Ernst & Young's State and Local Tax Weekly newsletter for July 10 and July 17 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

California enacted budget trailer bill taxes digital software and extends the limitation on business tax credits

On June 29, 2026, California Governor Gavin Newsom signed into law SB 122, the state's budget trailer bill for the 2026-27 fiscal year. SB 122 expands the state's sales and use tax base to include digital products such as prewritten software and software as a service (SaaS), extends the existing limitation on utilizing business tax credits and reduces the first-year minimum annual tax for certain pass-through entities.

Expansion of sales and use taxes to digital prewritten software and SaaS: SB 122 redefines "tangible personal property" for sales and use tax purposes to include a "digital product" and any copyright or patent interests associated therewith. A "digital product" is defined as prewritten computer software transferred on tangible storage media, transferred electronically, or accessed remotely, which encompasses SaaS. This expanded definition is operative for transactions occurring on or after January 1, 2027.

This expansion brings California in line with a growing number of states that have extended their sales and use tax bases to include electronically delivered software and cloud-based offerings. SB 122, however, does not expand the tax base to transactions involving other products of a digital nature (e.g., digital books, video games, cryptographically secured digital assets, certain digital infrastructure offerings, and audio, visual, and audiovisual works). The nontaxability of custom software transactions is unaffected by SB 122.

Vendors and purchasers should be aware that local taxes under the Bradley-Burns Uniform Local Sales and Use Tax Law and district taxes under the Transactions and Use Tax Law automatically conform to this law change. Thus, local and district taxes will also apply to retail sales of digital products as defined. Except for in-person transactions, destination sourcing of local and district taxes for taxable sales of digital products transferred electronically or accessed remotely will be mandated through a hierarchy of "known addresses," which deviates from the Streamlined Sales and Use Tax Agreement (SSUTA) rules. In addition, SB 122 prohibits any purchaser or retailer from entering into a local tax revenue-sharing agreement with a local agency for taxable purchases or sales of digital products that are transferred electronically or accessed remotely.

This expansion also abrogates the exclusion from tax that currently exists for certain retail sales, commonly known as software technology transfer agreements (TTAs), that are entered into on and after January 1, 2027. In the absence of an applicable exemption, tax will apply to continuing software TTA leases for all lease payments due on and after January 1, 2027. Pending or future software TTA refund claims for transactions completed before January 1, 2027, will be resolved under current law.

Under specified circumstances, the purchaser may be required to obtain use tax direct pay permits and to self-report use tax on such purchases.

SB 122 contemplates multiple-points-of-use exemption certificates (similar to the SSUTA's regime) and credit offsets for tax paid to other states for the sale and purchase of digital products, but the specific rules for these elements will likely be developed through an interested-parties process with the California Department of Tax and Fee Administration in the coming months.

SB 122 excludes from use tax the temporary storage of software on servers in California for deployment and functional use outside the state.

"Golden master" transactions (i.e., sales of digital products to purchasers that will effectively resell the digital products to third parties) continue to be exempt from California tax.

Temporary extension and modification of the limitation on business income tax credits: Existing law, for tax years beginning on or after January 1, 2024, and before January 1, 2027, limits the use of business tax credits to $5 million per tax year, with only a narrow exclusion for certain business tax credits. (See Tax Alert 2024 — 1299.) The $5 million limitation is applied on a combined group basis such that the aggregate tax of all members of the combined reporting group cannot be reduced by more than $5 million due to tax credits.

SB 122 extends this $5 million limitation through tax years beginning before January 1, 2030. As under current law, the carryforward period for unused credits resulting from the limitation is extended by an additional year for each year the limitation affects the credit.

The period for making an irrevocable election to receive an annual refundable credit amount (equal to 20% of the qualified credits that would have otherwise been available but for the $5 million limitation) is extended three years through tax years beginning before January 1, 2030. The annual refundable credit amount is allowed as a credit beginning the third tax year after the election is made.

Effective for tax years beginning on or after January 1, 2030, SB 122 modifies the business credit limitation so that it equals the greater of 70% of the total taxes imposed or $5 million per tax year, with only a narrow exclusion for certain business tax credits. Unlike prior limitations, the modified limitation applies permanently. SB 122 does not, however, extend a taxpayer's ability to elect to receive an annual refundable credit for tax years beginning on or after January 1, 2030.

Like the current credit limitation, the new credit limitation affects both corporate and personal income taxpayers. The corporate tax credits affected by this limitation include, but are not limited to, the following: the research and development credit, the jobs tax credit, the California competes credit, and the motion picture production credit. This limitation, however, does not apply to the low-income housing tax credit. The personal income tax portion excludes 11 specified credits from the limitation, including the California pass-through entity tax credit, earned income tax credit and renter's tax credit, among others.

