Ernst & Young's State and Local Tax Weekly newsletter for April 17 and April 24 is now available. Prepared by Ernst & Young's State and Local Taxation group, this weekly update summarizes important news, cases, and other developments in U.S. state and local taxation.

TOP STORIES

Kentucky enacts law updating IRC conformity, addressing various OBBBA provisions, modifying sale and use tax nexus provisions, making other tax changes

On April 14, 2026, Kentucky Governor Andy Beshear signed HB 757, which includes several business and individual tax changes. These changes update Kentucky's Internal Revenue Code (IRC) conformity date, address some provisions in the "One Big Beautiful Bill Act" (OBBBA),¹ delay implementation of the corporate income tax deferred tax deduction, modify sales and use tax nexus provisions, impose tax on prediction market operators and fantasy contest.

The income tax changes discussed below apply to tax years beginning on or after January 1, 2026, unless otherwise noted.

IRC conformity: HB 757 updates Kentucky's IRC conformity date to the IRC in effect on December 31, 2025 (from December 31, 2024). This change applies to tax years beginning on or after January 1, 2026. The update excludes any IRC amendments made subsequent to that date, unless the amendments extend provisions in effect on December 31, 2024, that would otherwise terminate.

Corporate income tax changes: For corporate income taxes, HB 757 adds a new subsection (j) to KRS 141.039(1) to include in Kentucky corporate gross income the amount deducted for domestic research and experimental (R&E) expenditures under IRC Section 174A. That new subsection allows a deduction for the amount of domestic R&E expenditures that would have been deducted for federal purposes under IRC Section 174 as that section existed on December 31, 2024. HB 869, which was subsequently enacted on April 27, clarifies these provisions.

Specifically, HB 869 amends KRS 141.039(1)(j) for tax years beginning on or after January 1, 2026, to provide the following:

• Add the amount deducted for domestic R&E expenditures under IRC Section 174A
• Subtract an amount equal to the amortization of domestic R&E expenditures computed in accordance with IRC Section 174, as that section existed on December 31, 2024

HB 757 also decouples from deductions related to qualified film, television, live theatrical, and sound recording production under IRC Section 181 and interest deducted under IRC Section 139L (amounts paid to a qualified lender for any qualified real estate loans).

For purposes of determining the IRC Section 163(j) limitation on business interest, HB 757 requires taxpayers to use IRC Section 163(j) in effect on December 31, 2024, excluding any amendments made after that date.

Individual income tax changes: In addition to the previously discussed changes related to IRC Section 174 and 174A, HB 757 decouples from OBBBA deductions for qualified tips, qualified overtime wages, qualified passenger vehicle loan interest, amounts related to qualified film, television, live theatrical, and sound recording production under IRC Section 181, and interest deducted under IRC Section 139L.

Deferred tax deduction postponed: When Kentucky adopted mandatory combined reporting in 2019, the legislature enacted a deferred tax deduction to reduce the effect on certain tax attributes from the transition from the prior nexus consolidated filing regime to combined reporting (see Tax Alert 2019-0688). This deduction, originally scheduled to start with the combined group's first tax year beginning on or after January 1, 2024, had been delayed until January 1, 2026 (see Tax Alert 2024-0813). HB 757, once again, delays implementation of this provision to the combined group's tax year beginning on or after January 1, 2028.

Sales and use tax changes: HB 757 modifies Kentucky's sales and use tax economic nexus provisions by eliminating the 200 or more separate transactions threshold. The $100,000 sales threshold remains but the types of sales included in determining whether the threshold has been met has been expanded to include services (this is in addition to sales of tangible personal property and digital property). These changes take effect August 1, 2026.

HB 757 imposes a 6% sales and use tax on gross receipts from data brokering services, effective August 1, 2026. The law defines "data brokering services" as "the act of collecting, aggregating, and analyzing personal data for sale to a third party while possession of the personal data is maintained by the person providing the data brokering services or by the third party, wherever located, regardless of whether the charge for the services provided is on a per use, per user, per license, subscription, or some other basis." The term "use" does not include the keeping, retaining or exercising any right or power over data brokering services purchased for use outside the state and transferred electronically outside the state for use solely outside the state. Excluded from the tax on data brokering services are gross receipts from the sale of services in fulfillment of a lumpsum, fixed-fee contract/ fixed price sales contracts executed, and lease or rental agreements entered into, on or before February 25, 2026. The law also excludes from the computation of the tax gross receipts from sales of data brokering services by any cabinet, department, bureau, commission, board or other state agency, or county, city or special district.

