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State and local tax advisor: June 2025

Authors: Mike Merkel, Ron Cook, Jeanette Tolar, Stephen Palmer

June 26, 2025 / 33 min read

Have you heard about the latest changes in state and local taxes? Check our June 2025 roundup here.

The states covered in this issue of our monthly tax advisor include:

Colorado

Sales and use tax: Fabrication labor costs not included in calculation of tax on purchase of materials

Where a construction subcontractor purchases materials for the fabrication of a staircase system before installing it into real property, the subcontractor’s fabrication labor costs aren’t included in the calculation of Colorado sales and use tax on the purchase of the materials.

GIL 25-004, Colorado Department of Revenue, March 24, 2025.

Unclaimed property: Unclaimed property provisions revised

Colorado has revised its unclaimed property provisions. The changes include:

H.B. 1224, Laws 2025, effective Jun. 4, 2025.

Georgia

Corporate income tax: Consolidated filing regulations updated

Georgia has revised its rules governing the filing of consolidated corporate income tax returns, streamlining the process for affiliated groups that already file a federal consolidated return. Under the updated regulation, these groups are no longer required to petition the commissioner for permission to file a consolidated return in Georgia. Instead, they may elect to do so by making the election on a timely filed original return, including any extensions. Once made, this election is irrevocable for a period of five years and is binding on both the taxpayer group and the Department of Revenue.

For groups that had previously received approval to file consolidated returns under the older rules, there are now three options available. They may continue filing under the original terms, opt into the new regulation, or discontinue consolidated filing and revert to separate returns. If a group chooses to continue under the old rules, it must indicate this choice by checking the appropriate boxes on its return.

A significant procedural change is the requirement that income or loss be consolidated on a post-apportionment basis. This means each corporation within the group must calculate its Georgia taxable income individually before the results are combined. The revised regulation also includes detailed provisions addressing the computation of net worth tax, the use and assignment of tax credits, the treatment of net operating loss deductions, and the handling of estimated tax payments. Additionally, it outlines transition rules for credit carryforwards from prior consolidated filings, ensuring continuity and clarity for taxpayers navigating the shift to the new framework.

Regulations, Georgia Department of Revenue, effective for taxable years beginning on or after Jan. 1, 2023.

Illinois

Multiple taxes: Enacted budget tax package contains significant changes

On Jun. 16, 2025, Governor JB Pritzker signed into law the Illinois General Assembly’s significant tax package that:

H.B. 2755, as passed by the Illinois General Assembly on June 1, 2025.

Multiple taxes: Manufacturing credit added, other incentives modified

The Illinois budget revenue legislation includes tax incentive provisions that:

P.A. 104-06 (H.B. 2755), Laws 2025, effective June 16, 2025, and as noted.

Iowa

Multiple taxes: Changes to tax credits and tax incentive programs enacted

On June 6, 2025, Iowa Governor Kim Reynolds signed legislation that creates, modifies, and eliminates a number of tax credits and tax incentive programs. The following are established:

The following are eliminated:

S.F. 657, Laws 2025, applicable as noted above.

Massachusetts

Corporate income tax: Classification as manufacturing corporation required use of single-factor apportionment formula

A footwear company qualified as a “manufacturing corporation” and was required to apportion its net corporate income using a single-factor apportionment formula. The taxpayer argued that their use of third-party manufacturers disqualified them from the manufacturing classification and the associated single-sales-factor apportionment method.

The board found that the taxpayers exercised substantial control over the manufacturing process, including product design, development, quality assurance, and oversight of production at overseas facilities. Testimony from company executives and documentary evidence demonstrated that the taxpayers’ role extended beyond mere branding or distribution, encompassing core elements of the manufacturing life cycle. The board emphasized that direct ownership of production facilities wasn’t required to meet the statutory definition of manufacturing.

Skechers USA, Inc. v. Commissioner of Revenue, Appellate Tax Board (Massachusetts), No. C344671, May 5, 2025.

