State and local tax advisor: December 2025

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

• California
• District of Columbia
• Florida
• Illinois
• Louisiana
• Minnesota
• New Hampshire
• New Jersey
• Tennessee
• Texas
• Wisconsin

California

Multiple taxes: Legislative changes highlighted

The California Franchise Tax Board (FTB) highlighted some legislative changes that affect taxpayers for tax year 2025 and beyond. The highlighted changes relate to:

• Electronic filing of business returns.
• Research credits.
• Pass-through entity (PTE) elective tax.
• Nonresident aliens.
• Apportionment for financial institutions.
• Wildfire settlements.

Electronic filing

Following the enactment of S.B. 711, which updated California’s general IRC conformity date to Jan. 1, 2025, for personal income tax and corporate tax purposes, California now conforms to federal provisions in IRC Section 6011(e) and IRC Section 6011(h) that require electronic filing by (1) any corporation that’s required to file at least 10 returns of any type during the calendar year ending with or within the taxable year of the corporation; (2) any partnership that’s required to file at least 10 returns of any type during the calendar year ending with or within the taxable year of the partnership, or that has more than 100 partners during the partnership’s taxable year; and (3) any tax-exempt organization with unrelated business income. The FTB may, upon request and under specified circumstances, waive the electronic filing requirements for businesses that are unable to comply with the requirements.

Research credit

For California research credit purposes, S.B. 711 repealed the alternative incremental credit (AIC) for taxable years beginning on or after Jan. 1, 2025. Taxpayers that previously elected the AIC must act to continue receiving research credit for taxable years beginning on or after Jan. 1, 2025. On their timely filed original return for the 2025 taxable year, they must use FTB Form 3523 to elect the regular incremental credit or the new alternative simplified credit (ASC), or they must choose not to claim the research credit. Further, any request to revoke an ASC election will require the FTB’s consent.

PTE elective tax

S.B. 132 extended the PTE elective tax for taxable years beginning on or after Jan. 1, 2026, and before Jan. 1, 2031. Notable differences for taxable years beginning on or after Jan. 1, 2026, are that qualified entities that fail to make the requisite payment by June 15 of the taxable year may still make the PTE elective tax election for that taxable year. However, if an electing entity fails to make the June 15 payment, or pays less than the required amount, the owners’ PTE tax credit is reduced by 12.5% of their pro rata share of the amount due but not paid.

Nonresident aliens

S.B. 1518 indefinitely extended a number of provisions related to nonresident aliens, including provisions allowing nonresident aliens that receive California source income to elect to be included in a group nonresident return instead of filing an individual nonresident return. The FTB won’t require estimated tax payments to be made for electing nonresident aliens included in a California group nonresident tax return.

Apportionment for financial institutions

Apportioning trades or businesses that derive more than 50% of gross business receipts from savings and loan activities, or banking or financial business activities, must use the single-sales factor apportionment formula for taxable years beginning on or after Jan. 1, 2025. S.B. 132 removed language that previously allowed those businesses to apportion their business income using an equally weighted three-factor formula.

Wildfire settlements

S.B. 132 and S.B. 159 expanded tax relief for California taxpayers who receive wildfire settlements, allowing an exclusion from gross income for qualified wildfire settlements, available retroactively for taxable years beginning on or after Jan. 1, 2021, and before Jan. 1, 2030.

Tax News, California Franchise Tax Board, December 2025. 

District of Columbia

Corporate, personal income taxes: District decouples from federal provisions

The District of Columbia has enacted emergency legislation that makes several income tax changes, including:

• Decoupling from federal tax provisions.
• Revising the standard deduction.
• Reviving the child tax credit with cost-of-living adjustments.
• Modifying credits for dependent care and qualified opportunity fund investments.

What provisions of federal law are decoupled from?

Regarding expenses, the district will allow deductions for ordinary and necessary expenses in carrying on any trade or business that are deductible under IRC Section 162(a), except:

• For tax years beginning after Dec. 31, 2021, the deduction allowed for domestic research and experimental expenditures under IRC Section 174A will be charged to the capital account and allowed as an amortization deduction of the expenditures ratably over the five-year period beginning with the midpoint of the taxable year in which such expenditures are paid or incurred.
• No taxpayer is allowed the election to amend a tax return pursuant to IRC Section 174A(f)(1).
• No taxpayer is allowed the election under IRC Section 174A(f)(2).