Rounding provisions: The law establishes rounding provisions for cash transactions. Cash transactions are rounded to the nearest five cent increment when pennies are not available. Amounts ending in one, two, eight and nine cents are rounded down/up to the nearest ten cents, while amounts ending in three, four, six and seven cents are rounded up/down to the nearest five cents. Rounding does not apply to noncash transactions.

Other changes: HB 757 makes several other tax related changes, including:

• Imposing a 12% tax on fantasy contest service provider's adjusted gross fantasy contest receipts, beginning on January 1, 2027.
• Imposing a 14.25% excise tax on prediction market² operators, beginning on and after January 1, 2027.
• Extending through June 30, 2034, the $2 fee on retailers for each new motor vehicle, trailer or semitrailer tire sold in Kentucky.
• Reinstating through June 30, 2030, the refundable credit for sales and use taxes paid on purchases made in connection with filming or producing motion pictures in Kentucky.
• Establishing a certified rehabilitation credit equal to 30% of qualified rehabilitation expenses in the case of owner-occupied residential property and commercial residential property that is affordable housing, reduced to 20% of qualified rehabilitation expenses in the case of all other property. The taxpayer can make an irrevocable election to use the credit, which makes the credit refundable, or transfer the credit, which makes it nonrefundable.
• Modifying the definitions of "eligible costs" and "start-up costs" for purposes of the Kentucky Business Investment Program.
• Modifying provisions related to tobacco taxes.
• Imposing an annual license fee in the amount of $100 per electric vehicle charging port at an electric vehicle charging station.
• Creating a sales tax incentive available to a sponsoring entity that host a qualifying attraction (i.e., a series of professional sporting events that are held at a venue over a period of at least three consecutive days and that is open to the public with an attendance totaling at least 100,000 admissions over the period of the event). The incentive is available for qualifying attractions held on or after July 1, 2026.

For additional information on the income tax changes, see Tax Alert 2026-0815.

INCOME/FRANCHISE

Maine: New law (LD 2149), effective for tax years beginning on or after January 1, 2026, allows a corporate or individual income taxpayer to subtract any capital gain recognized on the sale by the taxpayer of an ownership interest greater than 50% in a qualified property, if such property was transferred to a cooperative affordable housing corporation or municipal housing authority (or its affiliate). The deduction is limited to $750,000. If the capital gain from the sale is recognized by multiple taxpayers or multiple years, the gain must be aggregated for purposes of applying the limit. "Qualified property" means "real estate for which the primary purpose is housing consisting of one or more mobile home parks, including any mobile homes located on, and being sold with, the park or parks." Maine Laws 2026, ch. 688 (LD 2149), signed by the governor on April 13, 2026.

Missouri: Approved joint resolution (HJR 173) will send to voters a proposed amendment to Art. X of the Missouri Constitution that if approved would allow the General Assembly to enact legislation to reduce and eliminate the state's individual income tax. The proposal would provide for phased-in income tax rate reductions, based on revenue growth, until the individual income tax is eliminated. Once the individual income tax is eliminated, the General Assembly would be prohibited from enacting or imposing any state individual income tax. To help pay for the elimination of the income tax, the Constitutional provision prohibiting any new sales, use or similar transaction-based taxes on any services or transactions that were not subject to these taxes on January 1, 2015, would be waived. Any sales and use tax expansion legislation would have to expressly state that it is the General Assembly's finding that such legislation will lead to the reduction and elimination of the state's individual income tax and it will lead to the reduction of local tax rates such as local sales and use taxes and levies imposed on class 1 and class 2 property. Legislation expanding the sale tax base on services also would have to include a provision reducing the top individual income tax rate. The state auditor would be responsible for calculating the reduced rates. HJR 173 was approved by the General Assembly and delivered to the Secretary of State on April 23, 2026.