Michigan

Multiple taxes: Additional guidance provided on tax extension relief due to severe weather

The Michigan Department of Treasury has provided additional guidance on the process by which taxpayers in Lansing, Allegan, and Baraga counties may request tax extension relief. Online submissions for state tax extension can be made through Business Taxes eService or Individual Income Tax eService.

The following information must accompany the request: 1) name and account number; 2) a description of how the taxpayer was affected by the severe weather; and 3) taxpayer address within one emergency area or address of the tax preparer in the emergency area.

News Release, Michigan Department of Treasury, June 11, 2025.

Corporate, personal income taxes: State will process City of Flint’s income tax returns

Effective Jan. 1, 2027, the Michigan Department of Treasury will process the City of Flint’s income tax returns. This includes returns from individuals, corporations, and partnerships, and fiduciary returns. The department will also enforce income tax withholding. Affected taxpayers can file and pay through a state administered system.

News Release, Michigan Department of Treasury, June 3, 2025.

Minnesota

Multiple taxes: Omnibus tax legislation enacted

Minnesota enacted special session legislation that includes sales and use, excise, individual income, corporation franchise, property, insurance premium, and other tax changes. Highlights of the legislation are covered below.

Sales and use taxes; excise taxes

Sales and use tax and excise tax changes include:

Individual income and corporation franchise taxes

Individual income and corporation franchise tax changes include:

Property taxes

Property tax changes include:

Other provisions

Other changes include:

Ch. 13 (H.F. 9), Laws 2025, effective Jul. 1, 2025, except as noted.

Nebraska

Multiple taxes: Recreational trail easement exemption authorized, adoption credit created, other income tax provisions amended

Nebraska has authorized a property tax exemption for recreational trail easements, an adoption credit, and amended various income tax provisions.

Recreational trail easement exemption

Beginning Jan. 1, 2026, a taxpayer that encumbers their property with a perpetual recreational trail easement may apply for a property tax exemption for that portion of the property so encumbered. In order to qualify, the easement must: 1) be perpetual and recorded with the county register of deeds; 2) provide public access and connect to existing regional trails; and 3) be held by an eligible holder.

If a taxpayer seeks the easement exemption for property acquired after January 1 of any year, they must apply on or before July 1. If a taxpayer purchases, between July 1 and the levy date, property that has been granted the easement exemption, the purchaser must apply for exemption by November 15. 

Adoption tax credit

Beginning Sept. 2, 2025, for tax years beginning on or after Jan. 1, 2026, an income tax credit is allowed for any taxpayer who’s eligible for the federal adoption expenses credit. The credit is in the amount of 10% of the federal tax credit and is refundable.

Blighted area primary residence credit

Beginning Sept. 2, 2025, the income tax credit for individuals who purchase a residence in an extremely blighted area has been extended to Jan. 1, 2032.

Pass-through entity tax credit

Beginning Sept. 2, 2025, for partner and shareholder tax returns filed for tax years beginning on or after Jan. 1, 2022, the credit will be allowed for the same taxable year for which the election by the partnership or S corporation is made, without regard to the year in which the tax is paid to Nebraska or deducted on a federal return.

Notices of deficiency

Beginning Sept. 2, 2025, a notice of deficiency submitted in response to a taxpayer’s inaccurate income tax return, must include a written statement describing the facts the commissioner used to determine the taxpayer didn’t report the correct amount of tax.

Nebraska education savings plan trust

Beginning Oct. 1, 2025, for purposes of adjustments to federal adjusted gross income or federal taxable income, through Jan. 1, 2029, a nonqualified withdrawal includes a distribution from an account to pay the costs of kindergarten through grade 12. Beginning Jan. 1, 2029, such expenses relating to enrollment at elementary or secondary school (up to $10,000 per beneficiary) are qualified education expenses.

