Ernst & Young's State and Local Tax Weekly newsletter for February 6 and February 13 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.

Indirect Tax/SALT Report February 6 and February 13, 2026

TOP STORIES

Total state and local business taxes State-by-state estimates for FY24

This study presents detailed state-by-state estimates of state and local taxes paid by businesses. It is the 23rd annual report prepared by Ernst & Young LLP (EY US) in conjunction with the Council On State Taxation (COST) and the State Tax Research Institute (STRI). The estimates presented in this study are for fiscal year 2024 (FY24), which ran from July 2023 through June 2024 for most states.¹

Businesses paid $1.1 trillion in state and local taxes in FY24, which was 45.8% of all tax revenue at the state and local level. Businesses paid $640.8 billion in state taxes in FY24, which was a 4.0% increase from the prior fiscal year, and $507.3 billion in local taxes, which was 5.5% higher, for a combined year-over-year growth rate of 4.7% over FY23.

Business taxes include property taxes paid by businesses; sales and excise taxes on intermediate inputs and capital expenditures purchased by businesses; business entity taxes such as the corporate income tax, gross receipts tax, and franchise taxes; the share of individual income taxes paid by owners of noncorporate businesses (pass-through entities (PTEs)); unemployment insurance taxes; and all other state and local taxes that are the statutory liability of business taxpayers.

The following are key findings of the study:

• Business property tax collections grew by 5.7% in FY24 to $390.3 billion. Property taxes account for 34% of all state and local taxes paid by businesses, the most of any tax category. Businesses primarily pay property taxes at the local level, where they make up 74.0% of all local business tax collections and only 2.4% of taxes paid by businesses at the state level.
• Sales tax collections from business purchases of intermediate inputs and capital expenditures are the second largest source of business tax revenue for state and local governments, accounting for 21.4% of all taxes paid by businesses in FY24. The $245.3 billion in sales tax collections was 1.7% higher than FY23.2 The sales tax is the largest source of business tax revenue at the state level, accounting for 29.4% of all taxes paid by businesses. Although they are the second largest local business tax, business sales taxes only make up 11.2% of total local business tax collections.
• Corporate income and gross receipts tax collections decreased by 0.8% in FY24 to $142.8 billion. Corporate income taxes are the third-largest business tax for state and local governments, making up 12.4% of tax collections. They are the second-largest business tax at the state level, accounting for 20.6% of taxes paid by businesses. Corporate income tax collections are included in the other business taxes category at the local level, which accounted for 5.3% of business tax revenue in FY24. Certain statewide gross receipts taxes levied in lieu of corporate income taxes are also included in this measure.
• Individual income taxes paid on pass-through income were the fourth-largest business tax at 8.1% of total state and local business tax collections. Revenues grew 20.3% in FY24 to $92.7 billion. Individual income taxes on business income are the third-largest business tax at the state level, at 13.3% of taxes paid by businesses.
• Total state and local taxes paid by businesses in FY24 equaled 4.5% of US private-sector gross state product (GSP), which measures the value of the private-sector production of goods and services in a state. There was substantial variation across states, with business taxes making up as little as 3.2% of private-sector GSP and as high as 10.6%. States with high reliance on severance taxes, such as Alaska and North Dakota, tend to have much higher business tax as a share of GSP, while states that rely mainly on individual income tax and sales tax, such as Maryland and Connecticut, have lower business taxes as a share of GSP.
• An alternative measure of the tax burden on businesses is the "business tax-to-benefit" ratio, which is how much businesses pay in taxes to receive $1.00 in benefits from government spending. The ratio is sensitive to estimates of the benefit received from spending on education, which is the largest category of expenditures by state and local governments. Businesses paid on average $2.37 in taxes per dollar of government expenditures, assuming that in-state education spending does not benefit in-state businesses. Under an alternate assumption, businesses paid on average $1.06 in taxes for every dollar of government spending, assuming that businesses benefit 50% from in-state educational expenditures.

A copy of the full report is available here.

Proposed bill would repeal California's water's-edge combined reporting election in 2028

On February 10, 2026, the California legislature introduced a bill, AB 1790, which would repeal the water's-edge election allowed under the state's mandatory combined reporting regime in 2028, subsequently requiring a unitary business group to use the worldwide combined reporting method. The proposed bill also would include captive insurance subsidiaries in the combined return, and for tax years 2026 and 2027 would modify provisions regarding the income and apportionment factors that a taxpayer making a water's-edge election must consider.