Because the extension of the credit limitation overlaps with the tax years in which the annual refundable credit is allowed under the current credit limitation, the bill makes clear that the annual refundable credit amount is not included in the SB 122 $5 million limitation for 2027 — 2029.

Reduced first-year minimum annual tax for pass-through entities: Existing law imposes an annual minimum franchise tax of $800 on every corporation incorporated in, qualified to transact business in, or doing business in California, and an annual tax in an equal amount on every limited partnership (LP), limited liability partnership (LLP) and limited liability company (LLC) doing business in the state.

SB 122, for tax years beginning on or after January 1, 2027, and before January 1, 2030, reduces the annual tax imposed on an LP, LLP and LLC from $800 to $400 for the entity's first tax year.

For additional information on this development, see Tax Alert 2026-1375.

New Jersey enacted budget bills include corporate and individual tax changes, including a temporary cap on net operating loss deductions

On June 30, 2026, New Jersey Governor Mikie Sherrill signed the state budget bills into law, which impact both corporate and individual taxpayers. Key tax changes are discussed below.

New corporate net operating loss deduction (NOLD) cap: AB 5322 imposes a temporary $1 million cap on the utilization of corporate NOLDs for privilege periods ending on or after July 31, 2026, but before July 31, 2030. The new cap does not affect public utilities. For corporate taxpayers with a privilege period of less than 12 months, the $1 million cap is prorated based on the number of months in the short tax year.

If the temporary cap prevents a taxpayer from claiming a portion of any NOLD, the taxpayer may carry forward and apply the unused deduction to future privilege periods subject to further limitations. Specifically, for a privilege period ending on or after July 31, 2030, but before July 31, 2032, a taxpayer with a disallowed NOLD may claim the amount of the NOLD unused due to the cap; the deduction, however, may not reduce the taxpayer's allocated entire net income by more than 75% for the privilege period. Taxpayers with a reduced or disallowed NOLD because of these caps may carry over any remaining unused NOLD for an additional six privilege periods immediately following the privilege period in which the NOLD would have otherwise expired.

Interest and penalties will not be assessed for the underpayment of estimated tax for installments due and payable after December 31, 2025 and before January 1, 2027, if the underpayment results from the NOLD cap.

AB 5322 took effect immediately and applies to any privilege period ending on or after July 31, 2026.

Alternative business calculation adjustment allowed under the gross income tax: Retroactively applicable to tax years beginning on or after January 1, 2026, AB 5323 imposes limitations on the alternative business calculation adjustment available to individual taxpayers under N.J.S.A. 54A:3-9. The adjustment is reduced from 50% to 25% for taxpayers with gross income over $500,000 and the adjustment is eliminated for taxpayers with gross income over $1,000,000.

Under prior law, the alternative business calculation adjustment allowed eligible taxpayers to deduct 50% of their "business increment" from their taxable income. A business increment is the difference between a taxpayer's regular business income (without netting income and losses across categories of income) and alternative business income (offsetting income in one category against losses in another category). The categories of income considered are (i) net profits from business; (ii) net gains or net income from rents, royalties, patents and copyrights; (iii) distributive share of partnership income; and (iv) net pro rata share of S corporation income.

Beginning with tax year 2026, the deduction allowed under the adjustment is limited as follows:

• Gross income of $500,000 or less — eligible taxpayers may deduct 50% of business increment from taxable income
• Gross income of $500,000 or more but less than $1,000,000 — eligible taxpayers may deduct 25% of business increment from taxable income
• Gross income of $1,000,000 or more — eligible taxpayers are not allowed a deduction

This bill is estimated to increase state revenues by $120 million per year.

Child tax credit increase: SB 4531 /AB 5329 temporarily increases the child tax credit (N.J.S.A. 54A:4-17.1) by 25%. For tax years before 2026 and after 2028, the credit ranges from $200 to $1,000 depending on the New Jersey resident's taxable income. Under SB 4531/AB 5329, and for tax years 2026, 2027 and 2028, the credit ranges from $250 to $1,250.

Data broker and data collector registration fee: AB 5328 requires the establishment of a public registry of data brokers and data collectors doing business in New Jersey. Data brokers and data collectors that process the personal data of New Jersey consumers must register annually and pay a registration fee to the Division of Consumer Affairs. The annual registration fee ranges from $5,000 up to $1.5 million. Brokers that fail to timely register and pay the annual fee will be subject to a $2,500 penalty per day of noncompliance.

