Recent state and local tax developments may create both compliance risks and planning opportunities for businesses. Several states have enacted legislation affecting sales and use tax, corporate income tax, tax credits, and conformity to federal tax law. Businesses should review these changes carefully to assess potential impacts on filing obligations, tax liabilities, and future planning strategies.

Important Amnesty Programs

Taxpayers with outstanding liabilities should be aware of the following tax amnesty programs:

• Illinois: August 1 through October 31, 2026
• Indiana: July 15 through September 9, 2026

Taxpayers with liabilities who don’t participate may face harsh penalties.

California

On June 29, 2026, California Governor Gavin Newsom signed into law SB 122. The legislation significantly expands the state’s sales and use tax to 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. The law is effective January 1, 2027.

What Businesses Should Consider

• Companies who have had a taxable presence in California or economic nexus in California historically but chose not to file because California didn’t tax SaaS, have 6 months to prepare to start charging sales tax in January.
• Companies based in California who purchase SaaS and have not paid sales tax or use tax in the past, should prepare to pay sales tax or self-assess use tax starting January 1.

Colorado

Corporate Income Tax Changes

House Bill 1289, signed June 3, 2026, makes significant changes to Colorado’s combined reporting rules for tax years beginning on or after January 1, 2027, including:

• Modifies Colorado’s combined reporting regime for state corporate income tax years beginning on or after January 1, 2027
• Mandates worldwide combined reporting unless a valid water’s election that is binding for ten years is made
• Eliminates the “domestic 80/20 corporation” exclusion for those members electing to file their Colorado combined return on a water’s edge basis
• Sets forth additional modifications to taxable income for corporations
• Updates the list of “tax haven” jurisdictions as provided under existing Colorado law, which presumptively requires the combined return inclusion of affiliates incorporated in certain listed foreign jurisdictions, and establishes a framework for maintaining and updating this list going forward.

The legislation also excludes certain Subpart F income and net controlled foreign corporation tested income from combined reporting calculations for state corporate income tax years beginning on or after January 1, 2027.

Sales Tax on SaaS

Beginning January 1, 2027, Colorado will impose sales tax on SaaS and remotely accessed software under HB26-1223. The act repeals the downloaded software sales and use tax exemption so that all software that is available for repeated sale and license qualifies as tangible property and thus is subject to sales and use tax.

Downloaded software governed by a negotiable license agreement or developed for a specific user remains exempt.

What Businesses Should Consider

• Companies that have had a taxable presence in Colorado or economic nexus in Colorado historically, but chose not to file because Colorado didn’t tax SaaS, have 6 months to prepare to start charging sales tax in January.
• Companies based in Colorado who purchase SaaS and have not paid sales tax or use tax in the past, should prepare to pay sales tax or self-assess use tax starting January 1.

Connecticut

On May 26, 2026, Connecticut signed into law S.B. 1, that includes:

• decouples the state corporation business tax from domestic research and experimental federal bonus depreciation deduction for qualified production property, starting with the 2026 income year
• delays conforming the state corporation business tax to recent changes in the federal deduction under P.L. 119-21 for expenditures by one year and disallowing the retroactive application of these changes for the 2022 to 2025 income years
• creates an income tax credit for qualifying small businesses that incur eligible research and development spending in the state
• replaces the current state taxes on retail sales of cannabis plant material, cannabis edible products, and other cannabis with a single tax
• extends the increased redemption rate for film and digital media tax credits claimed against the sales tax to the 2026 and 2027 income tax years.

The law has multiple effective dates.

Florida

On June 29, 2026, Florida Governor Ron DeSantis signed an omnibus tax bill that:

• for sales and use tax purposes, creates several exemptions, amends sales tax holidays, and allows tax credit to apply to certain motor vehicles
• modifies the Child Care Tax Credit and the Strong Families Tax Credit
• for property tax purposes, amends the homestead and other exemptions, amends land classifications and assessments on certain lands, and amends notice requirements
• amends rules for refund applications and interest accrual
• for gaming tax purposes, reduces the slot machine and cardroom tax rates;
• for insurance premium tax purposes, revises the order in which credits must be taken against premium taxes.

(L. 2026, H7031E (S.S. 2026E), effective 07/01/2026, unless otherwise stated.)

Internal Revenue Code Conformity Guidance Released

Florida released guidance to clarify conformity to the Internal Revenue Code (IRC) as of 1/1/2025 and 1/1/2026. Amended returns may be required in some circumstances. (Fla. Dep’t of Revenue, Tax Information Publication (TIP) 26C01-01, 07/07/26).