Water's-edge election: California's default filing methodology is worldwide combined reporting. However, the unitary business group may elect to file the combined report using the water's-edge method. A water's-edge election is binding on the combined group for 84-months but may be terminated with the consent of the Franchise Tax Board (FTB) before the end of that period. The election can be terminated without FTB consent after the 84-month period.

For tax years beginning on or after January 1, 2026, and before January 1, 2028, a combined group that made a water's-edge election would be allowed to terminate the election without the FTB's consent.

For tax years beginning on or after January 1, 2028, taxpayers would no longer be able to make a water's-edge election, and every water's-edge election would be terminated.

Transition rules: Under current law, a foreign-incorporated business must be included in a water's-edge combined report if its US apportionment factor (the average of its property, payroll and sales factors) is 20% or more (the 20% test). For tax years 2026 and 2027, the proposed bill would modify the 20% test so that the entire income and apportionment factors of any corporation, other than a bank, would be included in the water's edge combined report if its sales factor within the United States is 20% or more. In addition, the entire income and apportionment factors of any corporation that is a member of the water's-edge group incorporated in the United States or formed under the laws of a state or US territory or possession would be included.

For tax years 2026 and 2027, water's-edge filers also would be required to include 40% of net controlled foreign corporation (CFC) tested income (NCTI)² as business income. However, the apportionment factors of a CFC³ would not be included as a result of including the NCTI income.

Legislative findings: In regard to the combined reporting method, the Legislative findings provision of AB 1790 includes the following sweeping proposed language:

• All persons that are part of a unitary business would be included in the combined report.
• The determination of a unitary business would be governed by the unitary business principle.
• The combined return would include captive insurance subsidiaries.
• All income and apportionment factors of a combined group would be combined even if the state has a special apportionment regime for a particular entity, unless the FTB consents to the use of special apportionment.
• The tax liability of a unitary business group member that is subject to a net income tax or tax measured by net income under another California law would be a credit against the unitary group's corporate tax liability.

Recent Informational Joint Hearing: The Senate Revenue and Taxation Committee and Assembly Revenue and Taxation Committee on February 11, 2026, held a joint informational hearing "Peering Over the Water's Edge: State Taxation of Foreign Subsidiary Income." Testimony was presented both in favor for and against the repeal of the water's-edge election. Those in favor of repealing the water's-edge election reasoned that the repeal would reduce profit shifting out of the United States. The Committee also asked panelists if there is a concern that California would face pressure from foreign governments if the state moved away from water's-edge combined reporting and whether eliminating the water's-edge election would increase the risk of double taxation. The Legislative Analyst's Office Economist and FTB's Chief Economist also noted the uncertainty and unpredictability associated with estimating the amount of additional revenue that would be raised by eliminating the water's-edge election. The Committee and panelists did not reference the proposed language in AB 1790.

For more on this development, see Tax Alert 2026-0429.

GOVERNOR BUDGETS

The following is a summary of governors' budget proposals and state-of-the state addresses.

Alaska: Governor Mike Dunleavy's proposed fiscal plan includes several tax law changes. Notably, a temporary state sales and use tax would be imposed at a rate of 2% from October through March and at a rate of 4% from April through September for tax years 2027 through 2033. The rate of the state sales and use tax would be drop to a 0% starting January 1, 2034. The governor's proposal also would adopt market-based sourcing using model language from the Multistate Tax Commission and eliminate the corporate income tax by 2031. In addition, for a five-year period, beginning in January 2027, the state's minimum oil production tax rate would increase to 6% (from 4%) and a 15 cent per-barrel fee would be imposed. Many of these changes have been introduced via proposed bill SB 227.⁴

Connecticut: In his FY 2027 recommended budget adjustment, released February 4, 2026, Governor Ned Lamont called for targeted tax relief and investment in businesses and families. Such relief and investments include: (1) expanding the research and development tax credits to pass-through entities; (2) providing a sales tax rebate of $200 for single filers and $400 for joint filers, subject to income limitations; (3) eliminating occupational and licensing and renewal fees for high-demand professionals; (4) establishing a $1000 per employee tax credit for small-businesses that offer individual coverage health reimbursement arrangements through Access Health CT's BusinessPlus platform; and (5) modifying the hospital tax. Notably, the governor's proposed budget would have the state decouple from certain federal provisions enacted under the One Big Beautiful Bill Act and would couple to select "new federal provisions which will positively impact Connecticut's economy." Specifically, the state would decouple from bonus deprecation on qualified production property (IRC Section 168(n)) and from the expensing rules for domestic research and experimentation (R&E) expenses for income years 2022 through 2025 (IRC Section 174A). Starting in 2026, the state would couple to IRC Section 174A. (The governor presented his 2026 state of the state address on February 4, 2026.)