Fees on employers with employees utilizing state Medicaid: AB 5324, effective June 30, 2026, establishes fees for certain employers that employ individuals who receive health benefit coverage through the State Medicaid program. The fee, which will be imposed on an employer, is determined based on the number of employees, and dependents of employees, who receive health benefits coverage through the State Medicaid program as of December 31 of the applicable year as follows:

An employer is not liable for the fee for any employee, or dependent of the employee, with a developmental disability, an intellectual disability or a permanent physical disability.

Beginning on July 1, 2027, AB 5324 excludes an employer's lack of coverage for the following persons from the requirements of its provisions: (1) an employee who has been employed by the employer for less than 90 days; (2) an employee who works part-time, on a per diem basis, or who is a temporary employee; or (3) a seasonal employee.

An employer who fails to pay the fee for each impacted employee or dependent will be subject to a penalty not to exceed $500 per day for each day the fee remains unpaid.

For additional tax related measures in the budget bills, see Tax Alert 2026-1456.

INCOME/FRANCHISE

Florida: The Florida Department of Revenue (FL DOR) issued guidance on recently enacted legislation (Fla. Laws 2026, HB 7031) that updates the state's date of conformity to the Internal Revenue Code (IRC) to January 1, 2026 (from January 1, 2025), retroactively effective to January 1, 2026. While Florida generally follows the computation of federal taxable income (FTI) it decouples from several federal provisions, including the following provisions of the One Big Beautiful Bill Act: IRC Sections 168(n), 174A, 163(j), 168(k), 174(a), 179 and 274. The FL DOR further explained that state law "continues to require certain modifications to [FTI]", including addback requirements for the amount federally deducted as: (1) bonus depreciation under IRC Section 168(k) for assets placed in service before January 1, 2027 — amounts added back may be subtracted over a seven year period in an amount equal to one-seventh of the amount of the addition; and (2) depreciation of qualified improvement property, as defined in IRC Section 168(e)(6), placed in service on or after January 1, 2018. The FL DOR stated that it will work with taxpayers that filed their corporate income/franchise tax return under a different basis than explained in the guidance to resolve any penalty imposed on amended returns filed due to these changes. The FL DOR also noted that the state does not allow any adjustment to FTI for federal credits unless specified by statute. Fl. Dept. of Rev., TIP No. 26C01-01 (July 7, 2026).

Indiana: The Indiana Department of Revenue (IN DOR) updated its guidance on the state's treatment of bonus depreciation under IRC Section 168(k), IRC Section 179 expensing, and qualified production property under IRC Section 168(n), "to reflect Indiana's treatment of qualified production property and to reflect new reporting for circumstances when a taxpayer has both a depreciation modification and a disallowed federal excess business loss." Indiana law requires taxpayers make an adjustment to reflect Indiana's disallowance of qualified production property expensing. The IN DOR's guidance describes the amount of the adjustment, how to determine depreciation allowed for Indiana purposes for such property, and how to report such adjustments for 2025 and for 2026 and thereafter. The IN DOR further explained that a taxpayer may be allowed to adjust the amount required to be added back, when: (1) they have an excess business loss disallowed for federal tax purposes, (2) they have an add-back resulting from these depreciation adjustments (re: IRC Sections 168(k), 179 and/or 168(n)) for property placed in service during that year, and (3) the effect of adding back these amounts would increase the taxpayer's Indiana adjusted group income to an amount that is more than what would have been reported if the federal excess business loss would have been permitted in full. The adjustment for current year property placed in service would reflect the amount of what their Indiana adjusted gross income would have been without the federal excess business loss limitation. Ind. Dept. of Rev., Income Tax Information Bulletin #118 (updated May 2026).

Indiana: The Indiana Department of Revenue issued guidance on state modifications for specified research expenditures — i.e., expenses first allowed as a deduction in tax years beginning in 2022 through 2024 (under IRC Section 174) and expenses first allowed as a deduction in 2025 and later (both domestic research expenses under IRC Section 174A and foreign research expenditures deductible under IRC Section 174). The guidance addresses the following topics: (1) the general treatment of 2022 — 2024 specified research expenditures deductible under Section 70302(f)(2) of the One Big Beautiful Bill Act (OBBBA) and post-2024 foreign research expenditures; (2) domestic research expenditures for 2025 and later; and (3) treatment of pre-2025 expenses subject to the elective federal expensing under Section 70302(f)(1) of the OBBBA. The guidance includes examples. Ind. Dept. of Rev., Income Tax Information Bulletin #127 (June 2026).

