increase the deduction for contributions to education savings accounts and increase the deduction for contributions to Individual Retirement Accounts (IRAs). Puerto Rico also amended the Puerto Rico Incentives Code to clarify the provisions on the income tax exemption for gains realized on the sale of a primary residence in Puerto Rico for certain taxpayers. For additional information on this development, see Tax Alert 2026-0221. Wisconsin: The Wisconsin Department of Revenue (Department) in its January 2026 tax bulletin explained that for the 2025 tax year, the state follows the federal Internal Revenue Code as amended to December 31, 2022, with certain exceptions. In regard to research and experimental (R&E) expenses, the Department said that the state has not adopted Section 70302 of the One Big Beautiful Bill Act (OBBBA), which made changes to when R&E expenses are deductible for federal purposes. Instead, the state follows IRC Section 174 as amended to December 22, 2017. The Department noted that because there will likely be differences in deducting R&E expenses for federal and Wisconsin income tax purposes, an adjustment may be required. The Department listed both the federal deductibility and Wisconsin deductibility periods and included examples. Wis. Dept. of Rev., "Wisconsin Tax Bulletin" (January 2026, No. 232). Illinois: In response to a ruling request for clarification regarding the taxability of dietary supplements, the Illinois Department of Revenue (IL DOR) said that dietary supplements that do not make medicinal claims qualify as food, and starting January 1, 2026, sales of food for human consumption off the premises where it is sold, are exempt from state sales and use taxes. Such dietary supplements, however, qualify as "groceries" for purposes of the new Municipal Grocery Occupation Tax and County Grocery Occupation Tax (collectively, "local grocery taxes"). Accordingly, starting in 2026 sales of these dietary supplements would be subject to applicable local grocery taxes. (Local grocery taxes may be imposed at a 1% rate by ordinance.) The IL DOR noted that dietary supplements that make medicinal claims are considered drugs, which are subject to a sales and use tax at a 1% rate. Ill. Dept. of Rev., ST 25-0065-GIL (December 5, 2025). Michigan: The Michigan Department of Treasury (MI DOT) updated its Revenue Information Bulletin on the application of the state's sales and use tax on food for human consumption. In the prepared food — food sold in a heated state or that is heated by the seller discussion (Section 2.1), the MI DOT said that a "seller generally may not avoid tax by 'unbundling' the transaction" (i.e., characterizing the transaction as the sale of exempt food and the sales of service). The MI DOT amended Section 2.3.3.3 "Provided by the seller" for sellers with a "prepared food sales percentage of greater than 75%" regarding food items with multiple servings, to provide that the number of servings packaged as a single food item is determined from the information on the food item's label. If the number of servings cannot be determined from the food item's label, the seller may determine the reasonable number of servings. The MI DOT revised Section 2.3 "food sold with eating utensils provided by the seller," amended several examples and added new examples throughout the bulletin. Mich. Dept. Treas., RAB 2026-2 "Sales and Use Tax — Food for Human Consumption" (January 29, 2026) (updates and replaces RAB 2024-13). North Carolina: The North Carolina Department of Revenue (NC DOR) provided guidance to retailers on rounding cash transaction due to the penny shortage caused by the federal government's end of the penny production. The NC DOR said that retailers must calculate sales and use tax on the sales price of, or gross receipts derived from, taxable sales. Thus, after-tax rounding does not impact the calculation of sales and use tax due. Rounding the cash transaction down or up to the nearest five-cent increment after calculating tax does not reduce the tax due or increase the sales price or gross receipts from the sale. The NC DOR said that this guidance does not impact non-cash transactions (e.g., electronic payments, checks, or credit, debit or gift cards) or transaction in which the retailer accepts exact change. The NC DOR said retailers who round cash transactions must keep records documenting such rounding. The NC DOR's guidance includes examples. N.C. Dept. of Rev., Sales and Use Tax Directive 26-1 (January 22, 2026). South Carolina: The South Carolina Department of Revenue (SC DOR) provided guidance to retailers on rounding cash transaction due to the penny shortage caused by the federal government's end of the penny production. The SC DOR explained that the amount of sales and use tax due and payable by the retailer is based on the sales price of the tangible personal property, and that the amount of sales tax due should not be recalculated based on the rounded amount. Lastly, the SC DOR said it was not endorsing a particular rounding method (e.g., rounding up or down or to the nearest nickel). The guidance includes an example. S.C. Dept. of Rev., SC Information Letter #26-6 (January 22, 2026). New Jersey: New law (A.6298) modifies certain eligibility and evaluation criteria for transformative projects under the New Jersey Aspire Program. To qualify for Aspire tax credits, a transformative project must be designated by the New Jersey Economic Development Authority as being of special economic importance and it must demonstrate that the project will yield a net positive benefit to the state. For applications submitted on or after January 20, 2026, certain transformative projects meeting specified criteria are deemed to constitute a project of special economic importance; such projects do not have to demonstrate a net positive benefit to the state. This change applies to transformative projects that are in government-restricted municipalities that are designated as the county seat of a second-class county and are located in close proximity to a multi-modal transportation hub, an institution of higher education, and a licensed health care facility that serves underrepresented populations. A.6298 took effect immediately. N.J. Laws 2025, ch. 398 (A.6298), signed by the governor on January 20, 2026. New Jersey: New law (A.6307) makes several changes to the film and digital media content production tax credit program requirements. Provisions regarding out-of-state producer fees are modified to exclude producer fees received for services performed in New Jersey that otherwise qualify as qualified film production expenses. New Jersey law limits the cumulative expenses for production insurance premiums, rights fees and out-of-state producer fees (excluding producer fees for services performed