Delaware: On January 29, 2026, Governor Matt Meyer presented his FY27 recommended budget, provisions of which would establish a targeted film tax credit, adjust the Escheat cap, modernize business formation fees, and update tobacco taxes. The budget would allocate $10 million for the new film tax credit. The Escheat cap would be increased from $554 million to $614 million. Tobacco taxes, including the cigarette tax, would be increased to $3.60 per pack and the rate for other tobacco products would be 40% of wholesale. In his January 22 state of the state address, the governor remarked that the state could "keep taxes low — because we are the preeminent home to the corporate franchise."

Hawaii: Governor Josh Green delivered his 2026 state of the state address on January 26, 2026. In it, he said that in 2026 and after, the state will expand the stackable film tax credits for productions hiring local crew and talent, and with a proposal to remove the credit cap on productions spending $60 million or more, including, for the first-time, streaming service productions. The governor said that the tax cuts for 2026 and all previous tax cuts will be preserved but that the tax cuts planned for 2027 through 2029 would be paused. (The governor submitted his Supplemental Budget for FY 2027 On December 22, 2025.)

Maine: Governor Janet Mills presented her supplemental budget proposal for FY 2026–2027 on February 4, 2026 and her state of the state address on January 27, 2026. The governor's is proposing $300 (single filers) and $600 (joint filers) affordability relief checks be issued to approximately 750,000 residents. She also said that property taxes are "still too high for too many" and to help keep property taxes down, she included $46 million in her supplemental budget to maintain the state's commitment to pay 55% of educational costs. The governor's supplemental budget also would partially conform state law to provisions of the One Big Beautiful Bill Act. Specifically, the state's date of conformity to the Internal Revenue Code (IRC) would be updated to December 31, 2025. The budget bill would adopt IRC Section 174's R&E expense changes for small businesses and phase in conformity for large businesses. The budget bill would decouple from IRC Section 168(n), which allows corporate taxpayers to immediately expense certain qualified production property, and it would update the state's reference to global intangible low-taxed income (GILTI) to net CFC tested income (NCTI). The proposed budget also would (1) allow a subtraction modification for charitable deductions claimed by those who do not itemize their deduction; (2) maintain Maine's standard deduction in 2025, increase the deduction amount in 2026 and conform to the federal deduction amount starting in 2027; and (3) repeal the employer credit for family and medical leave for tax years beginning on or after January 1, 2026. Unless otherwise stated, these changes would apply to tax years beginning on or after January 1, 2025. The governor's proposed budget also would establish an elective pass-through entity tax that could first be elected starting in 2026, modify the hospital tax, and modify certain property tax provisions.

Maryland: Governor Wes Moore released his proposed FY 2027 budget on January 21, 2026. The governor said that his proposed budget does not include new taxes or fees. It does, however, include "more than $100 million in targeted and tested business tax cuts" and it would strengthen the state's capacity to drive private investment through the proposed DECADE Act of 2026. The DECADE (Delivering Economic Competitiveness and Advancing Development Efforts) Act would "overhaul the state's economic development strategy, modernize programs with a focus on high-growth sectors, streamline business support, and cut ineffective incentives to spur growth and create jobs over the next decade." The full budget book reflects that the Governor's proposed tax provisions regarding partial conformity to the OBBBA. Under the governor's budget proposal, the state would couple to IRC Section 174A's domestic R&E provisions starting in 2026, as well as the amendments to IRC Section 163(j). The proposal also would manufacturing small businesses to access the expanded tax benefit for capital investments. The budget proposal would decouple from the new deprecation allowance for production property under IRC Section 168(n), and it would replace the federal bonus depreciation rules in IRC Section 168(k) with a Maryland-specific rule under which a 20% deduction would be allowed for eligible investments. The Governor's budget proposals will be incorporated into the Budget Reconciliation and Financing Act of 2026, HB 392 and SB 284, introduced on January 1, 2026.

