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State and local tax advisor: March 2026

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

March 26, 2026 / 31 min read

Have you heard about the latest changes in state and local taxes? Check out our March 2026 roundup here.

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

Colorado

Corporate income tax: Proceeds from real estate sale excluded from apportionment factor calculation

Gross receipts from the sale of Colorado real estate by a partnership were excluded from the numerator and denominator of the partnership’s apportionment factor for income tax purposes. This exclusion applied because the transaction wasn’t conducted in the regular course of the partnership’s trade or business activities, which primarily consisted of operating assisted living facilities. Because the gross receipts from the partnership’s sale of Colorado real estate weren’t included in the partnership’s apportionment factor, it also followed that no share of those gross receipts were included in the calculation of the apportionment factor of the company that owned the controlling interest in the partnership.

Letter Ruling No. PLR 26-002, Colorado Department of Revenue, Feb. 17, 2026.

Sales and use tax: Mandatory electronic filing implemented for retail sales tax returns

Colorado has adopted a new rule requiring electronic filing of retail sales tax returns. Retailers or qualified purchasers must electronically file retail sales tax returns as follows:

When a retailer or qualified purchaser meets the threshold to require electronic filing of the retail sales tax return, all future returns must be filed electronically regardless of whether the retailer’s annual gross sales or qualified purchaser’s annual gross purchases fall below the threshold in a subsequent calendar year.

Rule 39-21-119.5-2, Colorado Department of Revenue Taxation Division, effective April 14, 2026.

District of Columbia

Corporate, personal income taxes: Nullification resolution signed

The president signed a resolution to nullify district legislation, enacted at the end of December, that decoupled the district from certain federal tax provisions. If in effect, the nullification would reinstate district provisions that were in place before the enactment of the legislation. The provisions impacted include, among other things, the standard tax deduction, taxation of tipped wages, and depreciation of qualified property.

P.L. 119-78 (H.J. Res. 142), Laws 2026, Feb. 18, 2026.

Illinois

Corporate income tax: 80/20 exclusion denied due to affiliate’s lack of economic substance

An Illinois appellate court affirmed the denial of a combined unitary reporting group’s multimillion dollar refund claim and request for abatement of late-payment penalties because the group excluded a subsidiary from its return for the tax years in question that didn’t qualify under the state’s 80/20 company exclusion rule. The 80/20 rule allows combined reporting groups to exclude the income of a member that has 80% or more of its property or payroll outside the United States. The question of the subsidiary’s status as an 80/20 company involved a single-member limited liability company (LLC) set up to manage payroll and other employment matters for parent and affiliated company employees who worked outside the United States on temporary assignments. The excluded subsidiary was the LLC’s sole member.

The court upheld the trial court’s conclusion that the LLC was a shell company that lacked economic substance. The evidence clearly showed that the only reason for forming the LLC with the subsidiary as its sole member was to reduce income tax liability in Illinois and other states. The LLC owned no property and had no bank account. It employed no managers or human resources personnel. Rather, foreign host companies supervised employees working outside the United States and reimbursed the LLC for all expenses associated with their compensation and benefits. The LLC’s officers were all employees of companies affiliated with the parent company. There were no regular officer meetings, and the officers weren’t compensated for their services. This evidence also demonstrated that under a common-law employment analysis the LLC wasn’t the true employer of employees on temporary assignment outside the United States. Finally, the finding that the combined group failed to show reasonable cause for abating penalties wasn’t against the manifest weight of the evidence. The parent company was a “sophisticated taxpayer” that should have foreseen the problems with creating the LLC, but failing to ensure it had economic substance.

PepsiCo, Inc. v. Illinois Department of Revenue, Appellate Court of Illinois, Fourth District, No. 4-25-0121, Feb. 25, 2026.

Indiana

Multiple taxes: IRC conformity update enacted; other provisions amended

Legislation is enacted that updates the Indiana IRC conformity date from Jan. 1, 2023, to Jan. 1, 2026. In addition, other provisions are amended and added.

Internal Revenue Code update

The bill amends and adds state income tax statutes to conform with certain provisions enacted in Public Law 119-21 (H.R. 1, commonly known as the “One, Big, Beautiful Bill” (OBBB), which was enacted on July 4, 2025).