The interest deduction is amended to state that all interest paid or accrued on indebtedness under IRC Section 163 is deductible, except that:

• When computing the limitation on business interest allowed under IRC Section 163, adjusted taxable income means the adjusted taxable income determined under IRC Section 163(j)(8)(A), but IRC Section 163(j)(8)(A)(v) doesn’t apply.
• “Floorplan financing interest,” defined under IRC Section 163(j)(9), doesn’t apply.
• The deduction for “losses sustained during the tax years and not compensated for by insurance or otherwise” is now “losses sustained during the taxable year and not compensated for by insurance or otherwise,” which are deductible under the provisions of IRC Section 165.

The depreciation deduction is amended to state that no deduction is allowed for the special depreciation allowance under IRC Section 168(n). The district continues to disallow the special depreciation allowance under IRC Section 168(k).

The charitable contribution deduction is clarified to state that no charitable contributions may be carried forward.

Finally, for amounts invested in a Qualified Opportunity Fund (QOF) after Dec. 31, 2026, the reduction of capital gains tax liability through a 10% step-up basis, if invested for five years under IRC Section 1400Z-2(b), is realized only if the taxpayer meets certain criteria. Also, the abatement of capital gains tax on an investment of capital gains held in a QOF for at least 10 years, under IRC Section 1400Z-2(c), is realized only if the taxpayer invests in a QOF that meets certain criteria.

How does the standard deduction change?

For tax years beginning after Dec. 31, 2024, the term standard deduction means the sum of:

• The basic standard deduction.
• The additional standard deduction found in IRC Section 63(c)(3).

For tax years ending Dec. 31, 2025, the basic standard deduction is:

• $15,000 for a single individual or married individual filing a separate return.
• $22,500 for a head of household.
• $30,000 for married individuals filing a joint return, separate on a combined return, or a surviving spouse.

For tax years ending after Dec. 31, 2025, the amounts of the basic standard deduction are increased annually pursuant to the cost-of-living adjustment.

How are deductions changed?

For individuals, estates, and trust deductions, a law section is added to clarify the deductions that are allowed. Among the changes, taxpayers are allowed any deduction allowed under the Internal Revenue Code of 1986, except that a deduction for state or local taxes under IRC Section 164 is allowed without regard to the limitation found in IRC Section 164(b)(6). There’s still no deduction for income taxes or franchise taxes.

The new law also states there is no deduction for:

• S corporation income.
• Qualified business income, allowed under IRC Section 63(b)(3) or IRC Section 199A.
• Qualified tips, allowed under IRC Section 224.
• Qualified overtime compensation, allowed under IRC Section 225.
• Personal car loan interest, allowed under IRC Section 163(h)(4).
• Senior deduction, allowed under IRC Section 151(d)(5)(C).

Finally, the law:

• Amends nonresident filing provisions.
• Makes amendments to withholding provisions.

The act generally applies as of Jan. 1, 2025.

Act 26-0214 (D.C.B. 457), Laws 2025, effective Dec. 3, 2025, for a 90-day period that expires March 3, 2026.

Florida

Corporate income tax: Adoption of 2025 Internal Revenue Code discussed

The Florida corporate income tax “piggybacks” federal income tax determinations and uses adjusted federal income as the starting point for computing Florida net income. Pursuant to legislation enacted this year, the Florida Income Tax Code adopts the Internal Revenue Code (IRC) retroactively to Jan. 1, 2025, meaning Florida follows the computation of federal taxable income. Florida law requires several modifications to federal taxable income, including bonus depreciation, qualified improvement property placed in service on or after Jan. 1, 2018, business meal expenses, and film, television, and live theatrical production expenses.

