The states covered in this issue of our monthly tax advisor include:
Arizona
Corporate, personal income taxes: Pass-through entity election guidance revised
Arizona issued revised guidance on corporate and personal income taxes for pass-through entities electing to pay entity-level income tax. The guidance outlines the Arizona Pass-Through Entity Election process, applicable tax rates, rules for opting out by partners and shareholders, and filing requirements. It specifies the 2025 pass-through entity tax rate of 2.5% and provides instructions for estimated payments, amending, and revoking the election.
The publication was just recently updated in September of 2025, and the new November 2025 updates clarify some provisions, including:
- Election changes allowed on amended returns.
- Explicit eligibility for single-member LLCs.
- Detailed estimated payment and penalty rules.
- Credit carry forward (five years) and ordering clarified.
- Allocation rules reinforced.
Publication 713, Arizona Department of Revenue, November 2025.
California
Sales and use tax: Amount of taxpayer’s unreported purchases were not reduced due to invalid resale certificates
The Office of Tax Appeals (OTA) held that the amount of the taxpayer’s unreported purchases subject to California use tax should not be reduced.
Resale certificates issued for purchases of flooring materials
The taxpayer, a construction contractor that furnished and installed flooring materials, had issued resale certificates for nearly 91% of its purchases and hadn’t paid use tax or sales tax reimbursement on purchases that totaled almost $25 million. The California Department of Tax and Fee Administration (CDTFA) audited the taxpayer for the second time after the first audit resulted in a determination that the taxpayer had made over $10 million of unreported purchases subject to use tax.
Taxpayer’s arguments on appeal
On appeal, the taxpayer argued that the resale certificates associated with the flooring material purchases at issue were invalid because they were either not signed by an authorized individual, were unsigned altogether, or included the seller’s permit number of the taxpayer’s predecessor. The taxpayer alleged that its vendors were liable for sales tax on the transactions at issue because they didn’t verify the validity of the resale certificates.
Decision of the OTA
The OTA, however, found the taxpayer’s arguments on appeal unpersuasive and concluded that the amount of unreported purchases subject to use tax shouldn’t be reduced. If the taxpayer issued to its vendors resale certificates that were missing authorized signatures or were unsigned, then the taxpayer can’t subsequently deny the validity of those certificates or attempt to shift the tax liability away from themself and onto its vendors.
Moreover, the taxpayer was primarily liable for use tax on the consumption of the flooring materials because it consumed those materials purportedly purchased for resale. The taxpayer was regarded as having adopted its predecessor’s resale certificates and owed tax on its subsequent consumption of the flooring materials purchased for resale.
HM Carpet Inc., California Office of Tax Appeals, 2025-OTA-595P, November 2025.
Colorado
Corporate, personal income taxes: SALT parity act guidance updated
Colorado has updated its guidance on the state’s SALT Parity Act to reflect that partnerships and S corporations may still elect to pay Colorado income tax at the entity level for tax years beginning after 2025. The election is only allowed in a tax year where there’s a federal limitation on deductions allowed to individuals under IRC Section 164.
Income Tax Topics: SALT Parity Act, Colorado Department of Revenue, October 2025.
Corporate, personal income taxes: Business personal property tax credit guidance updated
Colorado updated its guidance on the business personal property tax credit. The credit is available for tax years beginning before Jan. 1, 2026. Qualifying taxpayers, including individuals, estates, trusts, C corporations, partnerships, S corporations, and tax-exempt entities, may claim a refundable credit for ad valorem property tax paid on the first $18,000 of the actual value of their business personal property. The guidance includes instructions for calculating and claiming the credit, as well as information on limitations and nonqualifying property tax types.
Income Tax Topics: Business Personal Property Credit, Colorado Department of Revenue, November 2025.
Iowa
Corporate income tax: Guidance issued on GILTI/NCTI and FDII/FDDEI
Since 2020, Iowa law has exempted global intangible low-taxed income (GILTI), which is taxable at the federal level, from Iowa corporate income tax. Beginning Jan. 1, 2026, GILTI no longer exists at the federal level. Instead, a new category of income, Net CFC Tested Income (NCTI) will be subject to tax.