Retroactively effective Jan. 1, 2026, the reference to “Internal Revenue Code” (IRC) is updated for income tax provisions within the Indiana Code from Jan. 1, 2023, to Jan. 1, 2026. This updates the IRC reference to include OBBB.

In addition, an addback of depreciation allowance is required for qualified production property to federal adjusted gross income in determining taxable state adjusted gross income.

The changes impact individuals, pass-through entities, and corporations. Major provisions impacted by the IRC update result in the following:

Tips, overtime, car loan interest deduction

In addition, OBBB provides federal income tax deductions for: (1) qualified tips; (2) overtime; and (3) auto loan interest. For tax year 2026, a deduction from state adjusted gross income is provided equal to the amount deducted for federal tax purposes. Calculations and certain factors to be considered in determining the amount of the deduction are provided. These provisions are retroactively effective Jan. 1, 2026, and applicable to the taxable year beginning after Dec. 31, 2025, and ending before Jan. 1, 2027.

Penny phaseout

As a result of the federal phaseout of the penny and the resulting penny shortage, amounts are required to be rounded down to the nearest $0.05 for cash transactions. Rounding must be done on the total price, including tax, and retailers can choose to either round up or down to the next nickel. Any gain or loss from the rounding is added to or removed from the retailer’s income. Taxes must be paid in full to the state. This provision is effective Jan. 1, 2027.

Electronic notices

Effective March 5, 2026, the Indiana Department of Revenue is authorized to mail documents electronically through its online tax system. Taxpayers are allowed to request to receive all documents from the department through the department’s online tax system.

Sales tax enforcement

Retroactively effective July 1, 2023, certain sales tax enforcement provisions regarding motor vehicles, cargo trailers, aircraft, and watercraft are added. Guidelines and investigative powers are provided to the department to enforce sales and use tax laws in cases where a taxpayer has evaded paying taxes by purchasing a motor vehicle as a business entity registered in another state that provides an exemption while using the vehicle in Indiana.

Adoption credit

Retroactively effective Jan. 1, 2022, the adoption credit is reduced for part-year Indiana residents based on the proportion of the year that they were residents of Indiana.

Tax amnesty

Effective March 5, 2026, the tax amnesty program is amended to include tax liabilities incurred in 2023 (formerly, the amnesty program included only taxes due before Jan. 1, 2023).

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. This provision is amended to provide an amnesty program for taxpayers with an unpaid tax liability for a tax period ending before Jan. 1, 2024.

The Indiana Department of Revenue has indicated it is preparing for its tax amnesty program that will take place between July 15, 2026, and Sept. 15, 2026.

Estimated tax penalty

Effective July 1, 2026, the penalty provision for estimated payments related to various income taxes is based on a rate of 10% of:

Withholding of gambling winnings

Retroactively effective Jan. 1, 2026, Indiana requires gambling winning-related withholding to occur at winnings valued at $2,000 or more (formerly, $1,200 or more), adjusted for inflation in future years.

Indiana 529

Retroactively effective Jan. 1, 2026, for purposes of Indiana 529 tax credits, certain transfers in a qualified ABLE rollover contribution are excluded from the definition of a “contribution” to an Indiana ABLE 529A savings account.

S.B. 243, Laws 2026, effective and applicable as noted; Fiscal Impact Statement, Legislative Services Agency, Office of Fiscal and Management Analysis, Feb. 27, 2026; Penny-Rounding for Retailers, Indiana Department of Revenue, March 6, 2026.

Massachusetts

Corporate income tax, practice and procedure: Deduction for subcontractor expenses claimed on amended return denied

The Appellate Tax Board of Massachusetts denied the appellant’s appeal for a deduction in subcontractor expenses claimed on its second amended corporate excise tax return for the tax year at issue, citing insufficient substantiation. The board held that the appellant failed to provide reliable evidence to support the claimed deduction, including necessary source documentation or credible testimony regarding cash payments to workers. The undated and untitled list of cash wages presented lacked credibility due to inconsistencies in compilation and discrepancies regarding employee records. Additionally, the appellant didn’t provide contemporaneous records, such as timesheets or invoices, to establish the validity of the deduction. The board concluded that the appellant failed to meet the burden of proof required for the deduction under Massachusetts law and relevant provisions of the IRC.

