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The SALT Brief

State Tax Changes Taking Effect January 1, 2025, Frazier & Deeter

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State and local tax laws are constantly evolving, creating challenges for businesses trying to stay compliant. The SALT Brief is a regularly updated resource that highlights key legislative changes, regulatory updates and policy shifts across the US.

Table of Contents

June 2025

Key Updates

  • The Federal House bill (“One Big Beautiful Bill”) in its current form would disallow certain white-collar professionals — doctors, lawyers, accountants, financial advisors and others — known as a “specified service trade or business,” or SSTB, from using the SALT deduction workaround (i.e., state pass-through entity tax elections to deduct state taxes on federal return of SSTB) (see Tax Foundation analysis; AICPA letter sent to Congress).

Alabama

Tax years beginning on or after January 1, 2024, research and experimental expenditures for Alabama tax purposes will not follow the provisions of IRC § 174, as amended by the Tax Cuts and Jobs Act (TCJA), P.L. 115-97. Under the legislation, taxpayers will instead have the option to currently deduct research and experimental expenditures or treat the expenditures as deferred expenses in the same manner as provided in IRC § 174 prior to tax year 2022. (L. 2025, H163 (Act 400), effective 05/14/2025)

Arkansas

The Arkansas Governor signed a law to modernize the law concerning the apportionment of income derived from multistate operations, and to change the method for sourcing of receipts for services and intangibles. The law includes: 1) adoption of market-based sourcing of sales for sales other than sales of tangible personal property; 2) providing guidance for utilizing alternative apportionment including requiring equal application of rules, standards of proof and anti-penalty provisions; 3) allowing providers of telecommunications services, internet services and some television services to elect to use cost of performance sourcing until Dec. 31, 2035; and 4) excluding income of nonresident corporations or partnerships from income tax if the business has no physical presence in Arkansas and its Arkansas receipts for the preceding year were $250,000 or less. The law is effective for tax years beginning on and after Jan. 1, 2026. [S.B. 567, enacted 04/16/25]

Georgia

L. 2025, H475, effective 01/01/2026, amends a definition relating to the income tax credit for film, gaming, video or digital production. The term “qualified production activities” is revised to include commercial advertisements, not just televised ones; removes recordings in laser discs; includes paid subscription-based platforms and free advertiser supported streaming television (FAST) channels; and excludes advertiser supported sites and user-generated content distributed exclusively via social media platforms.

L. 2025, H153 (Act 80), effective 07/01/2025, extends the sunset date from June 30, 2026 to June 30, 2031 for the sales and use tax exemption for maintenance and replacement parts for certain machinery or equipment used to mix or transport concrete.

L. 2025, S141 (Act 290), effective 07/01/2025, extends the period from 30 to 45 days for protesting tax assessments and for determination of certain due dates. As amended, a taxpayer now has 45 days (instead of 30) to contest any claim for refund that is denied in whole or in part by the commissioner; 45 days after notice for taxes and licenses, except ad valorem and income tax, before the tax or license will become due and payable; 45 days from date of assessment to appeal before an assessment becomes final; 45 days from date of notice of proposed assessment for a taxpayer to file a written protest; 45 days from the date the commissioner mails a notice for the taxpayer or his sureties to may make payment before an action to collect the amount unpaid may be brought; 45 days for filing a surety bond; and 45 days from payment of a protested amount of intangible recording tax for a taxpayer to file a claim for refund.

L. 2025, H360 (Act 262), effective 07/01/2025, reduces the tax credit for the rehabilitation of historic structures for certain preapproved rehabilitations. Any taxpayer that was preapproved to claim tax credits for certified structures other than historic homes for tax year 2027 or 2028 will be allowed the credit in the authorized year or in tax year 2026, provided that the taxpayer obtains a certificate of occupancy before July 1, 2026, and that for any tax credit claimed in 2026, the credit is not to exceed 90% of the amount otherwise allowed if the credit was preapproved for tax year 2027, and is not to exceed 85% of the amount otherwise allowed if the credit was preapproved for tax year 2028.

L. 2025, H129 (Act 251), effective 05/14/2025, allows preferential assessment for bona fide conservation use property and bona fide residential transitional property for leased property for certain entities that are only owned by natural or naturalized citizens; have the primary purpose of producing agricultural products or timber; derives 80% of its gross income from bona fide conservation uses in Georgia; or an entity where at least one of its members has 25% ownership interest in the property being leased and would be entitled to conservation use assessment. Further, the law reinstates Georgia’s tax credit for postproduction expenditures in film and television from January 1, 2026 to January 1, 2031.

L. 2025, H290 (Act 370), effective 05/14/2025, updates Georgia’s conformity date to the federal IRC. For taxable years beginning on or after January 1, 2024, except as excluded, Georgia has adopted the provisions of all federal tax acts that were enacted on or before January 1, 2025. Provisions of the IRC which were as of January 1, 2025 enacted into law but not yet effective, will become effective for Georgia taxation on the same dates they become effective for federal tax purposes.

L. 2025, H136 (Act 182), effective 07/01/2025, increases the state tax credit for child and dependent care expenses to 50% of the federal credit. For tax years beginning January 1, 2026, taxpayers are allowed a $250 tax credit for each qualifying child of the taxpayer under six years old. The law also allows a tax credit for employers that make childcare payments for employees equal to $500 per child for which payments are made per tax year, or $1,000 per child for which such payments are made if it is the first taxable year in which the taxpayer provided eligible childcare payments for employees. Further, the law expands the tax credit for contributions to foster child support organizations by allowing credits for contributions that support both aging foster children and justice-involved youth.

L. 2025, H511 (Act 269), effective 07/01/2025, creates a catastrophe savings account (CSA) for Georgia taxpayers to help cover expenses from natural disasters. For tax years beginning January 1, 2026, Georgia residents are allowed a deduction from taxable income for contributions to a CSA and interest it earns. Taxpayers may establish only one CSA per primary residence, with contribution limits based on their homeowner’s insurance deductible, as follows: accounts with deductibles of $1,000 or less may receive up to $2,000 in contributions, those with higher deductibles may contribute up to twice the deductible or $25,000, whichever is less. Self-insured homeowners may contribute up to $250,000, not to exceed their home’s fair market value. Distribution from a CSA are taxable unless it is used to cover qualified catastrophe expenses; but no amount will be taxable if a taxpayer’s qualified catastrophe expenses during the taxable year are equal or greater than the aggregate distributions from such account during the taxable year.

Hawaii

L. 2025, H1146 (Act 58), effective 05/15/2025, and applicable to taxable years beginning after 2024, provides that any qualified member claiming a pass-through entity taxation credit must add their share of taxes paid by an electing pass-through entity to their taxable income.

Maryland

On May 20, 2025, Governor Wes Moore signed Maryland HB 352 (Budget Reconciliation and Financing Act of 2025) which includes a significant change by imposing a 3% sales tax on data and information technology services, commonly referred to as the “tech tax.”

  • Effective Date and Rate: The 3% tax is effective from July 1, 2025.
  • Covered Services: The tax applies to data and information technology services, as defined by specific NAICS codes. This includes computing infrastructure providers, data processing, hosting, web search portals, software publishers, and computer systems design services.
  • Goal: The tax aims to broaden the state’s sales tax base.
  • Potential Effects: The tax may increase costs and create administrative challenges.
  • Exemptions: Certain services are exempt, including some existing exemptions, services already subject to sales tax (like telecommunications), cloud computing for qualified cybersecurity businesses, and services provided to companies in the University of Maryland’s Discovery District.
  • Multiple Points of Use: For services used in Maryland and other jurisdictions, a Multiple Point of Use certificate can shift tax responsibility to the buyer.
  • Interaction with Existing Tax: If a service could fall under another taxable category, the higher 6% sales tax rate applies.
  • Guidance: Emergency regulations have been issued, and further guidance is anticipated from the Comptroller’s Office. 