The legislation that provided for the adoption of the IRC retroactively to Jan. 1, 2025, however, doesn’t address the One, Big, Beautiful Bill (OBBB, Public Law 119-21), which was enacted after the 2025 Florida legislative session ended. The Florida Legislature will have the opportunity to consider OBBB amendments to the IRC, including the federal treatment of bonus depreciation, during its next regular legislative session, which is scheduled to begin in January 2026.

Tax Information Publication, No. 25C01-01, Florida Department of Revenue, December 2025.

Illinois

Multiple taxes: PTE tax, bonus depreciation, film credit changes enacted

Illinois enacted legislation that:

• Eliminates the Jan. 1, 2026, sunset date for the pass-through entity tax that S corporations and partnerships can elect to pay on income earned in the state.
• Extends bonus depreciation addition and subtraction adjustments to corporations, partnerships, estates, trusts, and individuals who claim a federal deduction under either IRC Section 168(k) or 168(n).
• Removes the Jan. 1, 2026, sunset date for the subtraction adjustment estates, and trusts can claim for excess business losses disallowed under IRC Section 461(l)(1)(B).
• Authorizes municipalities and counties that issue sales tax and revenue (STAR) bonds for economic development projects to impose a tax of up to 1% within a STAR project district on sales of tangible personal property and sales of services incident to the transfer of tangible personal property.

The legislation extends corporation and personal income tax credits provided to film, video, or television productions in the state until Jan. 1, 2039. Effective for productions beginning on or after July 1, 2025, the credits equal:

• 35% of Illinois production spending for the use of tangible personal property, the purchase of vendor services, and the employment of state residents.
• 30% of Illinois production spending on salaries for up to 13 nonresident employees other than actors, four nonresident actors in productions costing under $20 million, five nonresident actors in productions costing between $20 million and $40 million, and six nonresident actors in productions costing more than $40 million.
• 15% of Illinois labor expenses for employment of residents who live in geographic areas of high poverty or high unemployment.
• 5% of Illinois labor expenses for employment of state residents on productions filming outside of Cook, DuPage, Kane, Lake, McHenry, and Will counties.
• 5% of Illinois production spending on a television series relocating to the state from another jurisdiction.
• 5% of Illinois spending on productions that meet green sustainability certification requirements set by the Illinois Department of Commerce and Economic Opportunity.

Other film production credit changes include:

• Expanding eligible expenses to cover airfare purchased from an Illinois airline.
• Limiting eligible labor expenses to no more than two executive producers for productions beginning on or after July 1, 2025.
• Requiring production companies, or their payroll service companies, to withhold income tax from compensation paid to companies that loan out employees to the production company, such as artists, crew, actors, producers, and directors.

P.A. 104-453 (S.B. 1911), Laws 2025, effective Dec. 12, 2025, and as noted.

Sales and use tax: 2026 changes to nexus and destination-based sourcing rules discussed

Illinois issued guidance discussing changes effective Jan. 1, 2026, that:

• Remove the 200-transaction nexus threshold for determining if a remote retailer or marketplace facilitator must collect and pay destination-based sales tax.
• Establish a 15% sales tax rate for taxpayers who fail to provide the information, schedules, or supporting documents necessary to determine the destination-based souring location of their sales in the state.

The 15% sales tax rate applies instead of the penalty for late filing or nonfiling of returns, unless the return is otherwise not processable.

Remote retailers and marketplace facilitators who previously met the 200-transaction nexus threshold, but not the $100,000 gross receipts threshold, must review sales for the 12-month lookback period ending on Dec. 31, 2025, to determine if they meet the gross receipts threshold. If the threshold isn’t met, the remote retailer or marketplace facilitator must discontinue collecting and paying Illinois state and local sales tax for remote sales on or after Jan. 1, 2026. Illinois will also automatically change the remote retailer’s or marketplace facilitator’s sales and use tax registration status to voluntary use tax.

Informational Bulletin FY 2026-12, Illinois Department of Revenue, December 2025.

Corporate income tax: Carryforward of unused bonus depreciation not allowed

Illinois issued corporate income tax guidance addressing unused amounts of the state’s bonus depreciation subtraction adjustment. Taxpayers can’t carryforward any unused Illinois bonus depreciation to future tax years, unless it’s reflected, if at all, in the taxpayer’s Illinois net operating loss carryforward deduction.

