The states covered in this issue of our monthly tax advisor include:
Colorado
Multiple taxes: Rule establishes procedures for withholding tax on transfers of real property
Colorado adopted a new rule to set forth procedures and due dates for withholding, reporting, and remitting income tax withheld on transfers of Colorado real property by nonresidents. Withholding agents must report and remit withheld tax or submit affirmations that no withholding was required within 30 days of closing, with penalties for late submissions.
Rule 39-22-604.5, Colorado Department of Revenue, effective March 2, 2026.
Idaho
Corporate, personal income taxes: IRC conformity date updated
Enacted legislation updates Idaho’s Internal Revenue Code (IRC) conformity date for corporate and personal income tax purposes to Jan. 1, 2026, except that IRC Section 85 will continue to apply as in effect on Jan. 1, 2020.
The legislation fully conforms Idaho to the tax changes in the One, Big, Beautiful Bill Act (OBBB) with two exceptions:
- Continues to not conform to bonus depreciation under IRC Section 168(k) and doesn’t conform to the new special allowance for qualified production property under IRC Section 168(n).
- Specified research or experimental expenditures (R&E), as defined in IRC Section 174 as in effect on Dec. 31, 2024, incurred in taxable years 2022 through 2024, must continue to be expensed under the IRC provisions as in effect immediately before the enactment of OBBB, rather than under the provisions of OBBB. Any R&E expenditures from 2025 and forward will conform to OBBB.
In addition, the legislation ensures that businesses can’t use the same R&E expenses for both a deduction and a related Idaho tax credit.
Ch. 1 (H.B. 559), Laws 2026, effective retroactively to Jan. 1, 2025; Statement of Purpose/Fiscal Note, Idaho Legislature, Jan. 29, 2026.
Illinois
Sales and use tax: Rules amended on leases, remote sales to Illinois customers
Illinois adopted amendments to regulations that implement law changes imposing sales tax on most leases of tangible personal property beginning Jan. 1, 2025. The regulations address:
- The test for determining if a transaction is a taxable retail lease or a transfer by lease of tangible personal property incident to a sale of services.
- The exclusion for lease or rental receipts from titled or registered property, including motor vehicles, watercraft, aircraft, and semitrailers.
- Exemptions for computer software that qualifies as an exempt license or software as a service.
- Resale exemptions for property purchased for leasing or rental, including farm or manufacturing machinery and equipment.
- Registration, return filing, and recordkeeping requirements.
- The treatment of transportation and delivery charges, equipment leased to construction contractors, repair or replacement parts, and medial appliances leased to patients or individuals.
- The rolling stock exemption for leased transportation equipment.
- The determination of the selling price for motor vehicles sold for the purposes of leasing.
- The sale of property coming off a lease.
The amended regulations also reflect law changes beginning Jan. 1, 2025, that impose sales tax on retailers maintaining a place of business for sales they make from a location outside Illinois and ship or deliver to purchasers in the state.
86 Ill. Adm. Code Secs. 130.101 to 130.ILLUSTRATION E, Illinois Department of Revenue, Jan. 8, 2026.
Sales and use tax: Claim for double taxation of existing leases denied
Illinois issued a general information letter denying a taxpayer’s claim that the taxation of gross receipts from existing leases beginning on or after Jan. 1, 2025, results in double taxation because the tax doesn’t provide a credit for taxes paid on property purchased for leasing before the effective date of the tax.
Effective before Jan. 1, 2025, Illinois imposed no sales tax on rental receipts from true leases that didn’t have a buyout provision at the close of the lease. The state considered the lessors to be the end users of the property purchased for leasing purposes. As end users of tangible personal property located in Illinois, lessors owed use tax on their cost price of the property at the time they purchased it. Lessees incurred no tax liability. Lessors weren’t allowed to pass through their use tax obligation to lessees as taxes. However, it was typical of true leases to contain contractual provisions stating that the lessees would reimburse the lessors for their tax costs. This wasn’t a matter of Illinois tax law but private agreement between lessors and lessees. If the lessees agreed to those provisions, they were and remain bound to satisfy that duty because of a contractual agreement, not because of Illinois tax law.