Southern Mass Staffing Services, Inc. v. Commissioner of Revenue, Appellate Tax Board (Massachusetts), No. C341659, Jan. 16, 2026.

Michigan

Corporate, personal income taxes: Guidance provided on decoupling from IRC provisions

The Michigan Department of Treasury has provided guidance on the decoupling from several Internal Revenue Code (IRC) provisions enacted by the federal One, Big, Beautiful Bill Act (OBBB). Public Act 24 of 2025 requires certain taxpayers to adjust income reported under the individual income tax, corporate income tax, or the elective flow-through entity tax starting with the 2025 tax year.

Business interest expense limitation (IRC 163(j))

PA 24 requires federal taxable income (FTI) and adjusted gross income (AGI) to be calculated for Michigan purposes as if Section 163(j) applied as in effect on Dec. 31, 2024. Therefore, taxpayers must recalculate their business interest expenses limitation without adding depreciation and amortization to adjusted taxable income (ATI) and without including floor plan financing interest on trailers or campers.

Additional first-year depreciation deduction (IRC 168(k))

For individual income tax and flow-through entity tax, PA 24 requires taxpayer to use the version of IRC 168(k) in effect as of Dec. 31, 2024. Taxpayers must compute bonus depreciation based on the phaseout amounts prior to OBBB (a 40% accelerated deduction for tax year 2025). Taxpayers will report an addition on the Michigan return equal to the difference between (1) the depreciation deduction allowed under OBBB, and (2) the depreciation deduction allowed under pre-OBBB IRC 168(k). In subsequent years, taxpayers will annually deduct the depreciation that would have been allowed on the property under pre-OBBB law.

Qualified production property (IRC 168(n))

PA 24 requires FTI and AGI to be calculated as if IRC 168(n) wasn’t in effect. Taxpayers that take an IRC 168(n) deduction on the federal return must recalculate FTI or AGI for Michigan purposes using the amount of the depreciation deduction that would be available if IRC 168(n) weren’t in effect.

Research and experimental expenses (IRC 174, 174A, and Section 70302 transition rules)

PA 24 decouples from changes made to IRC 174 and 174A. Taxpayers must compute FTI and AGI as if domestic research and experimental activities are required to be amortized over a five-year period. For tax years beginning after 2021, PA 24 also decouples from Section 70302 transition rules. Small business taxpayers can’t apply the deduction provisions retroactively to tax years beginning after Dec. 31, 2021, either on an original or amended Michigan return. Taxpayers must report a Michigan addition for the difference between the amount deducted federally and the amount that would have been deducted had the five-year amortization period been in effect. The difference will be subtracted ratably over the succeeding four tax years.

Section 179 deduction

PA 24 requires FTI and AGI to be calculated as if IRC 179 applied as in effect on Dec. 31, 2024. Therefore, taxpayers must compute the maximum deduction and phaseout by using pre-OBBB limits ($1.25 million and $3.13 million, respectively). Taxpayers taking a Section 179 deduction on the federal return may need to adjust their Michigan return for the year qualified property was placed in service, track a state-specific carryover of unused deduction, make annual depreciation adjustments, make a gain/loss adjustment in the year of sale or disposition, and make recapture adjustments.

Flow-through entities reporting

A flow-through entity must report to its members specific information about that member’s share of any decoupling adjustments.

Decoupling Michigan's Income Taxes from Certain Internal Revenue Code (IRC) Provisions, Michigan Department of Treasury, Feb. 25, 2026.

Sales and use tax: Audit upheld as taxpayer failed to itemize labor charges

A taxpayer that operated automotive maintenance facilities could not overturn a summary judgment ruling in favor of the department because it failed to itemize labor charges in its financial documents in order to qualify for a Michigan sales tax exemption. Pursuant to statute, in order to avoid sales tax on its labor sales, the taxpayer was required to itemize labor or service charges related to maintenance and repair work on tangible personal property. Though the taxpayer claimed that an administrative rule only required itemization of sales of tangible personal property to avoid tax on labor charges, an agency's interpretation of a statute can’t conflict with the Legislature. Therefore, the statute controls, and the taxpayer was required to itemize labor charges in its financial records.