Iowa has no statutory exemption for NCTI, so beginning on Jan. 1, 2026, NCTI will also be taxable for Iowa income tax purposes to the same extent it’s included in federal taxable income. Since 2020, Iowa has conformed with the federal FDII deduction. Even though the One, Big, Beautiful Bill Act (P.L. 119-21) eliminated FDII and replaced it with FDDEI, Iowa’s rolling conformity means that the FDDEI deduction will automatically be allowed for Iowa purposes. Additional guidance is located on the Iowa Department of Revenue’s website.
Press Release, Iowa Department of Revenue, Nov. 4, 2025.
Maine
Corporate, personal income taxes: Maine issues guidance on conformity, nonconformity with OBBBA
Maine Governor Janet Mills issued a letter in response to the “Report on 2025 Conformity with Federal Tax Law Changes” prepared by the Maine Commissioner of the Department of Administrative and Financial Services outlining the state’s conformity with federal income tax changes contained in the One, Big, Beautiful Bill Act (P.L. 119-21).
Notably, Maine will conform with federal changes regarding:
- Qualified disaster loss.
- Qualified farm property.
- IRC Section 179 expensing.
- Business interest deductions.
Maine won’t conform with federal changes regarding:
- Certain research and development expenses provisions.
- Accelerated depreciation for qualified production property.
- Increase in standard deduction.
- Bonus depreciation.
- No tax on tips or overtime.
- Senior exemption.
Maine conforms to the Internal Revenue Code in effect as of Dec. 31, 2024. However, a law passed in September 2025 (Ch. 336) allows the governor to make temporary changes to tax administration when there’s a lag in conformity.
Maine Revenue Services has also issued guidance on personal and corporate income tax conformity with federal income tax changes contained in the One, Big, Beautiful Bill Act (P.L. 119-21).
Report on 2025 Conformity with Federal Tax Law Changes, Maine Department of Administrative and Financial Services October 2025; Determination and Direction of the Governor of the State of Maine, Office of Maine Governor Janet Mills, October 2025; Maine Tax Alert, Maine Revenue Services, October 2025.
Michigan
Multiple taxes: Guidance on tax penalties updated
The Michigan Department of Treasury has updated its guidance on civil tax penalties to address penalties faced by accelerated filers. Taxpayers that had $720,000 or more of sales or use tax liability, or $480,000 or more of withholding tax liability, in the preceding calendar year are required to pay their taxes electronically on an accelerated schedule. Underpayments will be assessed a 5% penalty, in addition to any late or underpaid liability penalties and interest.
Revenue Administrative Bulletin 2025-15, Michigan Department of Treasury, Nov. 18, 2025.
Minnesota
Corporate, personal income taxes: OBBBA provisions may require adjustments to income on state returns
Taxpayers may need to make adjustments to income on their Minnesota returns because the state hasn’t adopted the federal provisions enacted in the 2025 Federal Tax Budget and Reconciliation Bill (H.R. 1 OBBBA). Under current law, Minnesota taxable income is based on the Internal Revenue Code as amended through May 1, 2023.
The Department of Revenue notes that H.R. 1 may impact federal and Minnesota returns for tax year 2022 and after. The department has updated its forms and instructions to help taxpayers calculate nonconformity adjustments. When filing an amended Minnesota return due to H.R. 1, taxpayers should write “H.R. 1” in red at the top of their amended return and any amended Schedules KF, KPI, KPC, or KS issued to beneficiaries, partners, or shareholders.
2025 Federal Nonconformity for Income Tax, Minnesota Department of Revenue, Nov. 4, 2025.
New York
Personal income tax: Taxpayers failed to prove change of domicile during period at issue
The New York Tax Appeals Tribunal upheld an administrative law judge’s determination that taxpayers did not provide clear and convincing evidence to establish a change of domicile from New York to Florida as of Oct. 29, 2018. In its analysis, the tribunal evaluated factors such as home ownership, time spent in each state, business ties, and social connections. Although the taxpayers did intend at some point to change their domicile, the manifestation of that intention wasn’t evident during the period at issue.
Hoff, New York State Tax Appeals Tribunal, DTA NO. 850209, Oct. 9, 2025.
Pennsylvania
Multiple taxes: Budget includes tax changes
Pennsylvania has adopted a budget that makes several tax changes, including:
- Extending the 9-1-1 surcharge of $1.95, which will now expire on Feb.1, 2029.
- Decoupling the corporate net income tax from certain changes made by the One, Big, Beautiful Bill Act.