The fact that a lessor of tangible personal property was subject to use tax on its purchase of that property, before Jan. 1, 2025, doesn’t exempt or exclude the lessor from sales tax on lease receipts received on or after Jan. 1, 2025. The incidence of tax before Jan. 1, 2025, was on a different transaction than the incidence of tax beginning Jan. 1, 2025.
General Information Letter ST 26-0003-GIL, Illinois Department of Revenue, Jan. 22, 2026.
Corporate income tax: NOLs from converting pass-through entities not permitted
Illinois issued a general information letter on the treatment of a limited liability company’s unused net loss deduction carryovers after it elected to convert to an S corporation. Illinois law doesn’t permit net loss carryovers when a partnership converts to an S corporation. Carryovers of net loss deductions and credits may be claimed only by the entity that incurred the loss, with only certain narrow exceptions provided by statute. The transition from partnership to S corporation involves liquidation of the partnership. The surviving S corporation and the former partnership are distinct taxable entities. Since the surviving entity is a new entity for tax purposes, the loss will not carryover.
General Information Letter IT 25-0013-GIL, Illinois Department of Revenue, Dec. 11, 2025, released Jan. 21, 2026.
Indiana
Corporate, personal income taxes: Limited IRC conformity enacted
The definition of “Internal Revenue Code” (IRC) is amended to conform with certain provisions enacted on July 4, 2025, in what’s commonly known as the “One, Big, Beautiful Bill Act” (OBBB, H.R. 1, P.L. 119-21). As a result, “Internal Revenue Code” is defined as the IRC as amended and in effect on July 4, 2025, for three specific provisions. This legislation updates Indiana’s IRC conformity date to July 4, 2025, for the following OBBB provisions:
- IRC Section 23, Adoption Tax Credit.
- IRC Section 168(e)(3)(B)(vi), Accelerated Cost Recovery System.
- IRC Section 223(c)(2)(E), Safe Harbor for Absence of Deductible for Telehealth.
Otherwise, Indiana conforms with the IRC in effect as of Jan. 1, 2023. These changes impact individuals, pass-through entities, and corporations.
Adoption tax credit
As amended by OBBB, beginning tax year 2025, up to $5,000 of the federal adoption credit may be refundable. Any nonrefundable portion of the credit that exceeds a taxpayer’s liability can still be carried forward for up to five subsequent tax years. Among other changes, the federal law provides that Indian tribal governments can determine whether a child has special needs for purposes of the adoption credit.
Accelerated cost recovery system
OBBB terminates the special five-year cost recovery period for investments in certain solar and wind property for which construction begins after Dec. 31, 2024.
Safe harbor for absence of deductible for telehealth
OBBB extended and made permanent a provision that allows a health plan to be treated as a high-deductible health plan without requiring a deductible for telehealth services. This legislation updates IRC references to provide the same benefit to Indiana state income tax filers.
P.L. 1, (S.B. 212), Laws 2026, effective Jan. 29, 2026; Fiscal Impact Statement, Legislative Services Agency, Office of Fiscal and Management Analysis, Feb. 4, 2026.
Multiple taxes: Department announces amnesty program coming in July 2026
The Indiana Department of Revenue is preparing for its tax amnesty program that will take place between July 15, 2026, and Sept. 15, 2026. The department reports that legislation to finalize eligibility guidelines is currently pending (S.B. 243). The department will continue to share more information on this upcoming program as it becomes available.
2025 legislation that requires department to establish an amnesty program
Legislation enacted in 2025 and made effective July 1, 2025 (P.L. 213, (H.B. 1001), Laws 2025), requires the Indiana Department of Revenue to establish an amnesty program for taxpayers having an unpaid tax liability for a listed tax that was due and payable for a tax period ending before Jan. 1, 2023. Listed taxes are those that the department is required to collect or administer. A taxpayer can enter into a written payment program agreement with the department for the full payment of the unpaid listed taxes in the manner and time period established in the agreement. The time in which a voluntary payment of tax liability may be made under the amnesty program is limited to the period determined by the department, not to exceed eight regular business weeks ending before the earlier of the date set by the department or Jan. 1, 2027.
The amnesty program must provide that, among other requirements, upon payment by a taxpayer to the department of all listed taxes due from the taxpayer for a tax period, or payment as provided under the agreement, the department will:
- Abate and not seek to collect any interest, penalties, collection fees, or costs that would otherwise be applicable.