Rhoda Island: New law (HB 8611) modifies the state's income allocation and apportionment provisions for banking institutions. Law enacted in 2024, and effective for tax years beginning on or after January 1, 2025, allows banking institutions subject to tax in multiple states to make an election to apportion their Rhode Island net income using a single receipts factor. HB 8611 prohibits a banking institution making this election from claiming any benefit under charter 64.5 of title 42 — the Jobs Development Act, which grants incremental income tax rate reductions to companies that create new employment in this state. R.I. Laws 2026, HB 8611, signed by the governor on June 23, 2026.

SALES & USE

Arizona: New law (HB 2786) exempts from the transaction privilege tax personal property rental classification leases or rentals of college textbooks from a bookstore required by any state university or community college. The exemption applies to tax periods beginning on or after October 1, 2026. Ariz. Laws 2026, ch. 258 (HB 2786), signed by the governor on June 22, 2026.

Colorado: A recently enacted Colorado law (HB26-1223, the law) revises the definition of tangible personal property to include most forms of downloaded and remotely accessed computer software with limited exemptions. Effective January 1, 2027, downloaded and remotely accessed computer software, which was previously excluded from the definition of tangible personal property, will become taxable. An exemption will apply only to computer software that is either governed by a negotiable license agreement or developed for use by a particular user. HB 26-1223 represents a significant increase in the state's sales and use tax base and largely aligns the state's treatment of downloaded and remotely accessed software with several home-rule self-collected municipalities that have already been subjecting such software to their local sales and use taxes. This conformity, however, is not absolute, as the new state-level definitions do not exactly mirror those in every home-rule jurisdiction. Accordingly, taxpayers should continue to assess whether their transactions fall within the scope of applicable local taxes on a jurisdiction-by-jurisdiction basis. The Colorado Department of Revenue will hold a workgroup meeting on August 6, 2026 at 10:00 a.m. MDT to discuss the development of new rules in relation to this legislation. For more on this development, see Tax Alert 2026-1457.

Colorado: In response from a ruling request, the Colorado Department of Revenue (CO DOR) said that a wholesaler that does not have a state-issued sales tax license may not use the Multistate Tax Commission's (MTC's) Uniform Sales & Use Tax Resale Certificate to claim an exemption on purchases made in Colorado. The CO DOR reasoned that the wholesaler would not be eligible to use the MTC's certificate as it requires the business attest that it holds a valid sales tax license in the states in which it would deliver purchases to buyers. The wholesaler, however, would be able to use form DR 5002, which the seller may accept from a purchaser without a state-issued sales tax license. Colo. Dept. of Rev., GIL 26-001 (June 9, 2026).

Maryland: New law (SB 309) modifies the sales and use tax exemption for sales of precious metal bullion or coins by repealing the requirement that the sales occur at the Baltimore Convention Center. The law change took effect on July 1, 2026. As of that date, the sales and use tax exemption applies to sales of precious metal bullion or coins with a sales price greater than $1,000. Md. Laws 2026, ch. 730 (SB 309), signed by the governor on May 26, 2026.

Puerto Rico: In Circular Letter (CL) 26-13, the Puerto Rico Treasury Department (PRTD) announced the integration of the municipal sales and use tax (SUT) in the Unified Internal Revenue System (SURI). The integration resulted from legislation that was enacted in June 2025 and mandated the establishment of a conceptual framework for a collaborative agreement between the PRTD and municipalities. As part of the integration, the PRTD will process the filings and payments for 73 participating municipalities. For additional information on this development, see Tax Alert 2026-1460.

Vermont: New law (SB 327) allows the rounding of cash transactions to the nearest five cents when pennies are not available or impractical. When the final digit of the amount due is one, two, six or seven cents, the amount is rounded down to the nearest amount divisible by five. The amount is rounded up to the nearest amount divisible by five when the final digit of the amount due is three, four, eight or nine cents. These rounding rules do not apply to electronic and other noncash payments, rebates or cash disbursements, payment of wages, and transactions governed by federal law that prohibits rounding. All taxes and fees are calculated and remitted based on the pre-rounded amount. Businesses that choose to round "must post at a conspicuous location" the model notice provided by the Vermont Commissioner of Liquor and Lottery. Vt. Laws 2026, Act 128 (SB 327), signed by the governor on June 8, 2026. See also, Vt. Dept. of Taxes, "Guidance for Retailers and Consumers on the Phase-Out of the Penny in Cash Transactions" (July 16, 2026).