In his 2026 state of the state address, presented on February 11, 2026, the governor in discussing energy reform said that, to receive his support, new data centers, among other requirements, will need to "cover the cost of their own power needs."

Michigan: On February 11, 2026, Governor Gretchen Whitmer presented her FY27 budget. The budget proposal would provide property tax relief to seniors through an expanded tax credit, create a back-to-school sales tax holiday, continue the working families tax credit, roll back the retirement tax credit, and continue tax exemptions on tips, overtime and social security. The governor's proposed budget recommendations also include imposing a new digital advertising tax across all media platforms, bringing Michigan's tobacco tax rate in line with other Great Lakes states, taxing vaping and non-tobacco nicotine products similar to other tobacco products, and updating the state's tax structure for internet gaming, sports betting and online gaming. The proposed budget allocates $59.4 million "to continue business attraction and community revitalization programs to incentivize job creation, investment and revitalize blighted properties."

New Hampshire: On February 5, 2026, Governor Kelly Ayotte presented her state of the state address. In her speech, the governor said that the state's property taxes are "unsustainable," and she rejected raising other taxes as a way to reduce property taxes. The governor also would like to see a childcare tax credit for companies that invest in childcare for their workforce.

Oklahoma: On February 2, 2026, Governor Kevin Stitt presented his 2026 state of the state address. The governor wants a ballot measure that would allow voters to decide on codifying a 3% annual cap on recurring spending growth in the state's Constitution and lock in future cuts. The governor noting the rise in in property taxes, also called upon the legislature to freeze property tax growth across the board.

Pennsylvania: On February 3, 2026, Governor Josh Shapiro presented his 2026-27 budget proposal. The proposed budget would continue the corporate net income tax rate reductions under the current reduction schedule (the rate is set to reach 4.99% by 2031) and adopt mandatory unitary combined reporting. The governor's budget also would (1) expand gaming by legalizing, regulating and taxing games of skill; (2) legalize and tax adult use cannabis; (3) create the Innovate in PA 2.0 program to provide $100 million to the state's innovation economy through the sales of Insurance Premium Tax Credits; (4) create an economic development tool, the PA First program, which would provide financial assistance for workforce training, job creation and retention, land and building costs, and machinery and equipment; (5) streamline programs administered by the Department of Community and Economic Development (DCED) by eliminating redundant or ineffective programs and investing in programs that have a broader reach and impact — for example the Waterfront Development Tax Credit, the Video Game Development Tax Credit and the Manufacturing Tax Credit would be eliminated and the AdvancePA tax credit would be created; (6) modify several tax credit programs, including the semiconductor manufacturing tax credit program, the regional clean hydrogen tax credit program, and the local resource manufacturing tax credit program. The governor is also urging the legislature to increase the minimum wage to $15 per hour.

South Carolina: On January 28, 2026, Governor Henry McMaster presented his state of the state address. The governor proposed cutting the personal income tax rate as much as the state can. His 2026–2027 executive budget, which was delivered on January 12, 2026, specifies that the rate would be reduced from 6% to 5.9%.

South Dakota: On January 13, 2026, Governor Larry Rhoden gave his 2026 state of the state address. The governor noted that while the state has kept taxes low, the state "need[s] to keep working … to hold down property taxes." The governor is proposing to cut owner-occupied property taxes by giving each county the option of replacing its share of property taxes with a half-cent sales tax. (The governor gave his 2025 budget address on December 2, 2025.)

Wisconsin: On February 18, 2026, Governor Tony Evers delivered his 2026 state of the state address. The governor said he was "hopeful" that a bipartisan agreement could be reached to provide property tax relief. On January 13, 2026, the governor urged bipartisan support for his new 2026 legislative agenda. This agenda includes a $1 billion property tax relief plan, which among other things, would prevent property tax increases for Wisconsin homeowners, and the elimination of sales tax on several household goods and over-the-counter medications

INCOME/FRANCHISE

Idaho: New law (HB 559) updates Idaho's conformity to the Internal Revenue Code (IRC) and decouples from certain provisions of the One Big Beautiful Bill Act (OBBBA). HB 559 changes Idaho's IRC conformity date to January 1, 2026 (from January 1, 2025). It conforms Idaho to the tax changes contained in the OBBBA, except for: (1) bonus depreciation provisions under IRC Section 168(k) (which Idaho has historically decoupled from) and IRC Section 168(n); and (2) the deduction for research and experimentation (R&E) expenditures incurred in tax years beginning on or after January 1, 2022, and before January 1, 2025. Those expenditures already being amortized will continue until the end of their five-year amortization schedule. Idaho will conform to the deduction for R&E expenses incurred in 2025 and later. With the enactment of HB 559, businesses cannot use the same R&E expenses for both a deduction and Idaho tax credit for research activities. HB 559 is effective retroactive to January 1, 2025. Idaho Laws 2026, Ch. 1 (HB 559), signed by the governor on February 10, 2026. For additional information on this development, see Tax Alert 2026-0578