On May 20, 2025, Maryland Governor Wes Moore signed legislation that establishes the process for appealing assessments for the digital advertising gross revenues tax. L. 2025, H546 (c. 677); L. 2025, S605 (c. 678), effective 01/01/2026 and applicable to assessments of the digital advertising gross revenues tax made after 12/31/2025.

Massachusetts

The Massachusetts Department of Revenue has announced that it has postponed a proposed withholding requirement on real estate sales by nonresidents that was to take effect June 1, 2025. Under the proposed rules, personal income tax or corporate excise were to be withheld on a nonresident seller’s capital gain from the sale or exchange of a Massachusetts property when the gross sales price is $1,000,000 or more. Nonresident sellers under the proposed requirement include both individuals and business corporations that do not have a continuing business presence in Massachusetts. The withholding agent, usually the closing attorney or title company, would be responsible for withholding the tax or excise. If a third party is not involved, the buyer would be considered the withholding agent. The DOR anticipates that the proposed requirement will go into effect later in 2025. Nonresident sellers may still have to make an estimated tax payment under the current rules. (Postponed: Proposed Withholding Requirement on Real Estate Sales by Non-Residents, Mass. DOR, 05/20/2025.)

New Jersey

The New Jersey Tax Court rejected a corporate officer’s contention that an assessment on a sales and use tax audit was not final because the Division never gave himself or the corporation the opportunity to refute the assessment at a post-audit conference. The taxpayer, a corporation, had filed for bankruptcy and had a very large sales tax liability. The Division determined that since it could not collect from the corporation, it would collect from the corporate officer who was a responsible party. The corporate officer claimed that since there was no post-audit conference, the audit was never resolved, and the Division could not hold him responsible as a responsible party for taxes that were not legally assessed. However, the Division was able to establish that it was the corporation that was responsible for the failure to hold the post-audit conference, the taxes were legally assessed and the corporate officer could be held responsible for those taxes as a responsible party. (Patyrak and N.Y. Thymes & Deli, Inc. v. Dir., Div. of Taxation, N.J. Tax Ct., Dkt. No. 013546-2016, 05/07/2025 (not for publication).)

The New Jersey Division of Taxation has advised that tariffs on importers may not be excluded from the sales tax price, even if the seller separately bills the tariffs as a separately stated fee. (Sales Tax Treatment of Tariff Markups, N.J. Div. of Taxation, 05/20/2025.)

South Carolina

L. 2025, H3800 (c. 64), effective 05/12/2025 , amends the durable medical equipment exemption by deleting the requirement that the seller have a principal place of business in the state, and instead requires that the equipment be sold by a provider who holds a South Carolina retail sales license.

Tennessee

L. 2025, H635 (c. 343), effective 05/02/2025, provides that a taxpayer, at its discretion, may add back to net earnings: (1) any amounts taken as deductions from the taxpayer’s federal taxable income that are also allowed to be taken as a deduction for Tennessee excise tax purposes; and (2) any amounts subtracted from net earnings from federal taxable income. Discretionary additions to net earnings made under the above provisions may be made, adjusted or removed at the taxpayer’s discretion for any tax year or any timely filed original or amended return, provided however that any adjustments under this provision must not reduce a taxpayer’s net earnings below the amount that would have been computed for the tax year without regard to this provision.

The Tennessee Department of Revenue has announced that effective July 1, 2025, Public Chapter 517 makes several changes to Tennessee sales and use tax law by allowing nuclear energy production facilities to qualify for the pollution control credit on certain purchases. The law also provides that: (1) the enrichment of uranium materials is a nontaxable service; (2) qualified purchases of industrial machinery used to enrich, convert or reconvert uranium are exempt from sales tax; and (3) nuclear energy production facilities qualify for the tax benefits of being green energy facilities. To receive the pollution control credit, businesses must have a sales tax account with a location ID for the pollution control project location and complete the Application for Pollution Control Sales and Use Tax Exemption. The law also exempts from sales and use tax the purchase of industrial machinery necessary to, and primarily used for, enriching, converting, or reconverting uranium if performed pursuant to a contract. (Tennessee Important Notice No. 25-09, 05/01/2025.)

Washington

On May 20, 2025, Washington Governor Bob Ferguson signed legislation that modifies various business and occupation (B&O) tax surcharges and rates, clarifies the B&O tax deduction for certain investments, and creates a temporary B&O surcharge on companies with annual revenues of more than $250 million. (L. 2025, H2081, generally effective 07/27/2025 and as otherwise indicated.)

Washington has enacted legislation expanding the number of services classified as retail services and subject to retail sales and use tax and retailing business and occupations tax, as well as imposing an additional tax on the sale, use, consumption, handling, possession, or distribution of cigarettes. (L. 2025, S5814, effective 10/01/2025 and as otherwise indicated.)

 Washington enacted a business and occupation tax (B&O) tax rate of 3.1% on payment card processing activities and created a deduction for certain fees related to payment card processing including interchange fees, network fees and portions of fees retained by other processors. The new tax does not apply to activities where the processor also operates or is affiliated with the payment network and makes payments to an affiliated financial institution. The tax also does not apply when the payment card processing company is also the issuer of the card. Activities that are excluded from the new rate are subject to the relevant services and other activities B&O tax rate, with no deduction allowed. “Payment card processing activities” means services related to acquiring, processing, or routing electronic transactions for issuers, acquirers, payment networks or merchants, and does not include the issuing and authorization of the use of payment cards or the authorization, clearance and settlement of electronic transactions by a payment network. (L. 2025, H2020, effective 01/01/2026)

May 2025

Arkansas

Arkansas Governor signed legislation revising the law on the apportionment of corporation income tax for multistate businesses. The legislation changes the method for sourcing receipts for services and intangibles from “cost of performance” to “market-based” sourcing. In addition, the legislation offers guidance for using an alternative apportionment method. The legislation also excludes the income of a nonresident corporation or partnership from income tax if the business has no physical presence in Arkansas and its Arkansas receipts for the preceding year were $250,000 or less. (L. 2025, S567, effective for tax years beginning on and after 01/01/2026.)

The Arkansas Governor signed a law amending sales and use tax exemptions for data centers and data center equipment. The law includes: 1) expanding the definition of exempt data center equipment to include related services, cabling outside the center, and property essential for operations; and 2) establishing criteria for qualified data centers and qualified large data centers to receive the exemption, based on investment thresholds, job creation requirements and state approval. (H.B. 1444, enacted 04/10/25)

Colorado

The Colorado Department of Revenue has updated its publication on the SALT Parity Act to include guidance for tiered partners. A tiered partner is defined as any partner that is either a partnership or an S corporation. Any tiered partner can make a SALT Parity Act election, and an election made by a lower-tier partnership does not obligate any other tiered partners to make a similar election. A partnership or S corporation making an election cannot claim a credit, subtraction or other adjustment for any part of the tax paid by an electing lower-tier partnership. Any credit from a lower-tier partnership’s election passes through to the partners or shareholders who can claim their share of the credit on their individual returns. (Income Tax Topics: SALT Parity Act, Colo. Dept. Rev., 04/01/2025.)

Georgia

The Georgia Governor signed a law amending state income tax rates. The law reduces the tax rate from 5.39 percent to 5.19 percent, for tax years beginning on or after Jan. 1, 2025, provided that the rate will decrease by 0.10 percent annually, beginning on or after Jan. 1, 2026, until the rate reaches 4.99 percent. The law takes effect July 1. (H.B. 111, enacted 04/15/25).