- Making changes to allow the Pennsylvania Housing Financing Agency to auction tax credits as a wholesale auction to raise capital.
- Establishing a new, refundable Working Pennsylvanians Tax Credit linked to the federal earned income tax credit.
- Expanding Keystone Opportunity Zones.
- Exempting any amount received by a Holocaust survivor, as part of reparations, from personal income tax.
What provisions of the OBBBA did Pennsylvania decouple from?
Under the law, taxable income will include tangible and intangible (amortization) deductions for any research and experimental expenditures claimed and allowable under either IRC Section 174, IRC Section 59(E), or IRC Section 174A, applicable to tax years beginning after Dec. 31, 2024. If research and experimental expenditures are included in taxable income, an additional deduction for research and experimental expenditures will be allowed until the maximum for the tax year has been claimed. The additional deduction cannot exceed 20% of the qualified research and experimental expenditures.
Also, taxable income will include the amount of any deduction claimed under IRC Section 481, which relates to research and experimental expenditures originally made by the taxpayer in tax years beginning after Dec. 31, 2021, and before Dec. 31, 2024. If research and experimental expenditures are included in taxable income, an additional deduction for research and experimental expenditures will be allowed until the total amount originally amortizable under IRC Section 174 has been claimed. The additional deduction is equal to 20% of the remaining unamortized qualified research and experimental expenditures. The total of the additional deduction can’t be more than the remaining unamortized qualified research and experimental expenditures originally allowed under IRC Section 174.
For depreciation relating to tangible assets of qualified production property, taxable income will include the amount of the deduction claimed and allowable under IRC Section 168(N). If a deduction for depreciation of qualified production property is included in taxable income, an additional deduction for depreciation of qualified production property will be allowed until the maximum for the tax year has been claimed. The additional deduction can’t exceed the depreciation on the qualified production property for the taxable year. If the qualified production property is sold or disposed of during a taxable year for which depreciation was included as taxable income, an additional deduction will not exceed what’s recovered through additional deductions.
Lastly, the calculation of interest expense will be calculated as if IRC Section 163(j) was in effect as of Dec. 31, 2024.
What is the Working Pennsylvanians Tax Credit?
The Working Pennsylvanians Tax Credit (WPTC) allows a qualified taxpayer, who has qualified for the federal Earned Income Tax Credit (EITC), to claim up to 10% of the amount that they received under the EITC as credit against their personal income tax. The credit is refundable and is available in tax year beginning after Dec. 31, 2024.
Act No. 45, (H.B. 416), Laws 2025, effective immediately and as noted above; News, Pennsylvania Governor, Nov. 12, 2025.
Texas
Gross margin tax: No tax due threshold and compensation deduction limit for 2026 and 2027 announced
Texas has announced the inflation-adjusted no tax due threshold and compensation deduction limit for report years 2026 and 2027. For these years, the no tax due threshold will be $2,650,000, and the compensation deduction limit will be $480,000.
Tax Rates, Thresholds and Deduction Limits, Texas Comptroller of Public Accounts, Oct. 30, 2025.
Corporate income tax, practice and procedure: Refund claim denied due to improper extension payment
The Texas Comptroller held that a taxpayer’s Texas franchise tax refund claim was barred by the statute of limitations. The taxpayer filed the necessary extension request by the appropriate deadline, but they didn’t include payment with the request. Instead, the taxpayer included a handwritten notation on the request stating, “taxpayer has available tax credits to offset tax liability.” The taxpayer did not otherwise elect to apply the credits to its tax liability. The taxpayer made the payment several days later, after the deadline to request an extension had passed. The taxpayer filed its refund claim for the report year after the original statute of limitations had expired, but before the date to which the statute of limitations would have been extended if its extension request had been valid.
The Texas Comptroller found that the taxpayer’s extension request had not been valid because the taxpayer did not make the statutorily-required payment prior to the deadline to request the extension. The handwritten notation was not a proper payment, according to the Comptroller, because the taxpayer did not elect to apply the credits. Accordingly, the refund claim was barred by the statute of limitations.
Comptroller Hearing No. 119,062, Texas Comptroller of Public Accounts, Oct. 6, 2025, released Nov. 14, 2025.
Virginia
Corporate income tax: New policy for corporate apportionment of income from non-unitary pass-through entity
The Virginia Department of Taxation has provided information regarding a new policy as a result of a court of appeals decision holding that the application of the blended apportionment approach was unconstitutional if a pass-through entity (PTE) was not part of the corporation’s unitary business.