Indiana: New law (SB 212) updates Indiana's conformity to the Internal Revenue Code (IRC) to align with certain provisions of the One Big Beautiful Bill Act (OBBBA). Indiana generally conforms with the IRC in effect as of January 1, 2023. SB 212 updates Indiana's IRC reference to July 4, 2025, for the following OBBBA provisions: (1) IRC Section 23⁵ — adoption tax credit; (2) IRC Section 168(e)(3)(B)(vi)⁶ — accelerated cost recovery system; and (3) IRC Section 223(c)(2)(E)⁷ — safe harbor for absence of deductible for telehealth. These changes impact individuals, pass-through entities and corporations. The Indiana legislature is currently considering a separate bill, SB 243, which would update the state's conformity to the IRC to January 1, 2026 and address conformity/nonconformity to other OBBBA provisions. Ind. Laws 2026, P.L. 1 (SB 212), signed by the governor on January 29, 2026. For more on this development, see Tax Alert 2026-0392.

Minnesota: On February 2, 2026, the Minnesota Department of Revenue (Department) issued Revenue Notice No. 26-01 (Notice), which outlines the Department's position on when a foreign corporation has taxable income in Minnesota. The Department explained that Minnesota's use of constitutional nexus to determine that state's jurisdiction to tax foreign corporations differs from the Internal Revenue Code (IRC) test used to establish when a foreign corporation is subject to tax⁸ and can result in a different calculation of taxable income. The notice discusses two common examples of when this occurs. In "not effectively connected" example, the foreign corporation does not have effectively connected income (ECI) to report on federal Form 1120-F. The corporation also does not have any physical presence in the United States (e.g., an office or other fixed place of business) but makes sales in Minnesota producing income for purposes of IRC Sections 61 and 63. In this situation, the Notice requires the corporation to enter its federal taxable income, as defined in IRC Section 63, on line 1a of Minnesota Form M4I, Income Calculation, without consideration of whether it has ECI. The Department's position is that the corporation must also complete and attach Schedule REC, Reconciliation, to explain the difference between line 1a on Minnesota Form M4I, Income Calculation, and the line on Form 1120-F showing its federal taxable income before net operating loss and special deductions. In the "foreign treaty" example, the foreign corporation is exempt from paying federal income tax because of a tax treaty signed by the United States. While the treaty exempts a corporation from federal income taxes imposed by the IRC, the Department's position is that subnational (e.g., state) taxes are not included in the exemption, meaning Minnesota may tax the federal taxable income. As a result, the foreign corporation must prepare a pro forma federal Form 1120 to calculate Minnesota taxable income. Minn. Dept. of Rev., Revenue Notice #26-01: Corporate Franchise Income Tax — Minnesota Taxable Income — Foreign Corporate Filers (February 2, 2026). For more on this development, see Tax Alert 2026-0436.

North Carolina: The North Carolina Department of Revenue (NC DOR) issued FAQs regarding the impact of federal tax law changes on state individual and corporate income tax returns for tax year 2025, including changes made by the One Big Beautiful Bill Act (OBBBA), the Federal Disaster Tax Relief Act of 2023 and the Disaster Related Extension of Deadlines Act. The NC DOR said that the state currently conforms to the IRC as of January 1, 2023. Thus, in computing North Carolina income taxpayers cannot include in adjusted gross income (individuals) and federal taxable income (corporations) the federal tax changes made by the OBBBA, the Federal Disaster Tax Relief Act of 2023 and the Disaster Related Extension of Deadlines Act. The NC DOR's guidance includes an example of adjustments and modifications that would have to be made due to nonconformity to these federal bills. The NC DOR noted that taxpayers impacted by the differences in the Code must include a reconciliation schedule with their 2025 NC income tax return. N.C. Dept. of Rev., Important Notice: Impact of Federal Law on North Carolina Individual and Corporate Income Tax Returns for Tax Year 2025 (January 8, 2026); Webpage: Questions and Answers About the Impact of Federal Law on N.C. Individual and Corporate Income Tax Returns for Tax Year 2025 (last updated February 27, 2026).