Georgia Governor signed legislation that allows a one-time tax refund for Georgia taxpayers who must have filed tax returns for both the 2023 and 2024 tax years. The Georgia Department of Revenue will automatically credit the one-time refund once a qualified taxpayer files an individual income tax return for tax year 2024. (L. 2025, H112, effective 04/15/2025)

The Georgia Court of Appeals upheld assessments against Uber Technologies for unpaid sales taxes between 2012 and 2015. Under the taxicab regulation, Ga. Comp. R. & Regs. § 560-12-2-84, Uber was responsible for collecting sales tax from its independent drivers because Uber’s app-based business model functioned in the same way as a traditional taxicab headquarters as defined in the regulation. The Court of Appeals rejected Uber’s claims that it was not required to collect sales tax during the audit period because it did not “furnish” taxable services, but was merely a “marketplace platform”/”ride share network service” acting as a conduit through which drivers furnished the taxable service of providing transportation, and that because it did not furnish taxable sales, it had no obligation to collect sales tax under Ga. Code Ann. § 48-8-3(f)(1). The Court held that although Ga. Code Ann.§ 48-8-30(f)(1), requires sales tax to be paid by the person purchasing or receiving the service to the person furnishing the service, the Department had statutory authority, upheld by case law, to enact the taxicab regulation and shift the sales tax payment and collection burden from the individual driver furnishing the transportation service to “headquarters operators. The regulation’s purpose was to avoid the likelihood that the state would otherwise lose tax funds due to the difficulty of policing the business operations of individual drivers. Uber met the definition of a “headquarters operator” as defined by the taxicab regulation and, therefore, Uber was required during the audit period to collect sales tax from its independent drivers and remit that tax to the Department. (Uber Technologies, Inc. v. Commr. of Revenue, Ga. App., Dkt. No. A25A0144, 05/01/2025.)

Kansas

On April 24, 2025, Kansas Governor signed omnibus tax legislation which reduces the corporate income tax rate based on tax receipt revenues in excess of a prior year’s corporate income tax receipts, provides for a new business income apportionment formula, increases personal exemptions for certain individual income taxpayers and exempts specified property from all property and ad valorem taxes. (L. 2025, H2231, effective from and after publication in the statute book.)

Qualified firms that make investments in eligible data center costs in a qualified data center of at least $250 million in the aggregate by the fifth year of operations and creates and maintains at least 20 new jobs at the qualified data center within two calendar years after the commencement of operations will receive a sales tax exemption for: eligible data center costs of the qualified data center; and labor services to install, apply, repair, service, alter or maintain data center equipment. Qualified firms must commit to begin construction of the project within 10 years of the date of the agreement with the secretary or on such earlier date as specified in the agreement. The qualified firm must also commit to purchase electricity for 10 years from the public utility that is certified to provide retail electric service in the territory where the qualified data center is located. The sales tax exemption will be valid for 20 years after the date of commencement of operations. (L. 2025, S98)

New York

An administrative law judge (ALJ) has upheld the Division of Taxation’s determination that the taxpayer’s document and workflow software is taxable prewritten software. The taxpayer, a provider of cloud-based document management services to legal, financial and accounting service industries, unsuccessfully argued that its product is nontaxable data storage and security service and is nontaxable platform-as-a-service. The ALJ determined that software was the central element of the taxpayer’s product and that certain features on the platform made it more than simple storage. In addition to the charge for software, the taxpayer bundled other services into the base service fee subjecting the entire fee to tax. (In the Matter of the Petition of Netvoyage Corp., aka Netdocuments.com, N.Y. Div. of Tax Appeals, ALJ, Dkt. No. 850246, 04/24/2025.)

The New York Court of Appeals has issued a ruling affirming the lower court’s determination that the taxpayer’s service measuring digital advertising effectiveness is a taxable information service. The reports generated from the service contain survey data, analysis of the data and client specific insights and recommended steps. The information from this report is retained and used in reports for future clients. The Court of Appeals  determined that the service is a “furnishing of information” because the “primary function is the collection and analysis of information” and any advice given in the reports is ancillary to that primary service.  (In the Matter of Dynamic Logic, Inc. v. Tax Appeals Trib. of the State of N.Y., et al., NY Ct. App., Dkt. No. 35, 04/17/2025.)

Tennessee

The Tennessee Department of Revenue has issued a letter ruling that lists in detail the purchases and equipment of a frozen food processor that qualify for the processing exemption. The Department ruled that with respect to the refrigeration system, the following items were exempt: (1) freezer and freezer accessories; (2) ammonia used as a refrigerant; (3) chillers and heat exchangers; and (4) freezer repair parts and labor. Electricity and water were not exempt because they did not come into direct contact with the product but were eligible for a reduced rate. The racking system that facilitated the freezing of products was exempt. Material handling was ruled to be exempt except for the part of the material handling process that moved finished products from the final freezing process to the loading dock. (Tennessee Letter Ruling No. 25-03, 02/27/2025.)

Texas

A taxpayer that provides services to employers who sponsor employer-based health plans to satisfy annual prescription drug data collection (RxDC) reporting obligations are providing taxable data processing services. The taxpayer tests employer-provided files within the federal agency portal by compiling and storing employer data submitted to its system and converting data files to the appropriate type for submission. These activities fall under the definition of data processing in Tex. Tax Code Ann. § 151.0035(a)(1) and Tex. Admin. Code § 3.300(a)(1). Additionally, the taxpayer extrapolates information from employer-supplied supporting documents to generate required data files. These activities involve the storage, manipulation and compilation of data, and this service is similar to the data processing examples of filing of payroll tax returns or preparing W-2 forms in Tex. Admin. Code § 3.330(b)(1). (Texas Private Letter Ruling No. 202503018L, 03/18/2025.)

Utah

The Utah State Tax Commission disallowed a taxpayer’s request for a partial State and Local Tax (SALT) refund. The taxpayer argued that he mistakenly made a SALT payment as a pass-through entity (“PTE”) for several final pass-through entity taxpayers (“PTET”). The Commission held that the taxpayer’s election was intentional and denied the refund because a SALT payment by a PTE on behalf of PTETs is an irrevocable election. (Petitioner v. Income Tax and Education Division, Utah State Tax Comm’n, Dkt. No. 23-1482, 03/04/2025.)

Washington

The Washington Department of Revenue has issued interim guidance regarding how collective investment vehicles (CIVs) and investment income are treated for business and occupations (B&O) tax purposes in light of the Washington Supreme Court’s decision in Antio, LLC v. Wash. Dept. Rev. , Wash. S. Ct., Dkt. No. 102223-9, 10/24/2024. Antio has raised questions about the taxability of CIVs, and whether CIVs are subject to the service and other B&O tax classification. Antio provided that the deduction in Wash. Rev. Code § 82.04.4281 is limited to the gross income of the business that is earned through investments that are incidental to the main purpose of the taxpayer’s business. A CIV may take the form of a mutual fund, collective fund or any similar investment vehicle whether structured as a limited or general partnership, limited liability company, corporation or trust. The guidance states that the Department will treat the investment income of a CIV as not taxable. However, amounts received by a CIV from non-investment sources are taxable. Further, amounts received by investors in a CIV are taxable, unless a deduction or exemption otherwise applies to such investors, or unless the investors are considered to not be engaging in business with respect to the investment activity. (Interim Guidance Regarding Collective Investment Vehicles and Investment Income, Wash. Dept Rev., 04/16/2025.)

April 2025

SALT Cap Update

Senate Republicans are reportedly considering restrictions on corporate state and local tax deductions as part of their federal tax package, to help pay for increasing the cap for individuals to $25,000 from $10,000. The current discussions are leading to the conclusion that the SALT Cap will remain in place to some extent. Consequently, states will likely continue their pass-through entity tax (PTET) election regimes and extend them if they are set to expire at the end of 2025. If corporate state and local tax deductions are limited, then corporations could see their federal tax liabilities increase.

Indiana

The Indiana Department of Revenue has adopted an administrative rule (45 Ind. Admin. Code § 3.1-1-55.5, effective 02/26/2025), reflecting legislation enacted in 2019 that changed Indiana from a cost of performance sourcing method to a market-based sourcing method. Under the rule, receipts from the sale of real property, tangible personal property and intangible property are attributed to Indiana if the property is located within the state or if the intangible property is used within the state. Receipts for service transactions, including in-person services are attributed to Indiana if the service is performed in the state, or the customer receives the benefit of the service within the state. Receipts for the license or lease of intangible property are generally attributed to Indiana to the extent the property is used within the state. Industry-specific attribution rules apply to airlines, railroads, trucking, construction, publishing, and gambling with the determination largely focused on location. The rule does not apply to receipts for insurance premiums, motorsports racing, broadcast and telecommunications services, and receipts from repatriated foreign dividends and global intangible low-taxed income. The Department repealed its former rule on attribution of sales to state (45 Ind. Admin. Code § 3.1-1-55, repealed 02/26/2025).