Furthermore, the department was justified in conducting an indirect audit procedure, as the invoices submitted did not itemize labor sales and revealed problems with accuracy and completeness. The taxpayer also did not present any support that the Court of Claims failed to properly consider the documentary evidence.

Sav-Time Inc. v. Department of Treasury, Michigan Court of Appeals, No. 370459, March 10, 2026.

New Mexico

Multiple taxes: Business tax legislation

New Mexico has enacted legislation making several changes to its state income and gross receipts tax laws affecting businesses. These changes include:

(S.B. 151), Laws 2026, effective Jan. 1, 2027.

Ohio

Personal income tax: IRC conformity updated

Ohio has updated its income tax Internal Revenue Code (IRC) conformity to incorporate changes to the IRC taking effect after March 7, 2025.

What is the IRC conformity date?

The updated conformity date is March 5, 2026. The incorporated changes include those made by the One, Big, Beautiful Bill.

Further, taxpayers with tax years ending after March 7, 2025, and before March 5, 2026, can irrevocably elect to apply the IRC in effect to their taxable year.

S.B. 9, Laws 2026, effective March 5, 2026; Governor DeWine Signs Bill Into Law, March 5, 2026.

Texas

Corporate income tax: Major amendments made to total revenue rule

The Texas Comptroller has adopted significant amendments to the Texas franchise tax rule regarding total revenue. The amendments incorporate major legislative changes and the agency’s revised interpretation of conformity to the Internal Revenue Code (IRC). The amendments implement legislation from the 82nd through 88th Legislatures and make numerous structural, definitional, and technical updates affecting the calculation of total revenue for Texas franchise tax purposes.

Shift in IRC conformity interpretation

One of the most consequential changes is the Comptroller’s revised interpretation of how the statutory definition of “Internal Revenue Code” applies. Under Tax Code Section 171.0001(9), the IRC is defined as the code in effect for the federal tax year beginning Jan. 1, 2007. Historically, the Comptroller interpreted this to require recomputation of relevant federal line items to conform to the 2007 IRC when calculating total revenue.

The amended rule incorporates recent Comptroller guidance narrowing that approach.

Beginning with reports due on or after Jan. 1, 2026:

The prior approach remains in place for earlier report years. The Comptroller also confirmed that apportionment under 34 TAC Section 3.591 will follow the same framework: gross receipts and the apportionment factor will be based on current federal tax law unless the statute specifically references the IRC.

In response to concerns about mismatches this change will cause between federal gain recognition and Texas cost basis calculations, the Comptroller announced plans to propose an amendment to 34 TAC Section 3.588 (Cost of Goods Sold). The proposal would allow a one-time net depreciation adjustment on the 2026 franchise tax report for qualifying assets placed in service before the relevant accounting period and not previously disposed of. Eligibility requirements under Tax Code Section 171.1012(c)(6) would apply.

Foreign income: GILTI, FDII, and IRC Sections 951–964

The amendments clarify the treatment of foreign-source income and related deductions. Tax Code Section 171.1011(c)(1)(B)(ii) excludes certain foreign royalties, foreign dividends, and amounts determined under IRC Section 78 and Sections 951–964 from total revenue. Because the statute specifically references the IRC, these provisions remain tied to the 2007 IRC.

The Comptroller concluded that post-2007 categories such as:

Are not dividends or royalties and therefore don’t qualify for exclusion unless covered under the 2007 IRC framework. Additionally, GILTI and FDII deductions aren’t allowable Schedule C deductions for franchise tax purposes under Section 171.1011(c)(1)(B)(iv) because they aren’t dividends and aren’t treated as such on federal forms.

Federal disregarded entities

The rule now expressly requires a federally disregarded entity to compute total revenue as if it had filed a separate federal return as a corporation. The entity may elect combined reporting with its parent under 34 TAC Section 3.590, but standalone computation as a corporation is otherwise required.