Virginia: New law (HB 30) extends various sales and use tax exemption. HB 30 extends to July 1, 2028 (from July 1, 2026) the sunset date of the sales and use tax exemption for sales of gold, silver and platinum bullion and legal tender coins if the sales price exceeds $1,000. The law also extends the sunset date of the sales and use tax exemption for raw materials, fuel, power, energy, supplies, machinery or tools or repair/replacement parts used directly in the drilling, extraction or processing of natural gas or oil and the reclamation of a well area through July 1, 2028 (from July 1, 2026). Va. Laws 2026 (Special Sess. I), ch. 1 (HB 30), signed by the governor on June 29, 2026. See also, Va. Dept. of Taxn., PD No. 26-82 "2026 Legislative Summary" (July 6, 2026).

BUSINESS INCENTIVES

California: New law (SB 180) extends the CalCompetes tax credit, which may be claimed against the personal and corporate income tax laws, through tax years beginning before January 1, 2035 (from before January 1, 2030). The CalCompetes credit will be allocated by GO-BIZ with respect to fiscal years through and including 2032-33 (from 2027-28). Cal. Laws 2026, ch. 85 (SB 180), signed by the governor on July 13, 2026.

Georgia: New law (HB 134) provides tax credits for forestry manufacturing facilities. For tax years beginning on or after January 1, 2026, and before January 1, 2031, forestry manufacturers are allowed an addition tax credit equal to $500 per eligible new full-time employee job for the first year in which such job is created. To be eligible for the credit, a forestry manufacturer must increase employment by a set amount, depending on the county tier in which it is located (e.g., in tier 1 counties — increase employment by five or more). A forestry manufacturer in a tier 1 county also is allowed an income tax credit equal to 15% of the costs of all qualified investment property purchased or acquired by the taxpayer during the year, subject to certain requirements. The amount of credit is reduced to 10% for a forestry manufacturer in a tier 2 county, and to 3% to such manufacturers in tier 3 or tier 4 counties. These credits may be transferred or sold in whole or in part by such manufacturer to another Georgia taxpayer, subject to certain conditions. Transfer or sale of the credit does not extend the time in which it can be used. The carry-forward period of the credit begins on the date in which the credit was originally earned. The aggregate amount of tax credits allowed to forestry manufacturers is capped at $250 million; with the cap reduced to $100 million for forestry manufacturers located in tier 3 and tier 4 counties. HB 134 took effect on July 1, 2026 and applies to tax years beginning on or after January 1, 2026. Ga. Laws 2026, Act 427 (HB 134), signed by the governor on May 6, 2026.

Iowa: New law (HF 2799) creates the headquarters expansion and development for growth and employment program (EDGE program). To be eligible for the credit: (1) the community in which the project is located must approve the project either by ordinance or resolution; (2) the business must have a global presence and a significant market share or national industry recognition; (3) the business must show that a minimum of 51% of the business's gross revenue is generated from business outside the state; (4) the business must show that another state is meaningfully competing for the business's corporate headquarters; (5) the business must not be solely relocating operations from a different area of the state; (6) the business must offer comprehensive benefits to each full-time equivalent employee at its corporate headquarters; and (7) the business must be primarily engaged in advanced manufacturing, bioscience, insurance and finance, technology and innovation, or research and development. The business cannot be a data center, a retail business or a business where a cover charge or membership requirement restricts certain individuals from entering the business. The Iowa Economic Development Authority will determine if a business is primarily engaged in such business activity. Tax incentives available under the EDGE program, include a qualifying wage tax credit of: (1) up to 15% of gross annual wages of new corporate jobs that pay at least 200% of the qualifying wage threshold; and (2) up to 1% of gross annual wages of retained corporate jobs that pay at least 200% of the qualifying wage threshold, not to exceed $1 million. These credits may be claimed for up to three years. The qualifying wage tax credit may be claimed against the personal income tax, the corporate income tax, the franchise tax, and the moneys and credits tax. Credits in excess of the taxpayer's tax liability are refundable or they may be carried forward to the immediately succeeding tax year. These credits are not transferable.

HF 2799 extends the sunset date of the major economic growth attraction (MEGA) program to January 1, 2030 (from January 1, 2027). In addition, for purpose of this credit, the law modifies the definition of "foreign adversary" — specifically updating the term "foreign government or foreign non-government person", referencing the definition in 15 C.F.R. Section 791.4 at any time from July 18, 2024 through the termination of the MEGA program. (Under Iowa law, a business associated with foreign adversary are not eligible to participate in the MEGA program.)