Maine

The Maine Department of Administrative and Financial Services proposed a rule on the imposition of sales and use tax on leases and rentals of tangible property. The proposed rule implements legislative changes and addresses potential sales and use tax issues related to transactions, including software licenses, sourcing of leases and rentals, and calculating sale prices for leases and rentals. Comments on the proposed rule were due by April 21. [Me. Revenue Servs., Proposed Reg. Section 18-125-326, 03/19/25] 

Massachusetts

Proposed amendments to the Massachusetts Department of Revenue’s corporate income tax nexus regulation would treat some common internet activities as unprotected by Public Law 86-272. The Department’s proposal incorporates features of the Multistate Tax Commission’s recommended approach to P.L. 86-272 immunity. Placing internet cookies on a customer’s device for various purposes would breach P.L. 86-272 protection, for example. A public hearing was held April 29. Several major state tax agencies have adopted the MTC’s scheme in recent years, while others have applied the approach without formal adoption.

Mississippi

On March 27, 2025, Mississippi Governor Tate Reeves signed the Build-Up Mississippi Act, legislation that phases out the individual income tax in Mississippi. The bill cuts the individual income tax rate to 3% by 2030, with future annual decreases until the rate falls to 0% and the tax is eliminated. The bill also decreases the sales tax on groceries from 7% to 5%, effective July 1, 2025. Gasoline taxes are increased through tax year 2027. (L. 2025, H1, effective 07/01/2025 and as stated)

South Carolina

The South Carolina Court of Appeals reversed the Administrative Law Court’s (ALC) finding that the statutory language limiting the income tax investment tax credit in S.C. Code Ann. § 12-14-60(G), to $5 million dollars was ambiguous and the South Carolina Department of Revenue’s (DOR) interpretation that the credit was a lifetime, and not an annual limitation. The DOR audited the taxpayer and determined that subsection (G) was a lifetime limit, and disallowed the credit for the years in question. At the contested case hearing, the ALC found the statutory language ambiguous and held for the DOR, and the taxpayer appealed. The court of appeals found that the credit’s purpose is not just one-time employment creation, but also the expansion and retention of business. Moreover, the credit is available “for any taxable year in which the taxpayer places in service qualified…property.” Read together, the tax credit reflects the legislature’s intent to encourage continued investment, and that as long as the taxpayer meets the requirements, the tax credit can be claimed. A lifetime limit is incompatible with that intent. Furthermore, the 10-year carry forward provision further supports that the statutory cap is an annual limit. Therefore, when subsection (G) is read within the statute as a whole, the plain language demonstrates that the limit is annual, and the ALC erred in finding the statute was ambiguous. Furthermore, while the court is generally deferential to the DOR’s interpretation of the law, the lifetime limit reading of by the DOR contradicts the statute’s plain language. Thus, the court overruled the DOR’s interpretation and held that the taxpayer was entitled to the tax credits for the years in question. (Duke Energy v. S.C. Dept. of Rev., S.C. Ct. App. Dkt. No. 2020-001542, 03/26/2025.)

Texas

The Texas Comptroller of Public Accounts has adopted amendments to the state’s data processing services rule (34 Tex. Admin. Code §3.330, effective 04/02/2025). The rule provides that a data processing service will not be taxable if it is sold for a single charge with another service, the data processing service does not have a separate value, and the data processing service is ancillary to the other service; however, if the data processing service is sold for a single charge with another service that does not have a separate value, and the other service is ancillary to the data processing service, the entire charge will be taxable as a data processing service. The rule also addresses nontaxable related services. The rule discusses factors that may be considered in determining whether the data processing service has a “separate value,” as well as the “ancillary” requirement. The rule states that marketplace providers may provide data processing services to their customers if they enter, retrieve, search, manipulate, and store data or information in the course of their business. The amendments also clarify existing definitions and add new definitions; list examples of services that are included in and excluded from taxable data processing services; explain the incidence of the tax; and update provisions related to the collection of local sales and use taxes on data processing services.

Utah

L. 2025, H60 (c. 182), effective 05/07/2025 , modifies various state tax provisions. The law clarifies what is a commercial unit for claiming a commercial energy system tax credit, repeals the expired enterprise zone tax credit, extends the carry forward period for a tax credit for pass-through entity taxpayers receiving taxed income from the entity, provides for automatic removal of refundable individual income tax credits from returns under certain situations, updates individual income tax exemptions, creates a deduction for individuals who must repay social security that is subject to income tax, requires an in-state marketplace facilitator and other entities to file certain federal forms with the State Tax Commission, and provides the circumstances under which there is an annual limit on the total amount of interest that the commission pays.

L. 2025, S47 (c. 293), effective 07/01/2025, amends the threshold for sales and use tax collection responsibilities to more than $100,000 gross revenue from the sale of tangible personal property, products transferred electronically, or services for storage, use, or consumption in the state. The law makes other technical changes.

L. 2025, S213 (c. 455), effective 07/01/2025, enacts an exemption for certain property purchases by operators of a qualifying energy storage manufacturing facility. The exemption applies to purchases of property that are “incorporated into equipment or a device that stores and discharges energy at the qualifying energy storage manufacturing facility” and “machinery, equipment, or normal operating repair or replacement parts” that is used “exclusively in the operation of the qualifying energy storage manufacturing facility.”

The Utah State Tax Commission denied a taxpayer’s net operating losses. Taxpayer, who was part of a larger unitary group and later spun-off to become a public company, argued that the claimed losses represented taxpayer’s portion of the losses that it incurred when it was part of the unitary group. The Commission held that the unitary group claimed net operating losses on prior Utah returns and, therefore, any losses belonged to the unitary group, not the taxpayer. (Taxpayer v. Business Taxes and Discovery Division, Utah State Tax Comm’n, Appeal No. 23-1208, 01/14/2025.)

Washington

The Washington Department of Revenue has issued guidance on the taxability of director fees. All compensation received for services rendered as a corporate director is subject to service and other activities B&O tax, including but not limited to fees, value of stock options, bonuses, and expense reimbursements. Where a corporate director is also an employee of a corporation, only the nonemployee director fees received for services rendered as a corporate director are subject to B&O tax. A corporate director must register if they meet any of the following thresholds in the current or prior year: has physical presence nexus in Washington; has more than $100,000 in combined gross receipts sourced or attributed to Washington; or is domiciled in Washington. Corporate directors are not required to register with the Department if gross income from all activities subject to B&O tax within Washington is less than $12,000 per year, and the director is not required to collect or pay to the Department any other tax or fee administered by the Department. Director fees must be included on an official IRS Form 1099-MISC. (Director Fees Subject to Business and Occupation (B&O) Tax, Wash. Dept. Rev., 03/10/2025.)

The Washington Department of Revenue has issued additional guidance on the deduction limits of losses stemming from incidental investments in light of Antio, LLC v. Wash. Dept. Rev. , Wash. S. Ct., Dkt. No. 102223-9, 10/24/2024. In Antio , the court held that the deduction is limited to income that is earned through investments that are incidental to the main purpose of the taxpayer’s business. The Department presumes that an investment activity is not the main activity of a taxpayer if it generated less than 5% of the taxpayers annual gross receipts. Investment income from a bona fide endowment fund is fully deductible under Wash. Rev. Code § 82.04.4282. Both beneficiaries and holders of endowment funds may deduct investment income if they can show that the endowment fund is the source of the deducted income. The guidance also discusses the Department’s current stance on apportionment of non-deductible investment income. The specific attribution method that applies to non-deductible investment income is a fact-dependent determination. Receipts are generally attributed to where the taxpayer’s customer receives the benefit of the taxpayer’s service. However, if the taxpayer is unable to attribute receipts based on where the benefit of the service is received, they must instead attribute receipts from investment income using one of the steps in Wash. Admin. Code § 458-20-19402(301)(b)-(g). (Investments, Wash. Dept. Rev., 03/24/2025.)