General Information Letter IT 25-0010-GIL, Illinois Department of Revenue, Sept. 18, 2025, released Dec. 2, 2025.

Louisiana

Corporate income tax: DOR explains S corporation filing after legislative change

The Louisiana Department of Revenue explains S corporation filing requirements, composition returns, and estimated payments after the legislative change treating S corporations as pass-through entities for state income tax purposes.

Beginning in 2026, Louisiana recognizes S corporations as pass-through entities, consistent with federal treatment. Thus, all income, losses, deductions, and credits automatically pass through to shareholders.

Revenue Information Bulletin No. 25-032, Louisiana Department of Revenue, Dec. 17, 2025.

Minnesota

Corporate, personal income taxes: Pass-through entity tax guidance issued

Minnesota issued guidance on the pass-through entity (PTE) tax election available to qualifying entities for tax years beginning after Dec. 31, 2020, and before Jan. 1, 2026. Qualifying entities may elect to pay income tax on behalf of their partners, members, or shareholders. The election must be made by an entity’s extended return due date. The Department of Revenue won’t accept late filed elections, nor will they accept elections made for tax years beginning after Dec. 31, 2025.

However, if an entity filing a fiscal year return has a taxable year that begins before Jan. 1, 2026, the qualifying owner can claim the PTE tax credit on the owner’s income tax return in the owner’s relevant tax year, which could be a 2026 income tax return. The guidance discusses qualifying entities, qualifying owners, PTE taxable income, election procedures, estimated tax payments, and filing requirements.

Pass-Through Entity (PTE) Tax, Minnesota Department of Revenue, November 2025.

New Hampshire

Multiple taxes: Amnesty application steps outlined

New Hampshire has outlined steps that taxpayers must take to apply for the tax amnesty authorized by the New Hampshire Legislature during the 2025 session.

Amnesty runs from Dec. 1, 2025, through Feb. 15, 2026. Taxpayers that file late returns during that period receive amnesty from all penalties and one-half of the interest that accrued since the tax was due.

The following taxes that were due but unpaid on or before June 30, 2025 are eligible: Business Enterprise Tax, Business Profits Tax, Interest & Dividends Tax, Meals & Rooms Tax, Communications Services Tax, Real Estate Transfer Tax, Tobacco Tax, Smokeless Tobacco Tax, Utility Property Tax, Railroad Tax, Private Car Tax, Nursing Facility Quality Assessment and Medicaid Enhancement Tax.

Technical Information Release TIR 2025-006, New Hampshire Department of Revenue Administration, Nov. 21, 2025.

New Jersey

Corporate income tax: Research and development credit guidance updated

New Jersey updated its guidance regarding the corporation business tax research and development (R&D) credit. The revision addresses changes to the timing of deductions for qualifying R&D expenses following the enactment of the One, Big, Beautiful Bill (OBBB). For New Jersey purposes, if there’s a timing difference in deducting New Jersey research expenditures, taxpayers must account for this difference on their CBT return by deducting their New Jersey research expenditures in accordance to the provisions of N.J.S.A. 54:10A-4(k)(11). If taxpayers amend their federal returns pursuant to IRS Rev. Proc. 2025-28, they must also amend their New Jersey CBT returns.

TB-114, New Jersey Division of Taxation, Nov. 25, 2025.

Corporate income tax: Federal terminology changes discussed

New Jersey issued guidance on the “One, Big, Beautiful Bill” affecting corporation business tax terminology. For tax years beginning after Dec. 31, 2025, the federal terms global intangible low-tax income (GILTI) and foreign-derived intangible income (FDII) will be renamed net controlled foreign corporation tested income (NCTI) and foreign-derived deduction eligible income (FDDEI), respectively. These terminology changes don’t alter their treatment under New Jersey corporate business tax, which remains consistent with established guidance and regulations.

Federal Renaming for GILTI and FDII Under the One Big Beautiful Bill Act for Corporation Business Tax, New Jersey Division of Taxation, Dec. 4, 2025.