Court of appeals decision limits aspect of blended apportionment
The department has a long-standing general policy of using blended apportionment for corporate income tax purposes when the corporation is an owner of a PTE. “Blended apportionment” uses an apportionment formula that combines the corporate owner’s share of the PTE’s apportionment factors with the corporation’s own factors. This blended formula is then applied to the corporation’s total apportionable income, including its share of the PTE’s apportionable income.
The Virginia Court of Appeals decided Department of Taxation v. FJ Management, Inc., 907 S.E.2d 541 (VA. App. Ct. 2024), which concerned a corporation that owned an ownership interest in a PTE. The Court held that because the corporate owner did not have a unitary relationship with that PTE, the corporate owner’s share of the PTE’s property, payroll, and sales factors may not be included in its own to create one, blended apportionment formula. As a result, the amount of the non-unitary PTE’s income on which a corporate partner is to be taxed equals its distributive share of such income apportioned to Virginia at the PTE-level based on the PTE’s own apportionment factors.
Instructions for impacted corporations
If there’s not a unitary relationship between a corporate owner and the PTE, then PTE income may not be included in the corporation’s Income Subject to Apportionment, Line 3(g) of Schedule 500A. Similarly, the PTE’s apportionment factors may not be included in the corporation’s apportionment factors, Line 1 or 2 of Schedule 500A. Instead, to reflect the PTE’s income on the corporate income tax return on a non-blended basis:
- The corporation’s share of the PTE’s income must be included on Line 3(b) of Form 500A along with allocated dividend income.
- The corporation’s share of the PTE’s income from Virginia sources, determined by the PTE using its own apportionment formula as if it were a corporation, must be included on Line 3(i) of Form 500A along with any dividend income allocated to Virginia.
- The box on Line 3(i) of Form 500A must be checked.
- The corporation’s return must include a statement listing the name and FEIN of each non-unitary PTE apportioned on a non-blended basis.
The taxable year 2025 corporate income tax return and instructions will be updated to provide a checkbox. If amending a return to address this case, taxpayers should mark the amended return check box and enter the reason code in the space provided. Taxpayers should use reason code 12, Other Income Reported on Schedule 500A, and enclose the appropriate documentation.
The department notes that this is a temporary solution to ensure that non-unitary PTE income and the PTE’s income from Virginia sources as determined and reported on its Schedule VK-1 is kept separate and not blended with the corporation’s own income and apportionment. Because the department’s existing forms don’t have lines for this, Lines 3(b) and 3(i) are being used. These instructions may be modified for future years when the department revises its forms.
Transitional relief for taxable years 2024 and before
For taxable year 2024 and before, the department will:
- Not require returns, including amended returns, to be filed in accordance with this new policy. Instead, such returns will be permitted to apply the department’s long-standing blended apportionment policy, even if no unitary relationship exists.
- Allow returns, including amended returns, to be filed in conformity with the case using the instructions described above.
However, any return, including amended returns, filed to make use of this transitional relief must be filed within the applicable statute of limitations.
Tax Bulletin 25-5, Virginia Department of Taxation, Oct. 28, 2025.
Washington
Sales and use tax: International remote seller voluntary disclosure program announced
The Washington Department of Revenue has announced voluntary disclosure program for international remote sellers and international marketplace facilitators that are unregistered and have established a substantial nexus with Washington. The program runs from Feb. 1 2026, through May 31, 2026.
An eligible business must be headquartered outside the United States and meet the following criteria:
- Has not had an active registration with or reported taxes to the department within the current statutory period (four years plus current year).
- Has not been contacted by the department for enforcement purposes within the current statutory period.
- Has not engaged in evasion or misrepresentation in tax reporting.
The program offers a limited lookback period of four years plus the current year for business and occupation (B&O) taxes, and 12 months for uncollected retail sales tax. Furthermore, it offers waiver of up to 39% in potential penalties.
The online application requires the business’s name, address, and phone number, spreadsheet of gross income, Washington Business Activities Questionnaire, Confidential Tax/Email Authorization form, and copies of reseller permits, exemption certificates or similar documentation.
International Remote Seller Voluntary Disclosure Program and International Remote Seller Voluntary Disclosure Program frequently asked questions, Washington Department of Revenue, Nov. 19, 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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