Rhode Island: The Rhode Island Department of Revenue, Division of Taxation (RI DOT) adopted regulation 280-RICR-20-25-17, which provides guidance on modifications to Rhode Island net income due to the state's decoupling from the One Big Beautiful Bill Act (OBBBA). The regulation states that it will be "liberally construed" to allow the RI DOT to effectuate the purposes of the decoupling provisions under R.I. Gen. Laws Section 44-11-11(a)(1)(viii). Under the decoupling provision, "any income, deduction, or allowance that would be subject to federal income tax for taxable years beginning on or before January 1, 2025, but for the enactment of [OBBBA], must be included in net income for Rhode Island Business Corporation Tax [BCT] purposes … " Items subject to addback include: (1) business interest expense under IRC Section 163(j); (2) treatment of certain qualified sound recording productions in IRC Sections 168(k) and 181; (3) full expensing of domestic R&E under IRC Section 174A — i.e., provisions that (a) allow businesses to accelerate the expensing of these expenditures starting in tax year 2025, and (b) allow small business to retroactively accelerate expensing of these expenditures for tax years 2022, 2023 and 2024 — the emergency rule includes examples; and (4) increased dollar limitation for expensing certain depreciable business assets under IRC Section 179(b). The regulation describes how partnerships, S corporations and C corporations should reflect the addback of these items on their returns. The regulation was previously adopted on an emergency basis as regulation 280-RICR-20-25-16, which sunset on April 16, 2026. The new regulation was adopted on and is effective from April 16, 2026.

On the same day, the RI DOT also adopted new regulation 280-RICR-20-55-17, to provide guidance on modifications to Rhode Island individual income due to the state's decoupling from the OBBBA. For those subject to Rhode Island's individual income tax, the following "above the line" items that may be taken as a deduction on the taxpayer's federal return will have to be added back in determining the taxpayer's Rhode Island modified federal adjusted gross income (federal AGI): (1) business interest expense deduction under IRC Section 163(j); (2) Section 174A amortization adjustments for R&E expenditures (an example is included); (3) increased dollar limitations for expensing certain depreciable business assets under IRC Section 179(b); and (4) qualified sound recording production deduction under IRC Sections 168(k) and 181. The regulation describes how to reflect this addback on forms filed by sole proprietors, partners in a partnership and owners in an S-corporation (collectively, "owner"), and additional filing requirements for such owners if the entity elects to file an original or amended federal return for tax years 2022, 2023 and/or 2024 to accelerate expensing of R&E expenditures. "Below the line" items that are not reflected in federal AGI that Rhode Island has decoupled from and will not allow as an exclusion include tip income, overtime compensation, and interest on car loans for qualified vehicles. The RI DOT acknowledged the federal increase to the State and Local Tax (SALT) deduction cap, noting that the state will continue to administer the pass-through entity tax. The regulation was previously adopted on an emergency basis as emergency regulation 280-RICR-20-55-16, which sunset on April 16, 2026. The new regulation was adopted and is effective from April 16, 2026.

West Virginia: New law (HB 4784) extends the modification reducing federal taxable income for qualified opportunity zone businesses. West Virginia law allows an amount equal to net income included in federal taxable income (FTI) that is ordinary income derived from a qualified opportunity zone business located in a West Virginia located qualified opportunity zone to be subtracted from FTI. To qualify for this modification, the qualified opportunity zone business (QOZB) must be a newly registered business in West Virginia; such businesses must be registered before January 1, 2033 (from January 1, 2024). The law amends the definition of a QOZB to mean "a newly registered business that is designated as a [QOZB] pursuant to [IRC Section 1400Z] and serves as an investment of a 'Qualified Opportunity Fund'." These changes are retroactively effective for tax years beginning on or after January 1, 2024. W.V. Laws 2026, HB 4784, signed by the governor on April 1, 2026.

SALES & USE

Alabama: New law (SB 221) excludes credit card transaction fees assessed on purchases of goods or services made by credit or debit cards from the calculation of sales and use taxes. This provision takes effect on September 1, 2026. Ala. Laws 2026, Act 587 (SB 221), signed by the governor on April 16, 2026.