Lastly, the law repealed the new jobs tax credit program, effective upon enactment of HF 2799. Iowa Laws 2026, HF 2799, signed by the governor on June 2, 2026.

Louisiana: The Louisiana governor issued an executive order (EO) establishing the Louisiana Ratepayer and Community Protection Initiative. Under the order, the Secretary of Louisiana Economic Development (LED) has been directed "to develop and adopt criteria establishing the Ratepayer and Community Protection Framework for Large Load Investments … " This framework will "serve as conditions LED must incorporate in any agreement" that is entered into for eligibility to participate in the state's data center sales and use tax exemptions as well as other related incentives for data centers and other large-load, power-intensive projects in Louisiana. Before any new, or extension of a, data center project is approved, the Secretary must determine that the balance between the project's anticipated demands on the State's resources (such as water and electricity) and the anticipated benefits to the State and its citizens "adequately protects Louisiana's resources, ratepayers, and communities, and LED's contractional agreements impose appropriate conditions to ensure compliance with the Framework." The EO sets forth areas of concentration for the Framework, including protecting ratepayers, investing in grid resiliency, supporting local communities and workforce development, local property and infrastructure investments, responsible resource stewardship, advancing community investment, supporting the state's innovation economy, among other criteria. The EO took effect upon the governor's signature. La. Gov., Executive Order No. 26-058 (July 1, 2026).

Massachusetts: On June 25, 2026, Massachusetts Governor Maura Healey announced a one-year pause on her administration's acceptance of data center sales tax exemption applications and released a framework "to guide responsible data center development to ensure projects do not drive up energy costs, strain local infrastructure or harm public health and the environment." The framework includes expectations for data center developers, including funding the cost of energy infrastructure and clean energy supply needed to support the project, protecting water safety and the environment, and ensuring that local business and residents can benefit from job creation and other investment. Ma. Gov., Press Release "Governor Healey Halts Data Center Tax Incentive and Calls for Strict Guardrails to Protect Ratepayers, Environment & Public Health" (June 25, 2026).

Vermont: New law (SB 327) repeals the prospective repeal of the Vermont Economic Growth Incentive (VEGI), which had been set for January 1, 2027. The aggregate amount of credit that may be approved in each calendar year is capped at $10 million (down from $15 million) for one or more initial approvals and $5 million (down from $10 million) for one or more final approvals. The law also requires the Commissioner of Economic Development, in consultation with stakeholders, to study "how the State can better enable and support the growth of Vermont businesses." The Commissioner has until December 15, 2026 to submit a written report and recommendations for legislative action, to select legislative committees. SB 327 took effect on passage. Vt. Laws 2026, Act 128 (SB 327), signed by the governor on June 8, 2026.

PROPERTY TAX

New York: New law (AB 11378) extends the green roof property tax abatement for certain properties located in New York City. The abatement is extended through tax abatements commencing before June 30, 2031 (from before June 30, 2027). The aggregate amount of tax abatements allowed per year is capped at $4 million. The tax abatement application period is extended to before March 15, 2030 (from before March 15, 2026). AB 11378 took effect immediately. N.Y. Laws 2026, ch. 153 (AB 11378), signed by the governor on June 26, 2026.

COMPLIANCE & REPORTING

Vermont: The Vermont Department of Taxes (VDT) published supplemental 2025 Vermont income tax form instructions to consider recently enacted law changes that retroactively update the state's income tax law for Tax Year 2025, including the state's retroactive conformity to many provisions of the One Big Beautiful Bill Act (OBBBA), with retroactive decoupling from select OBBBA provisions. The VDT noted that Tax Year 2025 income tax returns with the following business activity are "likely impacted" by Vermont's partial conformity to the OBBBA: (1) individual, business, corporate or fiduciary income tax filers that have deducted domestic research and experimentation expenses under IRC Section 174A on their federal return; (2) individual, business, corporate or fiduciary income tax filers that have deducted depreciation related to qualified production property under IRC Section 168(n) on their federal return; and (3) C-corporations that offset foreign-derived intangible income (FDII) or global intangible low-taxed income (GILTI) with a deduction under IRC Section 250 on their Tax Year 2025 federal tax return. The supplemental instructions include line-by-line instructions for taxpayers who are preparing their 2025 Vermont income tax return or filing an amended 2025 Vermont income tax return. The VDT said that it will work with taxpayers who incur penalty or interest due to the conformity changes, on a case-by-case basis, considering each taxpayer's facts and circumstances. Vt. Dept. of Taxes, "Now Available: Instructions for VT Tax Conformity with OBBBA" (posted June 22, 2026).