Expanded and updated definitions

The amendments add or revise numerous definitions, including:

Terminology related to intellectual disabilities in the definition of “health care institution” was also updated.

Revenue exclusions

The rule adds or clarifies exclusions for a wide range of industries and transactions, including:

The rule also implements statutory provisions exempting certain financing transactions related to Winter Storm Uri extraordinary costs.

Flow-through funds guidance

The amendments refine guidance on exclusions for flow-through funds mandated by law or contract, incorporating judicial interpretations from Texas appellate decisions. The rule clarifies:

Healthcare: Uncompensated care adjustment

The rule restructures the “actual cost of uncompensated care” provision for clarity and provides specific computational guidance for single entities and combined groups. Importantly, taxpayers claiming the exclusion must make a corresponding reduction to either cost of goods sold or compensation to prevent double benefit.

Regulations, Texas Comptroller of Public Accounts, Feb. 9, 2026.

Corporate income tax: Sourcing of gross receipts to point of transfer upheld

A recent decision by the Supreme Court of Texas held that administrative rules sourcing gross receipts for sales of tangible personal property to Texas based on the place of transfer or delivery to a buyer in the state were constitutional and consistent with the plain language of the underlying statute. The court determined that the statute unambiguously sourced receipts to Texas when possession and control of goods were transferred to a buyer at a Texas location, regardless of whether the buyer subsequently transported the goods to another jurisdiction for use, consumption, or sale.

The taxpayer, who sells bunker fuel for use in large ships, argued that the statute employed an ultimate-destination or market-based sourcing rule tied to the buyer’s location of use or consumption. However, the court held that the statutory language “delivered or shipped to a buyer in this state” required a destination-based sourcing rule determined solely by the place of delivery or transfer to the buyer, without regard to the buyer’s intended use.

NuStar Energy, L.P. v. Comptroller of Public Accounts of the State of Texas, Supreme Court of Texas, No. 24-0037, March 13, 2026.

Virginia

Multiple taxes: “Caboose” budget updates IRC conformity, permanently extends PTET, and makes other tax changes

Virginia enacted the “caboose” budget legislation containing various corporate income, personal income, retail sales and use, property, and other tax provisions.

IRC conformity

The legislation replaces Virginia’s rolling conformity to the Internal Revenue Code (IRC) with a fixed conformity date of Dec. 31, 2025. The legislation also provides that Virginia will continue to automatically conform to a federal law amendment that extends the expiration date of a federal tax provision to which Virginia conforms or has previously conformed. The legislation allows Virginia to conform to most of the provisions of the One, Big, Beautiful Bill (OBBB) (P.L. 199-21), with exceptions, including:

Business interest expenses deduction

For taxable years beginning on and after Jan. 1, 2025, the business interest expenses deduction under IRC Section 163(j) decreases from 50% to 20% of disallowed business interest.

Net controlled foreign corporation-tested income (NCTI) deduction

The legislation changes the language of the deduction for IRC Section 951A to net controlled foreign corporation-tested income.

Elective income tax on pass-through entities

The elective pass-through entity tax (PTET) that allows eligible owners of pass-through entities to be taxed at the entity level is extended permanently, including the applicable provisions of the out-of-state credit.

Standard deduction

For taxable years beginning on and after Jan. 1, 2025, but before Jan. 1, 2027, the standard personal income tax deduction remains at $8,750 for single individuals and $17,500 for married persons (one-half of such amounts in the case of a married individual filing a separate return). For tax years beginning on and after Jan. 1, 2027, the standard deduction is $3,000 for single individuals and $6,000 for married persons (one-half of such amounts in the case of a married individual filing a separate return).

Qualified educator expenses deduction

For taxable years beginning on and after Jan. 1, 2026, the income tax deduction of up to $500 for certain expenses incurred by an eligible educator is permanently reinstated.

Earned income tax credit

For tax years beginning on and after Jan. 1, 2025, but before Jan. 1, 2027, the amount of the refundable earned income tax credit for low-income taxpayers increases from 15% to 20%.