The Washington Department of Revenue has issued guidance on the application of the multiple points of use sales tax exemption (MPU exemption) to sales of mixed element software maintenance agreement (MESMA), which contain retail-taxable and non-retail-taxable elements. The MPU exemption provides a retail sales tax exemption for purchases of specific products by a business, when the product will be concurrently available for use at one or more locations inside and outside of Washington. Instead of paying retail sales tax, buyers claiming the MPU exemption must pay use tax directly to the Department, which is apportioned according to a statutory formula. A MESMA that qualifies as a bundled transaction and is otherwise subject to retail sales tax is eligible for the MPU exemption if it (1) includes one or more MPU-eligible products (e.g., prewritten computer software), and each MPU-eligible product is concurrently available for use inside and outside of Washington; (2) the non-retail taxable products provided under the MESMA relate to the MPU-eligible product(s) (e.g., customer help desk support for the prewritten computer software); and (3) the MESMA does not contain any retail-taxable product other than the MPU eligible product(s) that are concurrently available for use inside and outside of Washington. The guidance also discusses use tax apportionment for a qualified MPU transaction and the documentation necessary to qualify for the exemption. (Washington Excise Tax Advisory No. 3242.2025, 03/27/2025.)

March 2025

Georgia

The Georgia Department of Revenue has adopted, effective February 6, 2024, amendments to Ga. Code § 560-7-3-.13 (Consolidated Returns). The regulation conforms to law changes effective for taxable years beginning on or after January 1, 2023, that allow a Georgia affiliated group that files a consolidated income tax return for federal income tax purposes to file a consolidated return for Georgia income tax purposes, without need of prior approval. Members of an affiliated group that are subject to Georgia income tax even after the application of Public Law 86-272 (Interstate Income Act, 15 U.S.C. §§ 381-384) may elect to file a Georgia consolidated return on an originally filed income tax return by the due date of the return, including extensions. Failure to make the election by such time will result in the filing of separate income tax returns for the applicable taxable year. The election is irrevocable and binding on both the Georgia affiliated group and the Georgia Department of Revenue for five years. 

The Georgia Department of Revenue announced it will begin processing 2024 individual income tax returns on Monday, February 3, 2025. The deadline to file these returns is May 1, 2025; the deadline is extended due to Hurricane Helene relief. Most error-free, electronically filed returns are processed within five business days of receiving the return and most refunds are issued within 21 days from the date a taxpayer files their return. All first-time Georgia income tax filers, or taxpayers who have not filed in Georgia for at least five years, will receive their refund in the form of a paper check. (2025 Tax Season Information, Ga. Dept. of Rev., 01/28/2025.) 

Illinois

The Illinois Department of Revenue (DOR) issued a General Information Letter (GIL) regarding the tax treatment of modular components manufactured by a construction contractor and incorporated into real estate. When a construction contractor manufactures modular components that it will incorporate into real estate, the tax base is the amount the contractor pays for materials incorporated into the components. As the end user, the construction contractor owes Use Tax on its cost price of materials permanently affixed to real estate, unless tax was already paid to another state. The contractor’s customers do not owe Use Tax, though the contractor can pass along its tax costs through higher pricing or tax reimbursement provisions in contracts. For subcontractors acting as construction contractors, they owe Use Tax on materials they purchase to incorporate into real estate projects. (Ill. Dep’t of Revenue, Gen. Info. Letter, No. ST-24-0033-GIL, 10/15/24) 

The Illinois Department of Revenue (DOR) Dec. 27, 2024, issued a General Information Letter (GIL) providing guidance on sales and use tax for construction contractors selling manufactured (mobile) homes. The GIL explains that the tax treatment depends on whether the homes are sold with or without installation. For homes sold without installation, the contractor must collect sales tax from the buyer and report it on Form ST-556. For homes sold with installation by incorporating them into real estate, the contractor is considered the end user and must pay use tax on their cost price, reported on Form ST-1. The GIL provides details on specific exemptions, tax rates, reporting periods, and relevant regulations. (Ill. Dep’t of Revenue, Gen. Info. Letter, No. ST-24-0047-GIL, 12/27/24) 

The Illinois Department of Revenue (DOR) issued a general Information letter (GIL) concerning sale and use tax for computer software. The DOR states that the sale of computer software, including online video games, game extras, and in-game currency downloaded onto a customer’s computer in Illinois, constitutes the sale of taxable tangible personal property subject to retailers’ occupation tax. However, software provided through a cloud-based system, which is never downloaded onto a device, is not subject to tax. The letter also noted that software subscriptions as a service are not taxed in Illinois. (Ill. Dep’t of Revenue, Gen. Info. Letter No. ST-24-0044-GIL, 12/16/24) 

New Jersey

The Division of Taxation has updated its filing procedures for S corporations and their QSSS(es) so that they no longer have to file separate returns as they did in prior years. Effective for the 2024 tax year, the S corporation parent and its QSSS must now file the CBT-100S together. The Division’s Taxpayer Accounting Branch can help move tax payments so that if a QSSS has overpayments from a previously filed return or has made payments under its own account, the S corporation should request to transfer these funds before filing the tax return. The tax preparer should provide a spreadsheet showing: (1) QSSS name and identification number; (2) the amount of overpayments to be applied to the combined account; (3) and a list of payments to be transferred. The information may be sent by mail, by fax or by email. Taxpayers should include a cover letter and phone number with their information. (Moving QSSS Payments to Parent, N.J. Div., of Taxation, 03/03/2025.) 

New Mexico

The New Mexico Taxation and Revenue Department issued a ruling addressing the taxability of various fees charged by taxpayer, a marketplace provider. The Department ruled that fees deducted from the sales proceeds are included in taxpayer’s taxable gross receipts as the marketplace provider, and that warehouse fees are deductible if taxpayer acts as a carrier or agent of a carrier providing services under a single transportation contract. The ruling also provides guidance on sourcing of marketplace provider fees and the applicability of deductions for transportation and warehouse services. (N.M. Tax’n & Revenue Dep’t, Ruling No. 401-24-03, 12/11/24) 

A taxpayer was liable for gross receipts taxes because he delivered services at hospitals in New Mexico. The taxpayer was a doctor employed by an out-of-state staffing company as an independent contractor who worked in New Mexico. The taxpayer claimed he was exempt from gross receipts taxes because he provided services outside New Mexico for the staffing company although the “product” of his services was first used in New Mexico. However, the service provided by the taxpayer was medical treatment which was performed in New Mexico. (Adnan v. N.M. Tax. and Rev. Dept., N.M. Tax. and Rev. Dept. Decision and Order, No. 25-01, 01/08/2025.) 

North Carolina

The North Carolina Department of Revenue (DOR) Nov.1, 2024 issued a Private Letter Ruling determining that a taxpayer’s subscription fees for access to digital videos, books, and audiobooks are subject to sales and use tax as the sale of certain digital property, unless the transaction qualifies for a bundled transaction exception. The DOR clarified that the taxpayer is not selling software as a service or an information service when providing access to digital content, as the customers are paying for the content itself and not the software used to deliver it. Thus, use of such software by the content providers does not allow the providers to avoid tax on their sales of certain digital property. (N.C. Dep’t of Revenue, Private Letter Ruling SUPLR-2024-0011, 11/01/24) 

South Carolina

The South Carolina Department of Revenue has revised its guidance on the Textiles Communities Revitalization Act to reflect the legislative changes over the last eight years since the legislation was originally passed. The ruling discusses the income and property tax credits available and explains what types of property are eligible for the credit. A textile mill site that qualifies as abandoned may be subdivided into separate parcels, and the parcels may be owned by the same taxpayer or different taxpayers. Each parcel is deemed to be a separate textile mill site for purposes of determining whether each subdivided parcel is considered abandoned. Sub-parcels that never had a structure related to textiles can qualify as textile mill sites provided that the original parcel qualified as a textile mill site. Generally, the amount of the credit is based on rehabilitation expenses incurred by the taxpayer. Rehabilitation expenses include: expenses or capital expenditures incurred in the rehabilitation, renovation, or redevelopment of the textile mill site, including the demolition of existing buildings, environmental remediation, site improvements and the construction of new buildings and other improvements on the textile mill site, but excluding the cost of acquiring the textile mill site or the cost of personal property located at the textile mill site. (South Carolina Revenue Ruling No. 25-1, 02/10/2025.) 