- Release any liens imposed.
- Not seek civil or criminal prosecution against any individual or entity.
- Not issue, or, if issued, will withdraw, an assessment, demand notice, or a warrant for payment against any individual or entity, for the listed taxes due from the taxpayer.
Pending legislation S.B. 243
S.B. 243, currently pending in the Indiana legislature, amends and adds state income tax statutes to conform with certain provisions enacted in P.L. 119-21 (H.R. 1, commonly known as the “One, Big, Beautiful Bill Act of 2025”), and it also amends provisions in the tax amnesty program. The last action on S.B. 243 was on Feb. 17, 2026, when the Committee on Ways and Means voted favorably to report the amended bill (“amend do pass, adopted”), allowing it to move forward in the legislative process.
Tax Bulletin, Indiana Department of Revenue, Feb. 4, 2026; Pending Legislation S.B. 243, Committee report, amend do pass, adopted, Feb. 17, 2026.
Maryland
Corporate, personal income taxes: Maryland decouples from OBBB provisions
Maryland has decoupled from the following provisions of the federal One, Big, Beautiful Bill Act (PL 119-21):
- Full expensing of domestic research or experimental expenditures under IRC Section 174A(a), applicable to tax years beginning in 2025, and from IRC Section 174A, Note (f), for any tax year before 2025.
- The increased allowable business deduction under IRC Section 163(j)(8)(A)(v), applicable to tax years beginning in 2025.
- The new depreciation allowance for qualified production property that permits the immediate full expensing of certain manufacturing, production, or refining facilities under IRC Section 168(n), applicable to tax years beginning in 2025.
Maryland generally conforms to federal income tax laws unless the General Assembly has enacted decoupling legislation or automatic decoupling occurs. Maryland automatically decouples when (1) an IRC amendment affects the determination of federal adjusted gross income or taxable income for the year the amendment is enacted or any preceding year; and (2) the amendment impacts revenue by $5 million or more for the fiscal year that begins during the calendar year in which the amendment is enacted or any preceding fiscal year. The Maryland Bureau of Revenue Estimates has determined that the above amendments made by OBBB would have an impact of greater than $5 million in each affected year.
Tax Alert, Maryland Comptroller, Jan. 6, 2026.
Michigan
Corporate income tax: Penalty and interest relief provided for underpayment of estimated corporate income taxes
The Michigan Department of Treasury is providing limited relief from penalty and interest related to the underpayment of quarterly estimated corporate income tax payments in light of the enactment of the One, Big, Beautiful Bill Act (OBBB) and Michigan’s subsequent decoupling reflected in PA 24. For the 2025 annual return, relief applies only to quarterly estimated payments due in July 2025 through January 2026. For calendar year filers, relief applies to the second, third, and fourth quarter payments, due July 15, 2025, Oct. 15, 2025, and Jan. 15, 2026.
For fiscal year filers, relief applies to any quarterly estimates due within this relief period.
In order to request relief, a taxpayer must send a written request following the directions in the “Notice of Additional Tax Due” or “Notice of Refund Adjustment.” The request must refer to that notice and the amount of the tax base adjustment reported on Form 4891, line 13.
The penalty and interest relief applies only to the corporate income tax and not to the premiums or franchise tax. Furthermore, the relief doesn’t apply to quarterly underpayments of other taxpayers whose estimates may have been impacted by PA 24, such as those reporting business income from flow-through entities or flow-through entities filing the Michigan Flow-Through Entity Tax.
Relief For 2025 Corporate Income Tax (CIT) Estimated Payments in Light of Public Law 119-21 and Decoupling Under Michigan PA 24, Michigan Department of Treasury, Jan. 28, 2026.
Insurance tax: Unitary business group of insurers must file on a unitary basis
The Michigan Department of Treasury has provided guidance on the Michigan Supreme Court’s refusal to review the Court of Appeals’ decision in Nationwide Agribusiness Ins. Co. v. Department of Treasury. That court held that the definition “of taxpayer” includes a group of companies qualifying as a unitary business group (UBG), and therefore, the UBG is the taxpayer and is required to file a unitary tax return. Since the department’s appeal was denied, the Court of Appeals’ decision stands. Where a UBG of insurers exists, it must file a unitary return and determine both premiums tax and retaliatory tax at the UBG level.