Intangible holding company addback exceptions

Uncodified limitations on the state’s “subject to tax” and “unrelated party” addback exceptions to the addition required for intangible expenses and costs associated with a transaction with a related member are included in the legislation. Similar uncodified provisions have been included in state budget legislation since 2014.

Retroactive to tax years after 2003, the “subject to tax” exception is limited to the portion of income received by the related member that owns the intangible property, which portion is attributed to a state or foreign government in which the related member has sufficient nexus to be subject to such taxes. The exception applies to income that is subject to a tax based on or measured by net income or capital imposed by: Virginia; another state; or a foreign government.

The exception for a related member deriving at least one-third of its gross revenues from licensing to unrelated parties is limited to the portion of income received by the related member that owns the intangible property and derived from licensing agreements for which the rates and terms are comparable to agreements the related member has entered into with unrelated entities.

Housing opportunity tax credit

The Virginia housing opportunity income tax credit is extended through taxable year 2030. The annual aggregate credit cap across all calendar years can’t exceed $575 million. Also, for calendar years 2026 through 2030, the total amount of housing opportunity tax credits authorized for qualified projects must not exceed $64 million per calendar year. Of the $64 million of credits authorized per calendar year from 2026 through 2030, $20 million of such credits must be reserved for qualified projects located in a geographic area within the Balance of State Pool. “Balance of State Pool” means the pool defined within the Qualified Allocation Plan promulgated by the Authority pursuant to IRC Section 42, as amended. Such credits issued on and after Jan. 1, 2022, are allowed ratably, with one-tenth of the total amount of credits allowed annually for 10 years over the credit period, except that there’s a reduction in the tax credit allowable in the first year of the credit period due to the calculation in IRC Section 42(f)(2), and any reduction by reason of IRC Section 42(f)(2) in the credit allowable for the first taxable year of the credit period is allowable for the first taxable year following the credit period.

Historic preservation tax credit

For tax years after 2016 and before 2025, the historic rehabilitation tax credit amount that may be claimed by each taxpayer, including amounts carried over from prior taxable years, can’t exceed $5 million for any tax year. For tax years after 2024, the amount of the historic rehabilitation tax credit that may be claimed by each taxpayer, including amounts carried over from prior taxable years, can’t exceed $7.5 million for any taxable year.

Land preservation tax credit

For tax years after 2016 and before 2023, as well as taxable years beginning on and after Jan. 1, 2024, the land preservation tax credit amount that may be claimed by each taxpayer, including amounts carried over from prior tax years, can’t exceed $20,000.

Neighborhood Assistance Act tax credit

In order to be eligible to receive an allocation of Neighborhood Assistance Act credits, a neighborhood organization must meet the following requirements: (1) at least 50% of individuals served by the neighborhood organization must be low-income individuals or eligible students with disabilities; and (2) at least 50% of the organization’s revenues must be used to provide services to low-income individuals or eligible students with disabilities. For fiscal years 2025 and 2026, the amount of the credit available is limited to $20 million, with allocations specified in the law.

Deduction for ABLE act contributions

For tax years after 2015, taxpayers are allowed a deduction from Virginia adjusted gross income for the amount contributed during the taxable year to an ABLE savings trust account entered into with the Virginia College Savings Plan. The amount deducted on any personal income tax return in any taxable year is limited to $2,000 per ABLE savings trust account. No deduction will be permitted if the contributions are also deducted on the contributor’s federal income tax return. If the contribution to an ABLE savings trust account exceeds $2,000, the remainder may be carried forward and subtracted in future taxable years until the ABLE savings trust contribution has been fully deducted. However, if contributors are 70 years or older, they may deduct the entire amount contributed to an ABLE account.

Recyclable materials processing equipment tax credit

The income tax credits for the purchase of machinery and equipment used for advanced recycling and processing recyclable materials remains in effect through 2026.

Underpayment of estimated tax

For individuals, trusts, or estates, there’s no addition to income tax imposed for underpayment of estimated tax of $1,000 or less (previously, $150 or less) for the taxable year. This change applies to taxable years beginning on and after Jan. 1, 2026.