Alabama: New law (HB 545) authorizes rounding in-person cash transactions to the nearest five cents. Such transactions will be rounded as follows, if the final digit of the amount is: (1) one or two the amount is rounded down to zero; (2) three or four the amount is rounded up to five; (3) six or seven the amount is rounded down to five; or (4) eight or nine the amount is rounded up to zero. There is no rounding if the final digits are zero or five. Rounding does not alter the sales price or amount of tax collected. Rounding may apply to the amount of the transaction or to the amount of change tendered to the purchaser. Rounding does not apply to non-cash transactions such as those paid by electronic funds transfers, checks, gift cards, money orders or credit cards, or to any transaction where payment is made to a governmental entity. HB 545 took effect immediately. Ala. Laws 2026, Act 548 (HB 545), signed by the governor on April 16, 2026. See also, Ala. Dept. of Rev., Notice: In-Person Cash Transactions (April 20, 2026).

Colorado: The Colorado Department of Revenue (CO DOR) has proposed a new rule regarding the application of sales and use taxes on leases and the acquisition of leased property — Special Rule 46. 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 proposed 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 a short-term lease would apply to all property subsequently purchased by the lessor for short-term leases. The proposed 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 proposed 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.

Colorado: New law (SB26-009) provides rules for determining whether an entity is a charitable organization for state sales and use tax purposes. Under the new provisions, the Colorado Department of Revenue (CO DOR) will presume that an organization that has a 501(c)(3) determination letter from the IRS qualifies as a charitable organization. The CO DOR, however, will not presume that an organization does not qualify as a charitable organization if there is a change in the organization's 501(c)(3) status. SB26-009 takes effect on August 12, 2026. Colo. Laws 2026, ch. 53 (SB26-009), signed by the governor on April 20, 2026.

Nebraska: New law (LB 838) creates rounding rules for persons selling goods or services in a cash transaction, entering into any transaction that results in a payment or transfer of cash between the parties to the transaction, or paying cash wages to an employee as compensation. When the total transaction amount, including any taxes, fees, surcharges, assessments and other governmental charges or the final cash amount paid out or returned to a customer or employee, ends with one, two, six or seven cents as the final digit, the amount may be rounded down to the nearest cents divisible by five. If such amount ends with three, four, eight or nine cents as the final digit, the amount may be rounded up to the nearest cents divisible by five. These rounding rules do not apply to non-cash transactions, including payments made by any demand or negotiable instrument, electronic funds transfer, check, gift card, money order, credit card or other similar instrument or method. Taxes, fees and other charges imposed by state taxing authorities or by the seller are calculated based on the sales price or stated service fee before any cash transaction rounding is applied. Alternatively, persons rounding may use the method of rounding that uses the final cash amount paid out or returned to a customer or employee for all transactions by such person at any single premise. A person cannot use both methods at the same premise. Rounding under the alternative method, does not alter (1) the sales price of any good or service, (2) the amount of any tax calculated or imposed under state or local law, and (3) any regulatory fee, government-imposed fee, surcharge, assessment or other required charge. Persons selling goods or services must calculate and remit all taxes, fees and other charges based on the sale price before any rounding. These provisions become operative on July 1, 2026. Nebraska Laws 2026, LB 838, signed by the governor on April 14, 2026.

Virginia: New law (HB 954) allows persons selling goods or services in a cash transaction, entering into any transaction that results in a payment or transfer of cash between the parties of a transaction, or paying cash wages to an employee as compensation, to round transactions down or up. When the total transaction amount ends with one, two, six or seven cents the amount may be rounded down to the nearest cents divisible by five. If the total transaction amount ends with three, four, eight or nine cents, the amount may be rounded up to the nearest cents divisible by five. Taxes, fees and other charges imposed by state taxing authorities or by the seller are calculated based on the sales price or stated service fee before any cash transaction rounding is applied. HB 954 takes effect July 1, 2026. Va. Laws 2026, ch. 713 (HB 954), signed by the governor on April 13, 2026.