Tennessee

Corporate income tax: Conformity to federal bonus depreciation explained

Tennessee issued a notice explaining the state’s conformity to federal bonus depreciation in light of changes enacted by P.L. 119-21, commonly referred to as the One, Big, Beautiful Bill (OBBB). Previously, applicable to assets purchased on or after Jan. 1, 2023, Tennessee enacted legislation to couple with the federal bonus depreciation provisions existing under the Tax Cuts and Jobs Act of 2017 (TCJA).

The OBBB set the federal bonus depreciation percentage at 100% for qualified property acquired after Jan. 19, 2025. However, because Tennessee remains coupled with the TCJA bonus depreciation provisions, taxpayers will have to continue applying the applicable percentages set forth in the TCJA bonus depreciation schedule for Tennessee excise tax purposes. Accordingly, taxpayers who take federal bonus depreciation deductions pursuant to the OBBB must make appropriate adjustments on Schedule J of their excise tax returns.

The OBBB also allows bonus depreciation to be taken for the newly designated category of qualified production property. Taxpayers can’t take any bonus depreciation deductions with respect to qualified production property for Tennessee excise tax purposes. Instead, taxpayers must depreciate that property for excise tax purposes under the federal MACRS depreciation provisions applicable to nonresidential real property, and the taxpayer must make appropriate bonus depreciation addback and deduction adjustments on Schedule J of the excise tax return accordingly.

Notice 25-36, Tennessee Department of Revenue, December 2025.

Texas

Corporate income tax: Bonus depreciation policy change

The Texas Comptroller announced that, for purposes of calculating depreciation for Texas franchise tax purposes, taxpayers should apply the current version of the IRC rather than the 2007 IRC. Previously, based on a statutory provision defining the IRC for Texas franchise tax purposes as the 2007 code, the Texas Comptroller required taxpayers to calculate depreciation under the 2007 code.

The press release announcing the change noted that after a “fresh legal review,” the comptroller’s office determined that “the depreciation provision in Texas law is not tied to 2007.” As a result, beginning with the 2026 franchise tax report, taxpayers may elect to deduct the full cost of qualifying fixed assets in the year of purchase.

News Release, Texas Comptroller of Public Accounts, Dec. 1, 2025.

Wisconsin

Corporate income tax: Questions remain regarding possible arm’s-length relationship

The taxpayer appealed a Wisconsin Department of Revenue finding that funds transferred from the sole shareholders to a business were nondeductible returns of capital contributions. The taxpayer argued that the funds transferred were loans and that it properly deducted interest payments made to shareholders, who were subsequently taxed on the income earned from those payments. The parties filed cross-motions for summary judgment.

The commission reviewed the facts in the record as they relate to eight factors considered when determining if a bona fide creditor debtor relationship exists. The commission found insufficient evidence to support either the taxpayer’s claim that the financial distributions at issue were conducted “using terms reflecting an arm’s-length relationship,” or to support the department’s claim that the financial distributions weren’t so conducted. Both motions for summary judgment were denied.

Mohns, Inc. v. Wisconsin Department of Revenue, Wisconsin Tax Appeals Commission, No. 24-I-008, Nov. 26, 2025.

Corporate income tax: Income from computer software sales properly sourced to state

A taxpayer, a software developer based outside of Wisconsin, contested the sourcing of certain income as calculated by the department in assessing Wisconsin state tax on income derived from the sale of software by a Wisconsin based company whose software sales to end-users included a sublicense for use of the software developed by the out-of-state company.

Following the 2019 court of appeals decision in Wisconsin Department of Revenue v. Microsoft Corp., the commission held that the taxpayer had no contract with the end-user of computer software, and so the state statute wasn’t applicable to the transactions at issue. The commission further held that the income from the disputed sales was properly sourced to Wisconsin, and that application of state law to assess income tax due from taxpayer in this matter didn’t violate the Commerce Clause of the U.S. Constitution.

Intersystems Corp. v. Wisconsin Department of Revenue, Wisconsin Tax Appeals Commission, No. 20-W174, Nov. 20, 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.

©2025 CCH Incorporated and its affiliates. All rights reserved.