Ohio: Tax Alert 2026-0437 reminds businesses and investors of a law enacted in Ohio in 2021 (House Bill 110) that created two income tax deductions for capital gains. These deductions, however, had a delayed effective date, not becoming operative until tax years beginning on or after January 1, 2026. The first provision allows a deduction for capital gains from selling an ownership interest in an Ohio-headquartered business. To qualify, the owner must have either invested at least $1 million in the business or materially participated in the business as determined by reference to Treas. Reg. Section 1.469-5T(a)(1), (2), (3), (4), or (7). The deduction is the lesser of the capital gain received or the business's deductible payroll excluding compensation paid to the owner or relatives. Any remaining gains may qualify for Ohio's Business Income Deduction, which applies to the first $250,000 of business income ($125,000 if married filing separately). The second provision allows a deduction for venture capital gains received by investors in certified Ohio venture capital operating companies (VCOCs). Qualified investors may deduct 100% of gains from Ohio businesses and 50% from investments in non-Ohio companies, provided the VCOC manages $50 million or more in assets and meets Ohio residency requirements for partners. The VCOC deduction is applied after the standard Ohio Business Income Deduction. Provisions exist to claw back previously deducted gains if the VCOC later fails to meet certification requirements.

SALES & USE

Hawaii: Two bills (HB 1813 and SB 2920, the bills) have been introduced in the Hawaii legislature that would repeal the general excise tax (GET) exemption for receipts from most securities transactions under Haw. Rev. Stat. Section 237-24.5. If enacted, the bills would repeal the GET for amounts received by exchanges from transaction fees charged to exchange members for: (1) sales or purchases of securities or products; (2) order book executions made for purposes of effecting transactions; and (3) trade processing performed by an exchange. The bills also would eliminate the exemption for membership dues, assessments, fines, service fees, listing and listing maintenance fees and certain other exchange receipts, as well as the exemption for sales of exchange memberships. Additionally, the bills would eliminate the exemption for amounts received by exchange members for executing a securities or product transaction on an exchange, if the amounts are received from: (1) brokers or dealers registered with the Securities and Exchange Commission; (2) futures commission merchants, brokers, or associates registered with the Commodities Futures Trading Commission or (3) similar individuals outside of the United States for executing a securities or product transaction on an exchange. For more on this development, see Tax Alert 2026-0360.

Rhode Island: The Rhode Island Department of Taxation (RI DOT) determined that an out of state company's sales of subscriptions to online access to published legal authorities, news publications, court filings and other public records are subject to the state's sales and use tax as vendor-hosted prewritten software. In so finding, the RI DOT, among other reasons, rejected the company's argument that the sales were tax exempt sales of information services. Rather, the RI DOT concluded that the "process of accessing and retrieving and researching the content [in the taxpayer's online system] falls under the definition of vendor-hosted prewritten computer software." The RI DOT reasoned that the software performs a task, it searches data inputted by the customer, it sorts through data to match search items, and it retrieves information. R.I. Dept. of Taxn., Admin. Hearing #2026-01 (January 21, 2026).

South Carolina: The South Carolina Department of Revenue (SC DOR) issued an advisory opinion in which it describes the application of sales tax to a taxpayer's charges for the rental or lease of tangible personal property, in this case equipment, when taxpayer accompanies and remains with the equipment for the duration of a customer's event to monitor or operate the equipment. The SC DOR said that when a person is furnished in conjunction with the rental or lease of equipment and that person uses certain skills or expertise to perform a function or produce a desired effect over a machine or device, the person is an operator providing a nontaxable service. In contrast, such furnished person is not an operator when they caution, remined or enforce conduct for equipment users or troubleshoot or maintain the equipment. In this case, charges for rental or lease of equipment are subject to state and local sales tax. The advisory opinion includes several examples of the taxability of rentals or leases of inflatables, mechanical bulls, construction equipment, gaming trailer, mobile simulator (e.g., golf, car, airplane), mobile laser tag equipment and a laser tag course, and tables and chairs. S.C. Dept. of Rev., SC Rev. Ruling #26-3 (February 17, 2026).