For tax year 2025, the department encourages insurers that may be impacted by the decision to file an application for an extension.
Notice to Taxpayers Regarding Nationwide Agribusiness Insurance Co v. Department of Treasury, Michigan Department of Treasury, Feb. 19, 2026.
Corporate income tax: Wholesale electricity sales properly sourced to Michigan
A generator of electricity wasn’t eligible for a refund of Michigan corporate income tax because its sales were properly sourced to Michigan. For electricity sales, the contractual point of delivery is used to source a sale. The taxpayer sold electricity at wholesale to Midcontinent Independent System Operator (MISO), a regional transmission organization. The service agreements specified that the point of receipt for delivery of the electricity took place at substations in Michigan. The taxpayer’s transactions to MISO constituted sales, as it received consideration and title to the electricity was transferred to MISO. The relevant statute doesn’t require that the purchaser consume the product in order for a sale to occur.
Though the taxpayer claimed that sourcing sales to Michigan constituted a violation of the Commerce Clause, if every state sourced wholesale electricity sales on the basis of contractual point of delivery, the taxpayer wouldn’t be double-taxed. Michigan’s apportionment formula also reflects a reasonable sense of how income is generated.
CMS Energy Corp. v. Department of Treasury, Michigan Court of Appeals, No. 374696, Feb. 17, 2026.
Minnesota
Corporate income tax: Guidance issued on calculation of taxable income for foreign corporations
Minnesota issued guidance on the calculation of Minnesota taxable income for foreign corporations. For foreign corporations that file federal Form 1120-F, U.S. Income Tax Return of a Foreign Corporation, there are instances where the amount on line 1a (federal taxable income before net operating loss deduction and special deductions) on Minnesota Form M4I, Income Calculation, might not equal the amount on the corresponding line on Form 1120-F. The guidance notes two common examples of when this occurs.
No effectively connected income
In one example, a foreign corporation may not have any effectively connected income to report on federal Form 1120-F. It also may not have a physical presence in the United States but may make sales in Minnesota that produce income for tax purposes. In this situation, it must enter its federal taxable income on line 1a of Minnesota Form M4I without consideration of whether it has effectively connected income. It must also complete Schedule REC, Reconciliation, to explain the difference between line 1a on Minnesota Form M4I and the corresponding line on Form 1120-F, and attach Schedule REC to its Form M4I.
Foreign tax treaty
In another example, a foreign corporation may be exempt from federal income tax because of a foreign tax treaty that doesn’t apply to Minnesota income taxation. In this situation, the corporation must file a pro forma federal form to calculate Minnesota taxable income.
Revenue Notice No. 26-01, Minnesota Department of Revenue, Feb. 2, 2026.
Corporate, personal income taxes: Nonconformity to OBBB may necessitate state return adjustments
The Minnesota Department of Revenue reminds taxpayers that the definitions used in determining Minnesota taxable income are based on the Internal Revenue Code as amended through May 1, 2023. Thus, Minnesota hasn’t adopted the federal changes enacted by the 2025 federal tax budget and reconciliation bill (H.R. 1) (also known as the One, Big, Beautiful Bill Act or OBBB). Because Minnesota hasn’t adopted the changes made by H.R. 1, taxpayers may need to make adjustments to income on their Minnesota income tax returns. H.R. 1 may impact federal and Minnesota returns for tax years 2022 and forward. The department has updated forms and instructions to help taxpayers calculate nonconformity adjustments. The department has also released a nonconformity chart to help taxpayers determine if they need to make adjustments.
How should taxpayers report nonconformity for 2024 and 2025?
The department provides the following schedules to calculate nonconformity adjustments for tax years 2024 and 2025:
- M4NC for C corporations.
- M2NC, M2SBNC, or KFNC for estates or trusts.
- M1NC for individuals.
- KPINC, KPCNC, or M3 series instructions for partnerships.
- KSNC or M8 instructions for S corporations.
For taxpayers who amended a 2024 or 2025 federal return solely due to H.R. 1, their Minnesota nonconformity adjustment will offset the changes to their federal taxable income. When filing a Minnesota amended return due to H.R. 1, they should write “H.R. 1” in red at the top of the amended return and any amended schedules KF, KPI, KPC, or KS issued to beneficiaries, partners, or shareholders.