CONTROVERSY

Indiana: Reminder — The Indiana tax amnesty program will run from July 15, 2026, through September 9, 2026. Amnesty applies to unpaid tax liabilities due for tax periods ending before January 1, 2024. The Indiana Department of Revenue (Department) has posted frequently asked questions (FAQs) on the tax amnesty program, addressing 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. The FAQs indicate that liabilities for most taxes managed by the Department owed for tax periods ending before January 1, 2024, are eligible for the program. However, individuals and businesses that participated in either the 2005 or 2015 amnesty programs are not eligible to participate in 2026 tax amnesty program. Taxpayers with an assessed tax resulting from a recent audit are still eligible for the amnesty program if they did not participate in the prior amnesty programs. If the taxpayer has an appeal or protest in progress before the start of the amnesty program, the taxpayer is in "hold status." The liability being appealed or protested will not be subject to the double penalty if the taxpayer chooses not to participate in amnesty during the appeal/protest process; however, the taxpayer will not benefit from the waiver of penalties, interest, and collection fees unless they pay the liability during the amnesty period. Taxpayers that decide to pay the liability under the amnesty program waive their right to further appeal/protest the liability. For additional information on this development, see Tax Alert 2026-1025.

PAYROLL & EMPLOYMENT TAX

Multistate: To assist you in reviewing your state and US territory income tax withholding rates for 2026, the chart provided in Tax Alert 2026-1359 (updated as of June 24, 2026) contains hyperlinks to the most recent income tax withholding formulas/tables published by the states and US territories, information concerning their respective highest income tax withholding rates (based on their percentage method of withholding) or flat tax withholding rates, and, if applicable, their supplemental withholding rates. Updates will be made to publication throughout the year. You can find this and other of our special reports here.

Hawaii: Governor Josh Green has approved SB 3125 (Act 24, 2026), which, effective January 1, 2027, implements a personal income tax rate of 13% on taxable income exceeding $1 million in a calendar year while preserving much of the individual income tax relief enacted under Hawaii's 2024 tax reform legislation for lower- and middle-income taxpayers. For additional information on this development, see Tax Alert 2026-1440.

Rhode Island: Governor Dan McKee approved H. 7127, which, starting in 2027, imposes a personal income tax surtax on annual income exceeding $1 million in the year. The legislation was enacted as part of Rhode Island's fiscal year 2027 budget bill and establishes a phased-in surtax that will increase the effective tax rate on taxable income above $1 million from 5.99% to 8.99% when fully implemented. For additional information on this development, see Tax Alert 2026-1486.

MISCELLANEOUS TAX

Virginia: New law (HB 30) creates the data center electricity consumption tax, which will be imposed beginning on and after July 1, 2026, but before July 1, 2028. The electricity consumption tax, which is in addition to all other taxes and fees, is imposed at a rate of $0.011/kWh of all electricity consumed at each data center per month. The law defines "electricity consumption tax" as "the amount that each data center operator shall pay for each kWh used pursuant to this Item, regardless of whether the electricity is provided through an incumbent electric utility, an incumbent electric cooperative, a competitive service provider, or is self-supplied." For electricity provided through an incumbent electric utility, an incumbent electric cooperative, a competitive service provider, the supplier will list the applicable tax as a separate line item on the data center's billing invoice. If the electricity is self-supplied, the data center operator must report its usage quarterly to the Department of Environmental Quality, who will verify such usage to the State Corporation Commission. The tax will be collected monthly by the State Corporation Commission. No more than $600 million in revenues collected from this tax will be deposited in the general fund. On or after July 1, 2027, the State Corporation Commission will allocate and distribute refunds of excess revenue collected to data center operators that paid the tax. The first collection of this tax will be for the period beginning on and after July 1, 2026 through September 2, 2026; thereafter, the tax will be collected on a monthly basis.

The law requires the Joint Subcommittee on Tax Policy to study the data center sales and use tax exemption and other data center impacts. The goals and objectives of the subcommittee include: (1) reviewing the state's data center sales and use tax exemptions, (2) examining the impact of the existing and any potential future exemption or incentives, (3) approaches taken in other states related to data center tax preferences, incentives and sustainable development requirements, (4) reviewing methods related to data center investments in non-urbanized areas of Virginia, (5) reviewing the estimated direct and indirect economic benefits of data center investments in Virginia, (6) reviewing environmental and quality of life related to data center location and siting, (7) evaluating the impact of artificial intelligence on employment, among other considerations. The subcommittee's report is due to the General Assembly by December 15, 2026. Va. Laws 2026 (Special Sess. I), ch. 1 (HB 30), signed by the governor on June 29, 2026. See also, Va. Dept. of Taxn., PD No. 26-82 "2026 Legislative Summary" (July 6, 2026).