BUSINESS INCENTIVES

Nebraska: On February 12, 2026, the Nebraska Department of Revenue (Department) updated its Foreign Adversarial Company FAQs to inform taxpayers that at this time it is pausing enforcement of the ban foreign adversarial companies receiving incentives, while it conducts further analysis. The Department's pause applies to incentive programs with statutorily mandated agreements signed before October 1, 2025. For more on this development, see Tax Alert 2025-2317.)

New York: The New York Department of Economic Development adopted new rules, 5 NYCRR Part 330, to provide guidance on claiming tax credits under the Semiconductor Research and Development Project Program. An eligible business participating in the program may claim a credit on qualified investments related to research and development (R&D) in semiconductor R&D project in New York State. The amount of credit available is up to 15% of the cost or other basis for federal income tax purposes of the qualified investment. To be eligible for credits under the program, a business entity must operate in New York or plan to operate in New York and undertake a semiconductor research and development project. The business also must be in substantial compliance with all worker protection and environmental laws and regulations and not owe past due state and local property taxes (unless the business in paying such taxes under a payment agreement with the taxing authority). Non-profit businesses are not eligible to participate in the program. Reg. Section 330.4 lists evaluation standards that may be used by the commissioner in determining whether to admit an applicant to the program. Such standards include the applicant's financial viability, likelihood of completion of the project, estimated return on investment of the project, overall impact of the project, degree to which other state and local incentives are available, among other standards. Reg. Section 330.5 establishes an application and approval process for businesses seeking to participate in the program. Businesses whose applications are certified as a participant will be issued a certificate of tax credit for one tax year; business may claim benefits under the project for up to nine additional years if they submit a performance report demonstrating that they continue to satisfy eligibility criteria. Reg. Section 330.8 sets forth the process for eligible businesses to claim the credit. The credit is refundable. Businesses that fail to satisfy eligibility criteria will lose the ability to claim the credit for that tax year. Businesses that qualify for credits under this program as well as for the excelsior investment tax credit or the investment tax credit may only claim one credit with regard to a particular piece of property or activity. The rule took effect on January 28, 2026. (NYS Register, Vol. XLVIII, Issue 4 Book 1 of 2, January 28, 2026).

COMPLIANCE & REPORTING

Minnesota: The Minnesota Department of Revenue (MN DOR) announced that it has updated its Minnesota tax forms and instructions to reflect federal changes made by the One Big Beautiful Bill Act (OBBBA). Minnesota currently conforms to the Internal Revenue Code (IRC) as amended through May 1, 2023. Accordingly, taxpayers may need to adjust their income because Minnesota has not adopted the federal changes made by OBBBA. The MN DOR has posted a chart listing the IRC provisions and whether the provision impacts Minnesota income taxpayers, as well as the impacted tax years and state income tax forms. Minn. Dept. of Rev., "2025 Federal Nonconformity for Income Tax" (last updated February 5, 2026); Nonconformity Chart "Minnesota Tax Impacts Resulting from the 2025 Federal Tax Budget and Reconciliation Bill (H.R. 1)" (February 2026).

Puerto Rico: The Puerto Rico Treasury Department updated Form 480.7E, Optional Informative Declaration — Advertisements, Insurance Premiums, Telecommunications Services, Internet Access, and Cable or Satellite Television, and Form 480.7F, Annual Declaration of Payments Received for Advertisements, Insurance Premiums, Telecommunications Services, Internet Access, and Cable or Satellite Television, to include instructions for entities engaged in financial services to report bank fees received from commercial clients. For additional information on this development, see Tax Alert 2026-0421.

CONTROVERSY

Indiana: The Indiana Department of Revenue (Department) announced the timing for its upcoming eight-week tax amnesty program, which will start in July. In May 2025, HB 1001, Indiana's biennial budget bill, required the Department to establish an eight-week tax amnesty program for taxpayers with an unpaid tax liability for a listed tax due and payable before January 1, 2023. (See Tax Alert 2025-1121.) The program applies to most Indiana taxes except those related to riverboat or racetrack gambling and allows for the waiver of interest and penalties for participating taxpayers. On February 4, 2026, the Department announced that the amnesty program will run July 15, 2026 to September 15, 2026. The Department indicated that pending legislation is expected to clarify eligibility guidelines and that they will announce more details in the near future. (See SB 243, which would modify the tax amnesty program provisions.) For more on this development, see Tax Alert 2026-0392.