Tennessee

The Tennessee Department of Revenue has ruled that an electric store sign was tangible personal property and not real property. The seller manufactures and installs electric signs. The seller charged sales tax on both the sales of the sign and its installation. The customer is a tenant of the building in which it operates the store. When the customer leaves, the sign will be removed. The sign is attached to the building with bolts and anchors. Due to the size and location of the sign, the sign should be removed by skilled sign technicians with access to a crane/bucket truck for access. The Department ruled that because the intent of the parties was to have the sign removed after the customer leaves the location, the electric sign was tangible personal property and not realty. (Tennessee Letter Ruling No. 24-11, 11/26/2024 (released January 2025)) 

Wisconsin

The Wisconsin Department of Revenue follows the federal Internal Revenue Code as amended to December 31, 2022 with certain exceptions. Tax law changes that took effect for the 2024 tax year include an increase of the refundable portion of research credit to 25%; changes to the financial institution commercial loan income exemption; changes to the eligibility requirements to be (re)certified by the Wisconsin Economic Development Corporation (WEDC) as a qualified new business venture for purposes of claiming the angel investment tax credit; and changes to the eligibility requirements for the business development tax credit and enterprise zone tax credit. In addition, beginning with tax year 2024, the Department is accepting Form 1099 submissions using the IRIS schema adopted by the IRS. (Wisconsin Dept. Rev. Tax Bulletin No. 228, 01/01/2025.) 

Tax law changes that took effect for the 2024 tax year include the new blind worker transportation services credit, an expanded additional child and dependent care credit, an expanded capital gains exclusion on the sale of farm assets to a family member, changes to deduction limits on college savings account contributions, and an increase in the Wisconsin subtraction for tuition and fees to $7,333 from $6,976. A nonresident of Wisconsin who is an owner (partner, member, shareholder, or beneficiary) of a pass-through entity may request an exemption from Wisconsin’s pass-through withholding tax by filing Form PW-2, which must be filed electronically through My Tax Account by the following due dates: for a 2024 calendar-year tax-option (S) corporation, LLC, or partnership, by January 31, 2025; and for a 2024 calendar-year estate or trust, by February 28, 2025. (Wisconsin Dept. Rev. Tax Bulletin No. 228, 01/01/2025.) 

The Wisconsin Department of Revenue has updated its publication regarding the taxability of digital goods. The publication clarifies that a digital good may include prewritten computer software that is accessed through means other than tangible storage media (e.g., a video game accessed online). However, a digital good does not include charges for remote access to prewritten computer software if the software is used to process a client’s data and the processing is under the direction and control of the service provider. The publication also reflects the exemption for real estate broker memberships that went into effect on June 1, 2024 as well as recent rate changes, including the 0.5% county sales and use tax by Racine County effective April 1, 2025 and the 0.5% county sales and use tax by Manitowoc County effective January 1, 2025. (Wisconsin Dept. Rev. Tax Publication No. 240, 01/01/2025.) 

February 2025

Georgia

In his State of the State Address delivered January 16, 2025, Georgia Governor Brian Kemp proposed a further cut of 20 basis points to the state’s 5.39% income tax rate, bringing it down to just 5.19% in 2025.

Indiana

The Indiana Department of Revenue ruled that an out-of-state video game company’s sales of monthly online subscriptions, access to in-game items and virtual currency are not subject to sales tax because the items are not considered tangible personal property and do not meet the definition of specified digital products. (Indiana Revenue Ruling No. RST 2024-04, 01/07/2025.)

Michigan

L. 2025, H4906 (P.A. 207), effective 04/17/2025, amends the sales tax exemption for data center equipment by extending the sunset date of the exemption from December 31, 2025 to December 31, 2050. The bill establishes the same sales tax exemption for enterprise data centers, which would generally be data centers that met specific requirements related to capital investment and the creation of new jobs in the state, through December 31, 2050 and establish the same sales tax exemption for an enterprise data center located on a brownfield redevelopment or former electric power plant through December 31, 2065. The bill also allows to data centers on brownfield property or industrial sites once used as a power plant a sales tax exemption of data center equipment sold to either: (1) a qualified entity or its affiliates for assembly, use, or consumption in the operations of an enterprise data center subject to a certificate; or (2) a person engaged in the business of constructing, altering, repairing, or improving real estate for others to the extend the data center equipment was affixed or was made a structural part of an enterprise data center subject to a certificate. The bill provides the Michigan Strategic Fund Board cannot issue any new certificates of exemption after December 31, 2029. This sunset does not affect any existing certificates of exemption in effect on December 31, 2029.

On January 17, 2025, Michigan Governor Gretchen Whitmer signed legislation that amends provisions of the state’s flow-through entity (FTE) tax, including the conditions under which penalties and interest are not assessed and the date on which a taxpayer must elect pay the tax. The bill also amends provisions related to the required disclosures to members of the FTE and allows the Department of Treasury to require an individual to provide reasonable proof in order to claim the credit against the individual or corporate income tax liability for the amount of FTE tax paid. L. 2025, H5022 (P.A. 216), effective 04/02/2025, operative as stated.

Minnesota

The Minnesota Department of Revenue announced the brackets and amounts of the additional minimum tax or fee applicable to taxable corporations (C corporations and S corporations) and partnerships, as indexed for inflation for tax year 2025. The additional minimum tax for 2025 is based on the sum of the entity’s Minnesota property, payroll and sales or receipts amounts as follows: if the total amount of the entity’s Minnesota property, payroll and sales is less than $1,250,000, the minimum fee is zero; if the total is in the $1,250,000 to $2,509,999 bracket, the minimum fee is $260; if the total is in the $2,510,000 to $12,539,999 bracket, the minimum fee is $750; if the total is in the $12,540,000 to $25,069,999 bracket, the minimum fee is $2,510; if the total is in the $25,070,000 to $50,139,999 bracket, the minimum fee is $5,020; and if the total is $50,140,000 or more, the minimum fee is $12,540. (Minimum Fee, Minn. Dept. Rev., 01/15/2025.)

New Hampshire

The New Hampshire Department of Revenue Administration released guidance on the repeal of the 3% interest and dividends tax paid by New Hampshire residents, repealed by L. 2023, H2, effective January 1, 2025. (New Hampshire Technical Information Release No. 2025-001, 01/21/2025)

New Jersey

L. 2025, S1323 (c.2), effective 01/23/2024, makes changes to the New Jersey Aspire Program. These changes include the reduction from 15 years to 10 years the maximum eligibility period for developers of mixed use and commercial redevelopment projects to use a tax credit following credit approval by the New Jersey Economic Development Authority. The law also makes changes to the areas eligible to qualify for Aspire Program benefits including providing tax credit eligibility to the Trenton-Mercer Airport and the area within a one-mile radius of the outermost boundary of the airport’s terminal and qualifying other areas for tax credit eligibility. Additionally, the law increases from 75% of the face value of the tax credit to 85% the minimum price of tax credits purchased by the Department of the Treasury from developers wishing to sell unused portions of their tax credit awards.