BUSINESS INCENTIVES

Alabama: New law (HB 379) expands and modifies the Entertainment Industry Incentive Act by creating a new incentive program for small productions, clarifying the eligibility of compensation of loan out companies, and extending the deadline for the review and evaluation of the Entertainment Industry Incentive Act. The new law allows the Alabama Entertainment Office to reserve up to $2 million for small budget qualified productions. A qualifying production company is entitled to a rebate equal to 45% of payroll paid to Alabama residents for the state-certified production, provided that the total production expenditures for the small budget qualified production is at least $100,000, but will not be available if such expenditures exceed $499,999. The law modifies the production thresholds for projects that are limited to the production of a soundtrack used in a motion picture or for the production of a music video. The law expands the definition of "payroll" for purposes of the rebate for qualified production companies to provide that "other compensation" includes payments to a loan-out company by a qualified production company if it withheld and remitted Alabama withholding and income tax at the highest rates levied under Alabama law on all payments to the loan-out company for services performed in the state. The definition of "production expenditures" is amended to provide that the term does not include other compensation paid to a loan-out company by a qualified production company if such company does not withhold and remit either Alabama withholding tax or Alabama income tax at the highest rate levied. The law also extends the deadline for the Department of Commerce to contract with an out-of-state entity to review and evaluate this credit program and report its finding to the Legislature to the first legislative day of the 2028 (from 2027) regular legislative session. HB 379 takes effect on October 1, 2026. Ala. Laws 2026, Act 540 (HB 379), signed by the governor on April 15, 2026.

Maine: New law (LD 713) amends the business equipment tax exemption by specifically excluding certain data center property from the definition of "eligible business equipment." Specifically, "eligible business equipment" does not include any property located in a data center or the portion of a facility that constitutes a data center (collectively, "data center") that begins operations on or after August 1, 2026, including any property located in a data center that is part of an expansion or project after August 1, 2026. For purposes of this provision, "begins operations" means a data center has installed operational computer and networking equipment and is performing data processing, data storage, cloud computing or similar computing infrastructure services. The term does not include construction, site preparation or equipment installation. The law also amends the Dirigo business incentive program to provide that the eligible sector of "software publishing , data processing services and computer design services" excludes service performed at a data center. The law also requires the Department of Economic and Community Development to study financial incentives available under current state law that data centers may benefit from. The Department has until November 4, 2026, to submit a report on its findings to the joint standing committee of the Legislature having jurisdiction over tax matters. Maine Laws 2026, ch. 768 (LD 713), signed by the governor on April 23, 2026.

Maine: New law (LD 2116) extends the sunset date of the affordable housing income tax credit through 2036 (from 2028). Maine Laws 2026, ch. 699 (LD 2116), signed by the governor on April 15, 2026.

Nebraska: New law (LB 1096) addresses agricultural and critical infrastructure security from foreign adversaries and builds on prior legislation (LB 644) enacted in 2025. Among the provisions in LB 644 was a prohibition, contained in Neb. Rev. Stat. 77-3,114, on certain entities receiving benefits from tax incentives programs (see Tax Alert 2025-2317). The prior version of Neb. Rev. Stat. 77-3,114 had been applied by the Nebraska Department of Revenue (Department) as covering any company that had a subsidiary based in a foreign adversarial country. Earlier this year, the Department issued additional guidance pausing enforcement of the ban.

LB 1096 amends Neb. Rev. Stat. 77-3,114 by narrowing the definition of a "foreign adversarial company" to mean a company that:

• is organized under the laws of a foreign adversary
• has its principal place of business within a foreign adversary
• is owned in whole or in part, operated, or controlled, directly or indirectly, by the government of a foreign adversary, or
• is a direct or indirect subsidiary of any company, otherwise described above.

In the context of combined reporting, LB 1096 provides that a company that is not a foreign adversarial company may use only Nebraska incentives against income taxes of the members of the same group of companies that are not foreign adversarial companies. The tax liability attributable to members of a unitary group that are foreign adversarial companies is determined using the apportionment formula used to determine the amount of tax due. Neb. Laws 2026, LB 1096, signed by the governor on April 16, 2026. For additional information on this development, see Tax Alert 2026-0959.