The following sections of the IRC are included in the definition of “Internal Revenue Code” as amended and in effect on January 1, 2025 (i.e., without taking into consideration any amendments made to these sections by the One Big Beautiful Bill Act (Public Law 119-21))

• Section 168(k): Special allowance for certain property (bonus depreciation)
• Section 174(a): Amortization of research and experimental expenditures
• Section 163(j): Limitation on business interest
• Section 274: Disallowance of certain entertainment, etc., expenses
• Section 179: Election to expense certain depreciable business assets

These sections of the IRC are not included in the definition of “Internal Revenue Code”:

• Section 168(n): Special allowance for qualified production property
• Section 174A: Domestic research or experimental expenditures

Georgia

The Georgia Department of Revenue (DOR) proposed amendments to certain sales and use tax exemption rules. The regulations include:

• adding a sales and use tax exemption for diesel exhaust fluid used in agriculture
• exemption for maintenance and replacement parts for concrete mixer equipment, extending through June 30, 2031
• repealing the rule addressing the sales tax exemption for film producers and production companies.

The regulation took effect June 11, 2026. (Ga. Dep’t of Revenue, Regs. Sections 560-12-2-.03, et al., 05/27/26)

Hawaii

Enacted on May 21, 2026, Hawaii signed a law S.B. 3125, that includes:

• creating a new 13 percent income tax bracket for people making more than $1 million annually beginning for taxable years after Dec. 31, 2026
• repealing certain future adjustments to income tax brackets
• changing income tax rates for taxable years beginning after Dec. 31, 2026, and taxable years beginning after Dec. 31, 2028
• repealing the Technology Infrastructure Renovation Tax Credit beginning Jan. 1, 2028
• repealing the High Technology Business Investment Tax Credit and Tax Credit for Research Activities beginning Jan. 1, 2029.

Illinois

On June 16, 2026, Illinois signed S.B. 3019 into law. The legislation includes several tax provisions, such as:

• enacting the Targeted Advertising Services Tax Act
• imposing a 10 percent tax on the gross receipts derived from targeted advertising services provided in the state on providers of targeted advertising services beginning Jan. 1, 2027
• providing a $1 million cumulative gross receipts threshold for a preceding 12-month period, determined quarterly, for providers of targeted advertising services
• providing for certain net operating loss carryover limitations for corporations for certain taxable years ending on or after Dec. 31, 2027
• providing that a partnership making an entity-level tax election may elect to determine its tax base using a full distributive share method or an Illinois-sourced income method.

The law generally took effect on June 16, with certain provisions taking effect on July 1.

Illinois Adopts Finnigan Method for Unitary Combined Reporting

Illinois has adopted amended regulations affecting how unitary combined reporting groups determine nexus and apportion income. Effective for tax years ending on or after December 31, 2025, unitary business groups must apply the Finnigan method rather than the Joyce method.

Under the Finnigan approach, a unitary business group is considered taxable in a state if any member of the group is subject to tax in that state. The change may expand filing obligations and affect how multistate businesses calculate their Illinois apportionment factors.

Key Considerations

• Nexus is determined at the group level, meaning a group’s Illinois taxability may be established when any member has nexus in the state.
• When calculating the sales factor apportionment numerator, taxpayer members must include a portion of the Illinois sales generated by non-taxable group members.
• The allocation is based on a ratio that compares the taxpayer member’s Illinois sales to the aggregate Illinois sales of all taxable members of the unitary group.

The regulations were adopted by the Illinois Department of Revenue and became effective June 2, 2026. Businesses operating as part of a unitary group should evaluate how the transition to the Finnigan method may affect their Illinois filing positions and apportionment calculations.

(86 Ill. Adm. Code Secs. 100.3200, 100.3370, 100.3375 100.5200, 100.5201, 100.5210, 100.5215, 100.5250, 100.5270, 100.9720 , Illinois Department of Revenue, effective June 2, 2026)

Kentucky

On April 27, 2026, Kentucky enacted H.B. 869 allowing a refundable credit for economic development projects under the Kentucky Business Investment program of:

• Up to 2.25 percent of the wages paid to full-time employees of a project located in a heritage county; or,
• Up to 1.25% of wages paid to full time employees of a project located in other Kentucky counties

Massachusetts

On June 12, 2026, Massachusetts Governor Maura Healey signed an omnibus appropriations bill that includes significant tax law changes affecting corporate and personal income taxes, and sales and use tax, including:

• Limits automatic conformity to IRC amendments
• Decouples Massachusetts from IRC provisions on bonus depreciation
• Enhances expensing limits, business interest deductions and research and experimental expenditures
• Establishes a pass-through entity (PTE) tax workaround for the millionaire’s surtax
• Creates:
  • sustainable aviation fuel tax credit
  • farm to food donation tax credit
• Provides a sales tax exemption for affordable housing construction

(L. 2026, H5470, effective 06/12/2026, and as noted.)

Next Steps for Businesses

Many of these changes could significantly affect sales tax collection, income tax reporting and tax planning strategies. Businesses should evaluate their state tax footprint, review nexus positions and assess how upcoming legislative changes may impact future compliance obligations.

If you have questions about how these developments may affect your organization, contact our State and Local Tax team.

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