L.B. 647, Laws 2025, effective June 4, 2025, and as noted above.

New York

Sales and use tax: Taxability of out-of-state online retailers’ purchase of order fulfillment services and storage of inventory discussed

The New York Department of Taxation and Finance issued an advisory opinion regarding whether an out-of-state online retailer’s purchase of certain order fulfillment services in New York and its storage of inventory on the premises of the company providing those order fulfillment services cause the petitioner to qualify as a vendor and require it to collect sales and use tax. The petitioner’s only presence in New York is the storage of inventory at the fulfillment company’s warehouses. The department concluded that if the petitioner doesn’t otherwise qualify as a vendor, neither its purchase of the order fulfillment services at issue, nor its storage of inventory on the premises of the company providing those services, cause it to qualify as a vendor and thus be under a duty to collect sales and use tax.

In addition, if the fulfillment company qualifies as a marketplace provider, it must collect sales tax on all sales of tangible personal property to New York customers that it makes or facilitates, including sales of the petitioner’s products, regardless of whether the services provided to the petitioner are limited to fulfillment services.

TSB-A-24(45)S, Department of Taxation and Finance, Oct. 10, 2024, released May 2025.

Sales and use tax: Out-of-state marketplace seller not required to register or collect and remit tax if marketplace provider collects and remits the tax

An out-of-state petitioner isn’t required to collect and remit New York sales tax on sales of tangible personal property to consumers within or outside New York that are stored in New York by a third-party fulfilling provider (Company X). The petitioner is a marketplace seller and doesn’t need to register for sales tax purposes or collect and remit sales tax if sales tax is being collected and remitted on sales facilitated by its marketplace provider, and it makes no other sales in New York. Company X and the petitioner have agreed that Company X will advertise and facilitate sales of the petitioner’s products through its website. Accordingly, Company X is a marketplace provider, and the petitioner is a marketplace seller. Company X is required to collect sales tax on sales of the petitioner’s tangible personal property sold through its website.

Company X publicly states on its website that it “will be responsible to calculate, collect, remit, and refund sales tax on sales sold by third party sellers for transactions destined to states where Marketplace Facilitator and/or Marketplace collection legislation is enacted.” Company X includes New York on the list of states that it will collect and remit sales and use tax on behalf of its sellers. The website’s language is consistent with TSB-M-19(2.1)S, which contains the approved language for a publicly available agreement between a marketplace provider and marketplace seller. Therefore, the petitioner doesn’t need to collect and remit sales tax on New York sales facilitated by the marketplace provider’s website and won’t be required to register for sales tax purposes as long as it makes no other sales in New York. Sales of tangible personal property delivered to customers outside New York aren’t subject to New York state and local sales taxes.

TSB-A-24(52)S, New York Department of Taxation and Finance, Nov. 12, 2024, released June 2025, ¶410-456.

Ohio

Corporate income tax: Reimbursements received under management contracts taxable

The Supreme Court of Ohio affirmed the denial of a commercial-activity tax (CAT) refund request for reimbursements received under management-fee contracts. The court determined that the taxpayer didn’t qualify for the gross-receipts exclusion.

First, the court found that the taxpayer had failed to establish they acted as an agent under Ohio law. The taxpayer kept reimbursements for itself rather than holding them on behalf of or as a representative of another. The court clarified that the statutory definition of “agent” doesn’t require actual authority to bind clients, disapproving of the reasoning in its prior decision, Willoughby Hills. In Willoughby Hills, the court determined that for purposes of the CAT, a person is “authorized” to act on behalf of another when that person has actual authority to act as an agent on the other’s behalf. The court stated that holding was a mistake, because the statutory definition says nothing about the type of authority a person must have to qualify as an agent for CAT purposes. Thus, the court disapproved of Willoughby Hills to the extent that it required a showing of actual authority on the part of the taxpayer to qualify as an agent for purposes of the CAT. Decisions involving the CAT’s agency exclusion should focus on the meaning of the statutory language.