in the state that already qualify as qualified film production expenses) to 7.5% of the qualified film production expenses for any New Jersey studio partner or New Jersey film-lease production company. For purposes of calculating the 7.5% limit, the new law provides that the total out-of-state producer fees and rights fees, script costs, insurance premiums and excess amounts paid to highly compensated individuals are included in the total amount of qualified film production expenses for any New Jersey film-lease production company or New Jersey studio partner. The law provides that out-of-state producer fees and scripts costs incurred/written outside the state will qualify as qualified film production expenses even if New Jersey gross income was not withheld from wages, salaries or other compensation paid or incurred for such services. The law allows the Economic Development Authority to revoke a New Jersey film-lease partner facility designation and recapture a portion of the tax credits available to New Jersey film-lease production companies and New Jersey film-lease post-production companies due to its designation as a New Jersey film-lease partner facility if conditions are met. The law also modifies provisions for the additional tax credit available for those submitting with the credit application a diversity plan or plan outlining specific goals to promote or invest in New Jersey. A.6307 took effect immediately and applies retroactively to the effective date of prior law changes that meet certain criteria. N.J. Laws 2025, ch. 400 (A.6307), signed by the governor on January 20, 2026. Massachusetts: On January 1, 2026, the Massachusetts Department of Revenue (MA DOR) updated its webpage that provides detailed guidance on the filing and withholding rules for real estate sales of $1 million or more. Massachusetts regulation 830 CMR 62B.2.4: "Withholding on Sales of Massachusetts Real Estate" (hereafter, "regulation"), effective for real estate closings occurring on or after November 1, 2025, requires withholding agents to collect and remit income tax or corporate excise tax and submit a return on transfers of real property located in whole, or in part, in Massachusetts when the gross sales price equals or exceeds the withholding threshold, which is currently set at $1 million. For transfers that would otherwise be subject to withholding but for which all the transferors are exempt, withholding agents must submit a return and a Transferor's Certification for each transferor. Unless otherwise provided, the withholding, return, and applicable Transferor's Certifications are due within 10 days of closing. (For a detailed discussion of the regulation, see Tax Alert 2025-2253.) The MA DOR's webpage: (1) provides an overview of the regulation; (2) includes links to the transferor's certification form and instructions for 2026 and 2025; (3) provides a link to MassTaxConnect, which withholding agents must use to file the withholding return and remit the payment; (4) provides responses to FAQs on various topics, including withholding requirements, calculating the amount that should be withheld and the applicable tax rate, transferor's certifications, Form NRW: Nonresident Real Estate Withholding, multiple and exempt sellers, withholding agents and miscellaneous questions. California: The City of San José is conducting a business tax amnesty program that runs through December 31, 2026. During the amnesty period, businesses and individuals can register their business, pay past-due taxes and applicable fees, and update their employee count, square footage, or number of rental units. Taxpayers who participate in, and comply with the terms of, the amnesty program will have all penalties and interest assessed by the City and the Business Improvement Districts waived. City of San Jose, Media Advisory: City of San José Announces Business Tax Amnesty Program for 2026 (January 28, 2026). Michigan: The Michigan Department of Treasury (MI DOT) issued a notice, stating that it will provide limited relief from penalty and interest related to the underpayment of corporate income tax quarterly estimated payments following the enactment of the federal One Big Beautiful Bill Act (OBBBA) and Michigan Public Act 24, which decoupled from various OBBBA provisions. (See Tax Alert 2025-2077.) Noting the "difficulty in calculating accurate estimates created by multiple significant changes in law enacted throughout 2025," the MI DOT said it has determined that reasonable cause exist to allow for a waiver of penalty and interest related to the underpayment of quarterly estimates if certain conditions are met. The MI DOT said relief applies to quarterly estimated payments due in July 2025 through January 2026 that are for the 2025 annual return. Relief applies only if the taxpayer timely pays the 2025 annual tax liability in full. Taxpayers must request the relief in writing, following the procedures outlined in the notice. The MI DOT said that taxpayers that underpaid will receive a notice, and that taxpayers "should not submit request for relief prior to receiving a notice from Treasury." The MI DOT made clear that this relief does not apply to any other deadlines or to the premiums or franchise taxes. Mich. Dept. of Treas., "Relief for 2025 CIT Estimated Payments in Light of OB3 and Decoupling Under Michigan PA 24" (January 28, 2026.) Washington: The Washington Department of Revenue (WA DOR) issued a special notice regarding changes to business and occupation (B&O) tax exemption for credit unions. Effective January 1, 2026, a credit union organized under Washington law that merges with or acquires a bank that is regulated by the Department of Financial Institutions is subject to B&O tax. Credit unions subject to B&O tax report gross income under the credit union tax classification, which is imposed at a rate of 1.2%. Federally chartered credit unions, credit unions organized under the laws of any other state, and Washington credit unions that applied for regulatory approval before January 1, 2026, remain exempt from B&O tax. Wash. Dept. of Rev., "Changes to B&O exemption for credit unions" (January 28, 2026). International — China: Following the passage of China's Value-Added Tax (VAT) Law on December 25, 2024, the State Council officially released the VAT Implementation Regulations (the Regulations) on December 30, 2025. The Regulations provide detailed guidance on implementing the VAT Law and took effect on January 1, 2026. Tax Alert 2026-0228 highlights the key changes most relevant to multinational enterprises operating in China. Topics addressed include: (1) cross-border transaction rules, (2) updated output VAT rules, and (3) input VAT management framework. 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.
Document ID: 2026-0613 | ||