Nebraska: New law (LB 1165) establishes the Grow the Good Life Act, which provides incentives to encourage large in-state employers to keep their workforce and headquarters in the state as well as to relocate workforce to the state when there is a material change in ownership or control due to a merger or combination with an out-of-state company. Employers that enter into an agreement with the state will during each of the earning periods receive approved wage retention credits. The wage retention credit is equal to 5% of the total compensation paid by the employer in the year to all retained Nebraska employees who are paid wages at a rate equal to at least 100% of the Nebraska statewide average hourly wage for the year of application. The aggregate amount of wage retention credits earned for all qualified employers is limited to $5 million a year. If two or more employers qualify for the benefits in a year, the employer with the largest average number of in-state employees during the 10 years before the change in ownership or control will be fully funded first. If an employer fails to keep the required level of employment and its headquarters in the state throughout the earning period, all or a portion of wage retention credits will be recaptured or disallowed. Wage retention credit will not be allowed in future years if the employer does not maintain its headquarters in the state. The wage retention credit allowed under the Grow the Good Life Act generally is not transferable, except in limited situations. Wage retention credit earned but not used may be carried over to the end of the usage period. The total amount of credits all employers may receive under the Grow the Good Life Act is capped at $50 million. These benefits are in addition to any benefits the employer may otherwise qualify for under the ImagiNE Nebraska Act or previously qualified for under the Nebraska Advantage Act or the Employment and Investment Growth Act. Applications under the Grow the Good Life Act may be filed starting January 1, 2027, through May 31, 2029. The law also amends provisions of the ImagiNE Nebraska Act related to wage and investment credits earned under certain program levels, providing an additional 1% wage and 1% investment credit at all levels of the ImagiNE Nebraska Act. The credit percentages will be increased by an additional one percentage point for taxpayers that meet certain employment thresholds. LB 1165 took effect upon becoming law. Neb. Laws 2026, LB 1165, signed by the governor on April 16, 2026.

Nebraska: New law (LB 954) modifies the Nebraska Advantage Act by requiring the Nebraska Department of Revenue (NE DOR) to recalculate the number of base-year employees of a taxpayer that has met the required levels of employments and investment in an agreement for a Tier 6 Nebraska Advantage project when the taxpayer sells or transfers part of the business operations that were subject to the agreement. The requirement applies when the business operations that were sold or transferred continue to operate under an entity that is not part of the same unitary business group as the taxpayer. The base-year employees will be recalculated by subtracting the number of equivalent employees employed at the business operations that were sold or transferred from the number of base-year employees calculated on the last Form 312N filed before the date of the sale or transfer. Recalculation will not be required if the business operations that were sold or transferred cease all operations within 24 months after the sale/transfer date, or if the primary business purposes of the sale/transfer was to close the location. Credits and other incentives generated before the sale/transfer will not be recalculated. This change applies to agreements entered into after December 31, 2016. Neb. Laws 2026, LB 954, signed by the governor on April 14, 2026.

Virginia: New law (SB 612) extends the motion picture production tax credit to tax years beginning before January 1, 2031 (from January 1, 2027). SB 612 takes effect on July 1, 2026. Va. Laws 2026, ch. 827 (SB 612), signed by the governor on April 13, 2026.

PROPERTY TAX

Alabama: New law (HB 399) modifies tax abatement periods for data centers. Under prior law, a 20-year or 30-year abatement could be granted to private use property that is or becomes owned by private users, including lessors and lessees with respect to co-location centers, if the aggregate capital investment in the data processing center by such private users met specified investment thresholds within a set period of time. The 30-year abatement period is now available only to abatements granted before January 1, 2027. For abatements granted on or after January 1, 2027, a 20-year abatement period is available if the aggregate capital investment in the data processing center by a private user(s) exceeds $200 million within 10 years from the date on which a private user commences the acquisition, construction and equipping of the data processing center. In addition, starting in 2027, private users may qualify for an additional 10-year abatement period, for a total abatement period not to exceed 30-years, if certain criteria are met, including entering into a binding agreement committing to provide qualified local investments for the benefit of the benefited community.