Second, the court determined that the reimbursements the taxpayer received from its management fee clients did constitute gross receipts. The evidence established that the taxpayer received reimbursements from its management-fee clients in exchange for performing services for those clients under its contracts with them. Under the law, those reimbursements constitute gross receipts for the taxpayer.

Aramark Corp. v. Harris, OHSCt, No. No. 2023-1540, June 18, 2025.

Washington

Sales and use tax: B&O tax rates and surcharges amended, temporary surcharge on high-grossing businesses authorized

Washington has increased business and occupation (B&O) tax rates across multiple categories, increased the financial institutions’ and advanced computing surcharges, and imposed a temporary surcharge on high grossing businesses.

B&O tax rate changes

Beginning Oct. 1, 2025, the B&O tax rate for services and other activities for businesses with gross income exceeding $5 million is raised to 2.1%.

Beginning Jan. 1, 2027, the rate for the following categories is increased to 0.5%: 

Beginning Jan. 1, 2027, the rate for contests of chance increases to 1.8%. Beginning Jan. 1, 2034, the rate for printing newspapers increases to 0.5%.

Advanced computing and specified financial institution surcharges

Beginning Jan. 1, 2026, the rate for the advanced computing surcharge increases to 7.5%. The annual cap is increased to $75 million.

Beginning Oct. 1, 2025, the additional B&O tax on “specified financial institutions” increases to 1.5%. A specified financial institution is one that’s a member of a consolidated financial institution group that reported on its consolidated financial statement for the prior calendar year annual net income of at least $1 billion.

Surcharge on high-grossing businesses

Beginning Jan. 1, 2026, an additional B&O tax is imposed on businesses with at least $250 million in Washington taxable income. The tax is 0.5% of the annual taxable income in excess of $250 million and is in addition to other B&O taxes. The surcharge terminates on Dec. 31, 2029.

The following income is exempt from the tax:

Persons primarily engaged in farming or as an eligible apiarist, “specified financial institutions,” and taxpayers paying the advanced computing surcharge, are also exempt from this additional tax.

Investment deduction

Beginning Jan. 1, 2026, for purposes of the deduction, investments are considered incidental to the main purpose of a business if less than 5% of the business’s worldwide gross income is derived from such investments annually.

The following persons may deduct amounts derived from such person’s investments regardless of whether the investments are incidental to the main purpose of the person's business: 1) nonprofit organizations; 2) collective investment vehicles; 3) retirement accounts and persons receiving distributions; and 4) family investment vehicles and persons receiving distributions.

Ch. 420 (H.B. 2081), Laws 2025, effective July 27, 2025, and as noted above.

Sales and use, miscellaneous taxes: Capital gains excise tax provisions amended

Washington has amended provisions relating to the administration and calculation of the capital gains tax.

Business and occupation tax credit

Effective Jan. 1, 2026, the business and occupation (B&O) tax credit for payment of the capital gains tax is eliminated. A taxpayer may still claim the credit from sales that occurred prior to the repeal. Also, a taxpayer’s liability for tax, penalty, or interest related to the credit is preserved.

Beginning Jan. 1, 2026, a nonrefundable credit is authorized against an individual’s capital gains tax liability for sales subject to both capital gains tax and B&O tax. The credit may not be carried forward or backward.

Adjusted capital gain

The following is added to the federal net long-term capital gain when calculating Washington adjusted capital gain: 

Credit for taxes paid to another taxing jurisdiction

Beginning Jan. 1, 2026, the amount of the credit for taxes paid to another taxing jurisdiction is the lesser of: 1) the total amount of Washington capital gains tax derived from such capital assets; or 2) the total amount of tax paid to the other taxing jurisdiction on the capital gains derived from such capital assets.