New York

The New York Department of Taxation and Finance announced that the thresholds at which a corporation and unitary group are deemed to be deriving receipts from activity in New York State and in the Metropolitan Commuter Transportation District (MCTD) for imposing the Article 9-A franchise tax and the MTA surcharge will remain at $1,283,000 for the periods January 1, 2025, through December 31, 2025. The receipts thresholds to be used in determining if members of a unitary group that meet the ownership requirements under Tax Law section 210-C are deriving receipts from activity within New York State and in the MCTD remains at $12,000. (Deriving Receipts for Article 9-A Tax and MTA Surcharge, Dept. of Tax. and Fin., 12/12/2024.)

Pennsylvania

Under Pennsylvania law, a business with property or inventory in Pennsylvania is subject to Pennsylvania taxes. This requirement applies to online retailers with inventory stored at a distribution or fulfillment center located in Pennsylvania. Income and applicable sales taxes should be reported and remitted to the Department of Revenue. The Department of Revenue is offering a Voluntary Compliance Program for any business that has inventory or stores property in Pennsylvania but is not registered to collect and pay Pennsylvania taxes. This program offers a limited lookback period and penalty relief when the business becomes compliant. Taxpayers that choose to participate in this program will not be liable for taxes owed prior to January 1, 2019. Taxpayers who participate in the program also will be given penalty relief for any non-compliance for past due tax returns that were not filed and taxes that were not paid.

Pennsylvania Treasurer Stacy Garrity announced the launch of the new online Tax Appeal Portal to streamline Pennsylvania’s tax appeal process. Taxpayers and tax practitioners filing appeals with the Pennsylvania Department of Revenue (DOR) through the Board of Finance and Revenue (BF&R) can now find all applicable forms in one online location. Among other features, this online portal allows users to: file a petition; upload supporting documents; request a hearing continuance; request a compromise directly with the DOR; and request a mediated settlement conference (for appeals filed on or after January 27, 2025). (Treasurer Stacy Garrity Launches New Portal to Simplify Pennsylvania Tax Appeals, Pa. Treasury, 01/24/2025.)

Tennessee

The Tennessee Department of Revenue updated the franchise and excise tax manual: (1) with respect to new Schedule I (Disregarded Entities) which must be included when a disregarded entity is included as part of the taxpayer’s return; (2) relating to new Schedule I which must be completed by financial institutions and captive REITS filing Form FAE 174 to report the combined group members included in the tax return (including disregarded entities); (3) clarifying that the acquisition of an existing affiliated group by a non-affiliate terminates the existing group’s CNW election (unless the acquiring entity has its own CNW election in effect at the time of the acquisition); (4) to confirm the Department’s position on sourcing sales of tangible personal property to intermediaries such as distributors or wholesalers; and (5) the franchise tax proration calculation when a unitary group member enters or exists a financial institution unitary group during the tax year. (Tax Manual Updates, Tenn. Dept. of Rev., 12/01/2024; Franchise and Excise Tax Manual, Tenn. Dept. of Rev., 12/01/2024.)

The Tennessee Department of Revenue modified its sales and use tax manual with the following updates: (1) charges by a taxidermist for taxidermy activity are exempt from the sales and use tax; (2) the term software used in the operation of a date center is inclusive and encompasses a number of business functions such as accounting, human resources and customer information; (3) sales tax should be charged to TennCare for covered products under the TennCare Diaper Benefit; and (4) sales of electricity at electric vehicle charging stations are subject to sales and use taxes. (Tax Manual Updates, Tenn. Dept. of Rev., 12/01/2024; Sales and Use Tax Manual, Tenn. Dept. of Rev., 12/01/2024.)

The Tennessee Department of Revenue issued a ruling holding that drop shipments must be sourced to where they were shipped. This was the case even though the products being drop shipped to the ultimate customers were first sent to a third-party facility where they were held prior to shipment to the ultimate customers. Since the third-party facility never obtained title or an interest in the products, the shipments to the third-party facility were not reported as sales. It was only when the goods were shipped to the customer of the purchasers that sales to the purchasers were recorded and those sales must be sourced to where the goods were shipped. (Tennessee Revenue Ruling No. 24-12, 12/19/2024.)

The Tennessee Department of Revenue ruled that various services provided by a firm are not subject to sales and use tax. The services are provided to companies to assist and allow a customer’s employees to be recognized and rewarded for performing well, reaching employment milestones and/or exhibiting behaviors that demonstrate company values. Specifically, the Department ruled that: (1) services associated with the creation of customer specific employee recognition solutions which include consulting, startup and website design drafting fees were not taxable services because the true object of the transaction was administration of the employee recognition program; (2) transaction fees charged by the taxpayer when certificates are awarded are not a taxable service; (3) gift cards sold by the taxpayer for reward points are not taxable; and (4) merchandise provided to the customer’s employees is taxable. (Tennessee Letter Ruling No. 24-10, 11/26/2024.)

Virginia

The Virginia Department of Taxation ruled that leases of heating, ventilation, and air conditioning (HVAC) systems to residential customers from a taxpayer’s commonly controlled company are taxable since the agreement between the parties specifies that the HVAC units are tangible personal property. In reaching its conclusion, the Department noted that a Virginia Supreme Court case that provides three general tests in determining if an item of tangible personal property should be considered as a fixture stipulates that such tests are only used “in the absence of any specific agreement between the parties as to the character of a chattel upon the freehold.” Additionally, if a residential customer exercises the option to purchase the HVAC unit during or after the lease, that is a separate transaction subject to tax based on the purchase price. Further, the taxpayer was a consuming contractor in transactions involving furnishing and installing the HVAC units, and must either pay tax on the purchases or accrue and remit consumer use tax on the untaxed purchases. (Virginia Public Document Ruling No. 24-110, 11/14/2024.)

Washington

The Washington Department of Revenue issued guidance with respect to gains from investments in light of the state supreme court’s decision in Antio, LLC, et al. v. Wash. Dept. Rev. , Wash. S. Ct., Dkt. No. 102223-9, 10/24/2024 . In Antio, the court held that the business and occupations deduction for gains derived from incidental investments is limited to income that is earned through investments that are incidental to the main purpose of the taxpayer’s business. Taxpayers have the burden of proving that an investment activity is not the main business activity if the income from the activity exceeds the safe harbor. The deduction for amounts derived from incidental investments is not available to a banking business, lending business, or security business. In determining whether investment activity is incidental, a taxpayer’s facts and circumstances at and prior to the time of filing is relevant. The deduction does not generally apply to amounts received from loans, the extension of credit, revolving credit arrangements, installment sales, and similar interest income. (Investments, Wash. Dept. Rev., 01/14/2025.)

January 2025

Arkansas

The Arkansas Supreme Court has affirmed the circuit court’s grant of summary judgment to a corporate taxpayer, resulting in a substantial income tax refund. The taxpayer’s business was selling retail motor-fuel products and convenience-store items. To fund a spin-off of the taxpayer, the taxpayer’s new parent made a $650 million distribution to the existing parent using the proceeds from borrowed funds received from the taxpayer. The taxpayer then paid the interest expense on these borrowed funds. The taxpayer had allocated 100% of these interest expenses to Arkansas, its domicile state, and requested a refund. Because existing Arkansas law adopted the standard UDITPA definition of “business income” and “nonbusiness income” (Ark. Code Ann. 26-51-701), the court focused on the nature of the taxpayer’s business when determining whether activity is “business income” under the traditional transactional and functional tests. The court decided that the spin-off transactions and activity were not made in the regular course of the taxpayer’s business and the spin-off was not the acquisition, management, and disposition of property that constituted integral parts of the taxpayer’s regular business. (Hudson v. Murphy Oil USA, Inc., Ark. S. Ct., Dkt. No. CV-24-8, 12/12/2024.)