Effective for abatements granted: (1) on or after January 1, 2027, and (2) to a data processing center with a total peak demand of at least 100 megawatts, the following applies:

• An abatement of noneducational ad valorem taxes will not extend beyond the date the private use industrial property is placed in service.
• Construction related transaction taxes or payments required to be made in lieu thereof, on computers, servers, software licensed for use at the data processing center, equipment supporting computing, networking, or data storage, cooling systems, cooling towers, and other temperature infrastructure, and any other equipment necessary for the maintenance and operation of a data processing center, is eligible for the abatement throughout the applicable maximum exemption period.
• Except as provided in the previous bullet, no abatement of state construction related transaction taxes or payments required to be made in lieu of, will extend beyond the date the private use industrial property is placed in service.

The governor, however, may abate state construction related transaction taxes if the data processing center is located in a targeted county.

The law extends the period in which these incentives may be granted to July 31, 2032 (from July 31, 2028).

HB 399 takes effect on June 1, 2026. Ala. Laws 2025, Act 573 (HB 399), signed by the governor on April 16, 2026.

Oklahoma: New law (SB 227) expands the ad valorem tax exemption for property used in the production of material subject to the gross production tax. Effective January 1, 2027, property exempt from the ad valorem tax will include flowlines and gathering lines going from the wellhead either to the first sales meter that is the point of custody transfer or to the boundary of the production unit exempt from ad valorem tax property, whichever distance is shorter. Okla. Laws 2026, SB 227, signed by the governor on April 13, 2026.

West Virginia: New law (HB 4416), for property tax purposes, classifies forestry equipment as Class I property, thus "recognizing forestry as a component of agriculture essential to the state's economy." Effective July 1, 2026, the law considers forestry equipment primarily used in the harvesting, processing, or transportation of forest products to be personal property employed exclusively in agriculture. Such equipment will be classified as a Class I property if the equipment is owned by the producer of the forest products. Forestry equipment includes skidders, feller-bunchers, cable yarders, forwarders, forestry processors, dozers and trailers and other machinery. Forest equipment does not include any vehicles that would not qualify for a farm use emption certificate. In addition, effective July 1, 2026, sales and use tax will not apply to the sales and services of forestry equipment. W.V. Laws 2026, HB 4416, signed by the governor on April 1, 2026.

CONTROVERSY

Indiana: The Indiana Department of Revenue (Department) has posted frequently asked questions (FAQs) on Indiana's tax amnesty program, which will run from July 15, 2026, through September 9, 2026 (see Tax Alerts 2026-0392 and 2025-1121) and applies to unpaid tax liabilities due for tax periods ending before January 1, 2024 (see Tax Alert 2026-0714). The FAQs address program eligibility, how to participate in the program, benefits of the program, and other matters related to the amnesty. Participants in the amnesty program that pay all amnesty-eligible liabilities in full will have all related penalties, interest and collection fees waived. Individuals and businesses eligible to participate in the amnesty program, but who decide not to participate, will be subject to double penalties on eligible periods if assessed by the Department. There is no fee to participate in the program. For additional information on this development, see Tax Alert 2026-1025.

PAYROLL & EMPLOYMENT TAX

Maine: On April 9, 2026, Maine Governor Janet Mills approved LD 2212, which, retroactive to January 1, 2026, imposes a 2% surcharge on individual income that exceeds $1 million ($1.5 million for joint filers and heads of households). Governor Mills explained that the added revenue generated from this surcharge "makes Free Community College permanent, it delivers more property tax relief and funding for childcare and importantly, preserves critical funding for schools and health care for the coming years." (Office of Governor Mills press release, April 9, 2026.) Once available, the updated income tax withholding formula and tables will be published here. For additional information on this development, see Tax Alert 2026-0945.

South Carolina: Governor Henry McMaster approved H. 4216 which, retroactive to January 1, 2026, simplifies the state personal income tax rate structure and lowers the top tax rate from 6.0% to 5.21%. If revenue goals are met, the law also allows for rate reductions in future years until the top marginal income tax rate is 1.99%. The updated withholding formula and tables once available will be published here. For additional information on this development, see Tax Alert 2026-0919.