How should taxpayers report nonconformity for 2022 and 2023?
Taxpayers who amended a 2022 or 2023 federal return solely due to H.R. 1 and whose Minnesota tax remains unchanged due to nonconformity to the federal changes should send a letter to the department including the following information:
- The date the federal return was amended.
- Taxpayer name.
- For businesses: federal Employer Identification Number and Minnesota Tax ID number.
- For individuals: Social Security Number.
- Impacted tax years and reason for the amendment.
- Specific section of H.R. 1 that impacted the federal return.
- Clear explanation of why the federal adjustment doesn’t change the Minnesota tax.
Return, Minnesota Department of Revenue, Feb. 5, 2026.
New York City
Miscellaneous tax: Partnership couldn’t include factors of certain subsidiaries in determining UBT liability
In a New York City unincorporated business tax (UBT) case involving a partnership engaged in business as a broker-dealer, an administrative law judge found that the partnership couldn’t include tax items and allocation factors of subsidiaries that didn’t conduct any unincorporated business in the city.
The Department of Finance had disallowed the inclusion of the partnership’s shares of the noncity subsidiaries’ income and gain in calculating UBT gross income for the tax years in dispute. The department also disallowed the inclusion of the noncity subsidiaries’ property, payroll, and gross income in calculating the partnership’s business allocation percentage. The adjustments removed the noncity subsidiaries from the partnership’s UBT calculation and reporting, which increased the amount of the partnership’s unincorporated business income allocated to the city.
The partnership argued that it should be able to use the aggregate method and that the department’s partnership allocation rule was invalid, but those arguments were rejected. Neither the law nor the rule allowed attribution of allocation factors of an unincorporated entity that didn’t conduct an unincorporated business wholly or partly in the city. Even if the partnership had received approval to use the aggregate method, it still couldn’t have included the noncity subsidiaries, as long as they didn’t conduct any unincorporated business during the disputed tax years.
Cantor Fitzgerald Securities, New York City Department of Finance, TAT(H)19-16(UB), Dec. 16, 2025.
North Carolina
Multiple taxes: FAQs issued on the impact of federal law on individual and corporate income tax returns for tax year 2025
Frequently asked questions (FAQs) are issued regarding the impact of federal law (the Federal Disaster Tax Relief Act of 2023, the One, Big, Beautiful Bill Act (OBBB), and the Disaster Related Extension of Deadlines Act) on North Carolina individual and corporate income tax returns for tax year 2025.
The starting point for determining North Carolina income tax for individuals and corporations is adjusted gross income (AGI) and federal taxable income (FTI), respectively, as determined under the Code as of Jan. 1, 2023. The General Assembly hasn’t enacted legislation to reference the Code after Jan. 1, 2023. As a result, an individual can’t include in AGI, and a corporation can’t include in FTI, the federal tax changes included in the federal legislation.
If a taxpayer is required to file a North Carolina income tax return and taxpayer’s federal AGI (for individuals) or FTI (for corporations) is affected by a provision in the federal legislation, the taxpayer must compute AGI or FTI using the Code as of Jan. 1, 2023.
Questions and Answers About the Impact of Federal Law on North Carolina Individual and Corporate Income Tax Returns for Tax Year 2025, North Carolina Department of Revenue, February 2026.
Washington
Sales and use tax: Guidance provided on service and other activities tax rates
The Washington Department of Revenue has reminded taxpayers that as of October 2025, there are three tax rates under the business and occupation (B&O) tax service and other activities classification. For businesses with service and other activities income of less than $1 million in the prior year, the rate is 1.5%. For those with income exceeding $1 million, the rate is 1.75%, and for those with income of $5 million or more in the prior year, the rate is 2.1%.
Workforce Education, Washington Department of Revenue, Jan. 28, 2026.
West Virginia
Corporate income tax: Guidance on allocation of nonbusiness income updated
West Virginia updated guidance on the allocation of nonbusiness income received by corporation net income taxpayers from sources in the state. Nonbusiness income subject to allocation includes rents and royalties from real and tangible personal property, capital gains or losses, interest and dividends, and patent or copyright royalties. Any income, gain, loss, deduction, or credit distributed to a corporate partner is apportionable to West Virginia as business income.
TSD 392, West Virginia Tax Division, January 2026.
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