Treatment of spouses and domestic partners

Beginning Jan. 1, 2026, spouses or state-registered domestic partners aren’t considered separate taxpayers for the purposes of the capital gains tax regardless of whether they file a joint or separate return for the tax. The activities and assets of each spouse or state-registered domestic partner are combined as if they were one individual for the purposes of determining the applicability of any threshold amounts, caps, deductions, credits, or any other amounts related to the activities or assets of an individual.

Penalties

A late filing penalty waiver may be claimed only if the taxpayer hasn’t been contacted by the department for enforcement purposes for the period covered by the waiver. A late payment penalty is allowed for taxpayers that have remitted payments on time for the past five years and who haven’t been contacted by the department for enforcement purposes.

If a taxpayer amends a federal tax return that impacts the taxpayer’s Washington capital gains liability, the taxpayer must file an amended Washington return within 90 days. Failure to amend the return results in a 5% penalty for each month, with a maximum penalty of 25%.

Ch. 409 (S.B. 5314), Laws 2025, effective July 27, 2025, and as noted above.

Wisconsin

Multiple taxes: Travel services aren’t tangible personal property

The Wisconsin Court of Appeals held Public Law 86-272 didn’t protect the taxpayer because the taxpayer sold travel services, and travel services aren’t tangible personal property within the meaning of the law. In this case, the Wisconsin Department of Revenue (DOR) appealed and the taxpayer cross-appealed from an order of the circuit court remanding a decision of the Tax Appeals Commission (Commission) in which the Commission found the taxpayer subject to Wisconsin’s corporate income and franchise tax. On appeal, the parties argued about whether the Commission properly considered an affidavit submitted by the taxpayer’s co-owner and vice president, and they further argued about whether the taxpayer is exempt from the corporate income and franchise tax as a result of the operation of P.L. 86-272. The commission disagreed that P.L. 86-272 protected the taxpayer since it sold travel services, and travel services aren’t tangible personal property within the meaning of the law. Regarding the affidavit, the commission determined it lacked credibility. The commission relied on the language of the agreements that the taxpayer had with the travel agents, and further found that the taxpayer had a sufficient nexus with Wisconsin and was subject to taxation. While the DOR contended that the taxpayer sells a service, whether it’s travel services or software as a service (SaaS), and therefore doesn’t qualify for the protection of P.L. 86-272, the taxpayer argued that P.L. 86-272 is not limited to sellers of tangible personal property and instead provides a “lower limit” where any activities falling below the limit set by the law are not subject to state taxation. The Court of Appeals reversed the circuit court and determined that even considering the affidavit, the taxpayer is subject to Wisconsin’s corporate income and franchise tax. The taxpayer sells travel services and the plain language of P.L. 86-272 applies only to tangible personal property.

ASAP Cruises, Inc. v. Wisconsin Department of Revenue, Court of Appeals of Wisconsin, District I, No. 2022CV1975, June 3, 2025.

Corporate income tax: Royalty payments disallowed as sham transactions

The Court of Appeals of Wisconsin affirmed the circuit court’s decision disallowing the taxpayer’s deductions for royalty payments as corporate income taxes due to their classification as sham transactions. The Court of Appeals agreed with the Wisconsin Tax Appeals Commission, which applied the sham transaction doctrine, focusing on the lack of economic substance and business purpose in the transactions within Wisconsin. The taxpayer didn’t meet its burden of proving a valid nontax business purpose or practicality beyond tax savings for the royalty payments. The Commission and Court of Appeals found ample evidence that the taxpayer created a wholly owned subsidiary solely for tax minimization.

Skechers USA, Inc. v. Wisconsin Department of Revenue, Court of Appeals of Wisconsin, District II | WIAppCt, No. 2024AP957, June 4, 2025.

The information provided in this alert is only a general summary and is being distributed with the understanding that Plante & Moran, PLLC, is not rendering legal, tax, accounting, or other professional advice, position, or opinions on specific facts or matters and, accordingly, assumes no liability whatsoever in connection with its use.

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