Utah: Governor Spencer Cox approved SB 60 which, retroactive to January 1, 2026, lowers the state's individual income tax rate from 4.5% to 4.45%. The Utah Tax Commission is expected to update its withholding formula and tables to reflect the lower tax rate under S.B. 60. Once available, the updated withholding instructions will be available here. For additional information on this development, see Tax Alert 2026-0913.

Virginia: On April 22, 2026, Governor Abigail Spanberger approved HB 1207, which establishes Virginia's first statewide paid family and medical leave insurance (PFMLI) program. Payroll contributions begin April 1, 2028, and PFMLI benefits start December 1, 2028. The PFMLI program will be administered by the Virginia Employment Commission and funded through payroll contributions paid by covered employers and employees. Virginia joins 14 other jurisdictions with mandatory PFMLI programs: California, Connecticut, Colorado, Delaware, District of Columbia, Maine, Maryland, Massachusetts, Oregon, Minnesota, New Jersey, New York, Rhode Island and Washington. For additional information on this development, see Tax Alert 2026-0953.

MISCELLANEOUS TAX

Alabama: New law (SB 159) exempts from the utility gross receipts tax and the utility service use tax, the use of natural gas or electricity in commercial aquaculture aeration systems, commercial greenhouses, pivot irrigation systems and poultry houses. This exclusion does not apply to the furnishing of natural gas or electricity for use or consumption as fuel or energy in the production of industrial hemp, hemp or cannabis. SB 159 takes effect on September 1, 2026. Ala. Laws 2026, Act 595 (SB 159), signed by the governor on April 16, 2026.

Alabama: New law (SB 145) makes the hospital provider privilege tax permanent. The tax is imposed on each privately operated hospital in the amount of 6% of net patient revenue. For state fiscal year 2026, the determination of net patient revenue will be based on the cost report for fiscal year 2023 and hospital cost reports will be reviewed and updated annually. SB 145 takes effect on October 1, 2026. Ala. Laws 2026, Act 391 (SB 145), signed by the governor on April 9, 2026.

Nebraska: New law (LB 838) imposes a 25% excise tax on any remittance transfer by a licensee or authorized delegate to a resident of a foreign adversary country, except for Cuba and Venezuela. Tax does not apply to certain remittance transfers if the send or designated recipient of the transfer is an activity duty member of the armed forces or for which the funds being transferred are (1) withdrawn from an account held in or by a financial institution that meets certain requirements or (2) funded with a debit or credit card issued in the United States. The sender of a remittance transfer must pay this tax, but if this tax is not paid at the time a transfer is made, then the remittance transfer provider of such transfer must pay the tax. These provisions become operative on July 1, 2026. Nebraska Laws 2026, LB 838, signed by the governor on April 14, 2026.

Ohio: The Ohio Department of Taxation adopted amendments to Ohio Admin. Rule No. 5703-29-13. The amendments modify the definition of "agent" for Commercial Activity Tax purposes. The amended rule provides that an agency relationship generally does not exist when a person who enters a contract with a client is reimbursed for its own expenses incurred in performance of the contract. Amounts received from the client to reimburse the person for its own expenses are considered gross receipts; such gross receipts cannot be deducted from the person's gross receipts. The amended rule uses as an example of this rule, an instance in which a company that provides food services to an Ohio client enters a management-fee contract. The final amended rule was adopted on April 24, 2026, and it takes effect on May 4, 2026.

VALUE ADDED TAX

International — Italy: On March 3, 2026, the Italian Tax Authorities (ITA) provided guidance (Ruling n. 58/2026) on the terms and conditions for a refund procedure to recover value-added tax (VAT) incurred in prior years that had been treated as non-recoverable. The guidance follows the ITA's clarification on February 12, 2026 in Tax Ruling n. 7/2026 that VAT on transaction costs incurred by Italian special purpose vehicles (SPVs) set up in the context of merger-leveraged buyout (MLBO) transactions may be deductible, provided the costs are inherent to the taxable activity carried out by the target and the target performs transactions subject to VAT. VAT refunds must be filed within two years of the certain applicable Supreme Court decisions (August 9, 2024) and thus no later than August 9, 2026. For more on this development, see Tax Alert 2026-0964.

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.