GLOBAL TRADE

Federal: On July 15, 2026, the United States Trade Representative (USTR) issued a Notice of Action under Section 301 of the Trade Act of 1974, as amended (Section 301), concluding its investigation into certain acts, policies and practices of Brazil. The investigation, initiated on July 15, 2025, examined issues related to digital trade and electronic payment services, unfair and preferential tariffs, anti-corruption enforcement, intellectual property protection, ethanol market access and illegal deforestation. The USTR determined on June 1, 2026 that Brazil's acts, policies and practices under investigation are unreasonable or discriminatory and burden or restrict United States (US) commerce and proposed imposing additional duties of 25% on all goods of Brazil, with specified exemptions. Following its review of written submissions and public hearing testimony, and at the specific direction of the President, the USTR has determined to impose the proposed 25% additional duty on certain products of Brazil, with exemptions set forth in Annexes I and II to the Notice of Action. For more on the USTR's June 2026 actionability determination and proposed action, see EY Global Tax Alert, USTR issues Section 301 determination on Brazil, initiates Section 301 IP investigation into Vietnam; tariffs proposed and comment periods open, dated June 2, 2026. For additional information on this development, see Tax Alert 2026-1530.

VALUE ADDED TAX

International — South Africa: The Constitutional Court's June 23, 2026 decision in Lueven Metals (Pty) Ltd. V. Commissioner for the South African Revenue Service has clarified the value-added tax (VAT) rate to be applied to the sale of gold in South Africa. What appeared to be a technical dispute on the interpretation of a single legislative provision has resulted in a judgment with far-reaching implications for the gold industry. At its core, the case deals with when the supply of gold can be zero-rated under section 11(1)(f) of the VAT Act. The answer given by the Court is clear and uncompromising. It confirms that zero-rating is available only in narrowly defined circumstances. More importantly, the decision fundamentally shifts the focus from the form of the gold at the time of supply to its full historical provenance. (Note: The Constitutional Court's decisions are not appealable, so the decision in Lueven Metals is final.) For additional information on this developments, see Tax Alert 2026-1477.

International — Uganda: The Tax Appeals Tribunal at Kampala delivered a taxpayer-favorable ruling on May 29, 2026 in Ericsson AB v. Uganda Revenue Authority, Application No. 060 of 2020, holding that the tax authority (URA) could not treat differences between Ericsson's VAT and income tax amounts as undeclared taxable sales without properly accounting for timing differences and reconciliations. As a result, parts of additional assessments the URA had imposed were deemed excessive and had to be reduced. The Tribunal also found that the revised tax amount should reflect agreed reconciliations and applicable legal principles.(Note: Ernst & Young Uganda represented Ericsson AB before the Tribunal in this case.)* The decision is particularly relevant to businesses undertaking long-term construction and service contracts, in which revenue may be recognized progressively for accounting and income tax purposes but value-added tax (VAT) only becomes due upon invoice issuance, receipt of payment or completion of the service, whichever occurs first. The Tribunal confirmed that differences between income tax revenue and VAT sales arising from these timing rules do not, by themselves, constitute evidence of undeclared taxable supplies. For additional information on this development, see Tax Alert 2026-1467.

UPCOMING WEBCASTS

Thursday, July 30, 2026. Outlook and opportunities in data center development and investment (12:00 PM - 1:00 PM). Please join us for a discussion on the latest developments in data center real estate. In this webcast, a panel of leading EY professionals will provide an overview and outlook for the data center market, potential opportunities available to developers and investors, and other timely updates. Register here.

Wednesday, August 5, 2026. FSO SALT transactions quarterly webcast: Navigating emerging state tax developments and transaction trends (1:00-2:00 p.m. ET; 10:00-11:00 a.m. PT). Join us for the inaugural episode of our new quarterly Financial Services (FSO) state and local tax (SALT) transactions webcast series, where we will provide timely insights into emerging SALT developments impacting financial services, real estate, and asset management transactions. Topics to be discussed include: (1) recent state and local legislative developments impacting income and transfer taxes; (2) emerging state and local trends and developments for transactions; (3) state and local considerations for data center investments, including: sales and use taxes, real estate transfer tax and property tax considerations, and credits and incentives opportunities. Register here.

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.