Kansas: New law (HB 2183) prohibits a state court or administrative hearing officer hearing an administrative action, in interpreting a state statute, rule and regulation or document that has the force and effect of law (collectively, "legal document") from deferring to a state agency's interpretation of such legal document. While the court or administrative hearing officer may consider a state agency's interpretation of such legal documentation, they must interpret the meaning and effect of the legal document de novo. The law also provides that in an action brought by or against a state agency, a state court or administrative hearing officer hearing an administrative action must exercise any remaining doubt in a way that is consistent with an individual's fundamental constitution rights. HB 2183 takes effect on July 1, 2026. Kan. Laws 2025, HB 2183, signed by the governor on February 5, 2026.

PAYROLL & EMPLOYMENT TAX

Iowa: As a result of recent legislation (SF 607), the Iowa Workforce Development (Department) announced that employers will have lower state unemployment insurance (SUI) costs beginning in 2026 due to a reduced taxable wage base and a lower maximum SUI tax rate. The SUI taxable wage base for calendar year 2026 is $20,400, down from $39,500 in calendar year 2025. SF 607 simplified Iowa's SUI tax tables and cut the maximum SUI tax rate from 9% to 5.4%. Currently, employers pay SUI taxes based on an assigned experience rate multiplied by the state's taxable wage base, which is set as a fraction of the prior year's average annual wage. SF 607 reduced that fraction from two-thirds to one-third of the average annual wage. The Department recalculates the average annual wage each year as part of the process used to determine maximum and minimum unemployment benefits. For more on this development, see Tax Alert 2026-0449.

New Jersey: Governor Mikie Sherrill signed into law SB 4219, which, effective immediately, makes targeted changes to administration of the state's local employer payroll taxes currently imposed by Newark and Jersey City. The legislation exempts from local employer payroll taxes remuneration paid to New Jersey resident employees who are already subject to an employer payroll tax in another state. This exemption is intended to address situations in which employers with multistate operations may otherwise face duplicative payroll taxation on the same wages. As a result, wages paid to qualifying New Jersey resident employees may no longer be subject to local employer payroll taxes in Newark or Jersey City if those wages are already taxed under another state's employer payroll tax regime. The Office of Legislative Services states that this provision will result in a reduction of New Jersey local payroll tax collections, reflecting the scope of the exemption. For additional information on this development, see Tax Alert 2026-0463.

MISCELLANEOUS TAX

Chicago, IL: Chicago Mayor Brandon Johnson declined to veto the city's alternative budget bill (Record No. SO2025 — 0021719), approved by the Chicago City Council on December 19, 2025, allowing it to become law without his signature.⁹ The bill creates new and modifies existing taxes, including a new social media amusement tax (SMAT), and increases the rates of the personal property lease tax and the sports betting tax. Notably, the mayor's proposed corporate head tax, which would have been imposed on businesses with 500 or more employees at a rate of $33 per employee per month, was not included in the final bill. For more on this development, see Tax Alert 2026-0384. For more on the new SMAT, see Tax Alert 2026-0377.

Nebraska: New law (LB 212) adopts economic nexus provisions for remote retail sales of covered tobacco products (e.g., cigars, pipe tobacco or any other tobacco products, with certain exclusions) to Nebraska consumers. Remote retailers granted a license to make such sales will be subject to the Tobacco Products Tax Act after making $100,000 in sales or 200 separate sales transactions of covered tobacco products in the preceding or current calendar year. This change takes effect January 1, 2027. Neb. Laws 2026, LB 212, signed by the governor on February 9, 2026.

VALUE ADDED TAX

International — Turkiye: The Communique Amending the VAT General Implementation Communiqué (Serial No. 57), published in the Official Gazette on January 31, 2026, in part sets out the procedures for verifying whether import-related value-added tax (VAT) falling within the scope of Presidential Decision No. 7846 has been correctly handled. Presidential Decision No. 7846, published in the Official Gazette on November 24, 2023, designated VAT paid on certain import-related duties and surcharges, such as surveillance-related amounts, safeguard duties, anti-dumping duties, countervailing duties and any associated taxes, charges and levies forming part of the VAT base, as nondeductible. In practice, taxpayers experienced significant challenges in accurately determining whether VAT related to such items should be treated as nondeductible. To address these issues and strengthen compliance, the Ministry of Treasury and Finance introduced new control and certification obligations via the Communique. For more on this development, see Tax Alert 2026-0416.

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.