Georgia

The Georgia Department of Revenue (DOR) Nov. 25 issued a letter ruling on the application of sales and use tax to transactions involving prewritten computer software. The DOR ruled that the sale of prewritten computer software, delivered in a tangible medium (USB Keys) and picked up by a customer in Georgia, is subject to Georgia sales and use tax. The DOR also clarified that Georgia does not have a Multiple Point of Use (MPU) tax exemption, thus the sale of the software-loaded USB Keys is taxable, even if the software is ultimately used outside of Georgia. [Ga. Dep’t of Revenue, Letter Ruling SUT-2024-02, 11/25/24]

The Georgia Department of Revenue (DOR) Dec. 13 proposed a rule on digital products, goods and codes. The proposal addresses the sales and use taxation of specified digital products, other digital goods and digital codes. A remote public hearing will be held on Dec. 19 at 10:00 am. Comments on the proposed rule are due by Dec. 19. [Ga. Dep’t of Revenue, Reg. Section 560-12-2-.118, 12/13/24]

The Georgia Department of Revenue (DOR) issued information on the income tax changes. The information includes: 1) the state’s tax law conformity to federal changes in the Internal Revenue Code (IRC) for tax years 2021 to 2024; and 2) the adoption of House Bills and Senate Bills, their effective dates, and how they conform to the IRC. [Ga. Dep’t of Revenue, Income Tax Federal Tax Changes, 12/01/24]

Illinois

The Illinois Department of Revenue has issued a compliance alert to increase participant compliance in the Department’s direct pay permit program (DPP). Many participants are not in compliance with the record-keeping, filing, and payment requirements for purchases made under DPP. The Department will issue a notice of direct pay annual review to taxpayers reminding them of reporting obligations, and effective January 1, 2025, participants must complete an annual review of all transactions for the previous calendar year and submit confirmation of the review, no later than March 31, of the following calendar year. If the taxpayer was in business for less than 12 months during the calendar year, or part of the calendar year is under an active audit, the annual review must be conducted for the short-year period not under audit. Participants are responsible for filing Form ST-1-X (Amended Sales and Use Tax and E911 Surcharge Return) for any filing period where a transaction was incorrectly taxed. Failure to comply may result in a $6,000 penalty for the transactional review reporting period. (CA 2025-01, Ill. Dept. of Rev., 12/10/2024.)

The Illinois Department of Revenue has issued an informational bulletin to all persons who, in the ordinary course of business, lease or rent tangible personal property. Effective January 1, 2025, they are considered retailers subject to Illinois’ sales and use tax laws, in accordance with the Retailers’ Occupation Tax Act, and must register with the Department and pay tax on their lease or rental receipts. Leases of tangible personal property are considered sales at retail, and those who lease or rent property from Illinois businesses have tax itemized on receipts. Beginning January 1, 2025, taxpayers may use Form CRT-61 (Certificate for Resale) to claim an exemption on purchases of merchandise that will be leased or rented if the lease or rental of that item is subject to retailers’ occupation tax. Although tax does not apply to receipts prior to January 1, 2025, any amounts received on and after that date are subject to tax, including amounts received on contracts in place prior to January 1, 2025. The change does not impact leases or rentals of items that must be titled or registered with the state, such as motor vehicles. (Illinois Dept. of Rev. Info. Bulletin No. FY 2025-15, 12/01/2024.) 

City of Chicago

Chicago officially raised the personal property lease tax (sales tax) tax rate from 9% to 11% effective 1/1/25. This impacts sellers of software-as-a-service to customers in Chicago.

Maine

Maine Revenue Services has issued a notice discussing a recent law change affecting taxpayers engaged in the business of leasing or renting tangible personal property and/or electronically-transferred products. Beginning January 1, 2025, state sales tax is imposed on each periodic lease or rental payment paid by the lessee. For leases in effect, entered into, or renewed on or after January 1, 2025, lessors are required to charge and collect Maine sales tax from the lessee on each lease or rental payment. The notice also covers the sale price of payments; purchases for resale; prewritten computer software; automobiles, trucks, and vans; exemptions; and limited refund provisions. (Notice to Lessors of Tangible Personal Property: Maine Shifting to “Lease Stream” Sales Taxation Effective January 1, 2025, Maine Revenue Services, 12/01/2024.) 

Michigan

The Michigan Department of Treasury has issued a release updating the description of the procedures and standards governing the alternative apportionment relief provisions in parts 1 and 2 of Michigan’s Income Tax Act and in the Michigan Business Tax Act in response to the Michigan Supreme Court’s opinion in Vectren Infrastructure Services Corp. v. Department of Treasury , 999 NW2d 748, 512 Mich 594 (2023). (Michigan Revenue Administrative Bulletin No. 2024-24, 12/17/2024, replacing Michigan Revenue Administrative Bulletin No. 2018-28, 12/19/2018)

New York

L. 2024, S885 (c. 672), effective 04/21/2025, expands the definition of a hotel for sales tax purposes to include short term rental units. A short term rental unit is a short-term residential rental unit that is “an entire dwelling unit, or a room, group of rooms, other living or sleeping space, or any other space within a dwelling, made available for rent by guests for less than thirty consecutive days, where the unit is offered for tourist or transient use by the short-term rental host of the residential unit.” The law also specifies the persons who are required to collect the tax, in addition to adding provisions on remitting and collecting the tax, and registration requirements.                                                                     

Oregon

The U.S. Supreme Court has denied a request to review an Oregon Supreme Court decision which held that an out-of-state tobacco manufacturer removed itself from the safe harbor of P.L. 86-272 when its representatives went beyond soliciting orders in Oregon on behalf of wholesalers by taking prebook orders. The question presented to the court was whether P.L. 86-272 immunity applied for a company when it engages in otherwise protected activities in Oregon to solicit requests for orders from retailers if it also sends successfully solicited retailer requests for orders to wholesalers (i.e., the company’s customers) for wholesalers to accept and process, and, if ultimately fulfilled, to be fulfilled by the wholesaler from the wholesaler’s own inventory of product that it previously purchased from the company (i.e., the wholesaler makes the sale to the retailer). (Santa Fe Natural Tobacco Co. v. Dept. of Rev., Or. S. Ct., Dkt. No. SC S069820, 06/20/2024, cert. denied, U.S. S. Ct., Dkt. No. 24-551, 12/16/2024.)

South Carolina

The South Carolina Department of Revenue has issued a revenue ruling to explain the tax credits for rehabilitating certified historic structures qualifying for the federal credit and historic residential structures located in South Carolina. S.C. Code Ann. § 12-6-3535(A) provides a nonrefundable tax credit of 10% against state income taxes and license fees, for taxpayers who qualify for the federal income tax credit for making qualified rehabilitation expenditures for a certified historic structure located in South Carolina. Taxpayers can elect to take a 25% South Carolina credit instead of 10%, but the 25% credit is limited to $1 million for each certified historic structure. S.C. Code Ann. § 12-6-3535(B) provides a nonrefundable income tax credit for taxpayers who are not eligible for the federal credit. The credit is for 25% of the rehabilitation expenses for a certified historic residential structure located in South Carolina. The ruling discusses eligible properties, the application fees, certification of additional work and provides answers to the most frequently asked questions. (South Carolina Revenue Ruling No. 24-6, 12/16/2024.)

Tennessee

The Tennessee Department of Revenue has issued a letter ruling that states that a successor taxable entity in an IRC § 368(a)(1)(F) reorganization assumes the tax attributes of its predecessor taxable entity including items such as net operating losses (NOLs) and tax credits. While, NOLs and tax credits, may generally only be claimed by the taxable entity that incurred the losses or generated the credits, there is an exception if the predecessor taxable entity merges into a taxable entity with no activity, assets or liabilities prior to the merger. (Tennessee Letter Ruling No. 24-09, 11/05/2024.)

The Tennessee Department of Revenue has updated its taxability matrix to reflect the Streamlined Sales and Use Tax Agreement as amended through October 8, 2024. The matrix indicates that a remote seller who is registered to collect sales tax in Tennessee has an obligation to remit consumer’s use tax on its own property such as catalogs and samples delivered into Tennessee. (Tennessee Taxability Matrix, Tax Administration Practices, 12/30/2024.)

Contributors

Brian Strahle, National SALT Practice Leader,
Partner, Frazier & Deeter Advisory, LLC

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