Exemption for drilling equipment

The retail sales and use tax exemption for raw materials, fuel, power, energy, supplies, machinery or tools, or repair parts or replacements, used directly in the drilling, extraction, or processing of natural gas or oil, and the reclamation of the well area remains in effect through July 1, 2026.

Exemption for bullion and legal tender coins

The retail sales and use tax exemption applicable to gold, silver, or platinum bullion, or legal tender coins remains in effect through July 1, 2026.

Exemption for research and development

Tangible personal property purchased by a federally funded research and development center sponsored by the U.S. Department of Energy is exempt from retail sales and use tax, beginning July 1, 2018.

Sales tax holiday for school supplies, hurricane preparedness equipment, and energy savings equipment

The annual retail sales and use tax holiday authorized certain school supplies, clothing and footwear, hurricane preparedness equipment, and EnergyStar or Watersense qualified products remains in effect through July 1, 2025.

Cigarette tax

The state cigarette tax rate is 3.0 cents per cigarette sold, stored, or received, beginning July 1, 2020. 

Heated cigarettes: Beginning July 1, 2024, the cigarette excise tax rate is 2.25 cents per stick on each cigarette intended to be heated.

Tobacco products taxes

The tobacco products tax rates on all products subject to the tax are doubled, beginning July 1, 2020.

Real property tax for fixtures in data centers

Virginia Code Section 58.1-3295.3 requires fixtures in a data center, when classified as real estate, to be valued by a locality based on the cost approach (cost less depreciation), rather than the income generated. Fixtures in a data center, when classified as real estate, must be assessed at 100% fair market value as determined by the cost approach and consistent with Code Section 58.1-3201.

Sunset date for exemptions and credits

The sunset date on any existing retail sales tax exemption or tax credit may not be extended beyond June 30, 2030. Any new exemption or tax credit enacted by the General Assembly after the 2019 regular legislative session, but prior to the 2029 regular legislative session, must have a sunset date of not later than June 30, 2030. However, this requirement doesn’t apply to tax exemptions administered by the Department of Taxation under Section 58.1-609.11, relating to exemptions for nonprofit entities, nor does it apply to exemptions or tax credits with sunset dates after June 30, 2022, enacted or advanced during the 2016 session of the General Assembly.

Tax collection efforts

In any pending or future administrative or judicial proceeding in which the validity of a tax assessment is an issue, the participation of the Department of Taxation in any capacity is considered a collection effort.

Significant infrastructure limited license tax

On and after July 1, 2026, in addition to all other taxes and fees imposed by law, there’s imposed a significant infrastructure facility limited license tax upon any significant infrastructure limited licensee. Any such licensee must pay to the locality in which a significant infrastructure facility for such licensee is located $110,000 for each live racing day at such facility.

Ch. 7 (H.B. 29), Laws 2026, effective Feb. 20, 2026, except as noted.

Washington

Sales and use tax: Temporary penalty relief program announced

The Washington Department of Revenue has announced that it’ll offer a temporary penalty waiver program for uncollected retail sales and use tax due to changes enacted by S.B. 5814, which imposed sales tax on a range of services. The reporting period covered by the program runs from Oct. 1, 2025, through Dec. 31, 2026. The evasion, negligence, and tax avoidance penalties are ineligible for this program. Applications must be submitted online by Sept. 30, 2027. For preexisting contracts with temporary sales tax relief, penalty relief begins when the contract no longer qualifies for temporary relief, or on April 1, 2026, whichever comes first.

ESSB 5814 Penalty Relief Program, Washington Department of Revenue.

West Virginia

Corporate, personal income taxes: IRC conformity tie-in legislation enacted

West Virginia enacted legislation that updates the IRC conformity tie-in date for calculating corporate and personal income tax liability. Taxpayers determining West Virginia income tax liability must follow all changes to federal income tax law made:

The IRC conformity update is retroactive if allowable under federal income tax law. For tax years that began before Jan. 1, 2026, the law in effect for each of those years applies for that year.

The personal income tax conformity law also addresses the impact of changes to federal income tax law on the West Virginia subtraction from federal adjusted gross income for losses from gaming and gambling activities in the state.

S.B. 393 and S.B. 400, Laws 2026, effective Feb. 23, 2026, and as noted.

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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