The states covered in this issue of our monthly tax advisor include:
Georgia
Multiple taxes: Tax rates reduced, deductions increased, and credits repealed
The “Georgia Economic Growth and Tax Relief Act of 2026,” enacts significant changes to Georgia’s tax code, including reducing the income tax rate, increasing deductions, exempting overtime and tip income, and repealing income tax credits and sales and use exemptions.
Income tax
Multiple income tax changes were enacted, as discussed below.
Rate reduction. For tax years beginning Jan. 1, 2026, the flat individual income tax rate is reduced to 4.99% (from 5.19%) and establishes a revised schedule of contingent annual reductions of 0.125 percentage points until the rate reaches 3.99%, subject to specified revenue growth and reserve conditions. The same 4.99% rate and scheduled rate reductions also applies to corporate income and pass-through entity-level taxation.
Standard deductions. The standard deduction is increased. For 2026, married couples filing a joint return, the standard deduction is $30,000 (previously $24,000). The deduction is increased $750 annually beginning on Jan. 1, 2027, if certain conditions are met, or it reaches $36,000.
For 2026, single taxpayers, heads of household, or married taxpayers filing a separate return have a standard deduction of $15,000 (previously $12,000). The deduction is increased $375 annually beginning on Jan. 1, 2027, if certain conditions are met, or it reaches $18,000.
Dependent deductions. Dependent deductions are also increased. For 2026, the deduction is set at $5,000 (previously $4,000), and is incrementally increased by $125 annually beginning on Jan. 1, 2027, if certain conditions are met, or until it reaches $6,000.
Retirement income. In addition, for taxable years on or after Jan. 1, 2027, the measure expands the exclusion for retirement income for taxpayers aged 65 and older to $70,000 (currently, $65,000).
Overtime and tips. A temporary exclusion for tax years 2026 through 2028 of up to $1,750 of overtime compensation is available to full-time employees paid an hourly wage.
Additionally, for tax years 2026 through 2028, $1,750 of cash tips are also excluded.
Repealed credits. The legislation also repeals numerous existing income tax credits. Eliminated credits include those related to:
- Manufacturing of medical equipment and supplies, pharmaceuticals, medicine.
- Manufacturing of personal protective equipment.
- Alternative fuel, low-emission, and zero-emission vehicles and electric vehicle chargers.
- Headquarter relocations with new full-time jobs.
- Manufacturing of cigarettes for exportation.
- Businesses that purchase or lease a motor vehicle to provide transportation for employees.
- Port activity incentives.
- Teleworking expenses.
Sales and use tax
Several sales and use tax exemptions are repealed, including exemptions for certain machinery and equipment (such as pollution control and high-technology equipment), data center-related property, and other specified items, while allowing limited grandfathering for previously issued exemption certificates in certain cases.
Administrative provisions
The legislation includes new employer reporting requirements associated with the overtime and tip exclusions and directs the promulgation of implementing regulations.
Act 465 (H.B. 463), Laws 2026, effective May 11, 2026, and applicable as noted above.
Illinois
Corporate income tax: Unitary group’s request for alternative apportionment methods denied
Illinois issued a general information letter denying a unitary business group’s request for an alternative apportionment method based on equally weighted property, payroll, and sales factors with throwback sales or the statutory single sales factor without throwback sales. The unitary business group manufactures and distributes industrial products nationally to customers across a wide range of industries, including aerospace and defense, oil and gas, medical imaging, and pharmaceuticals. Illinois law permits alternative apportionment only when the statutory formula doesn’t fairly represent the market for the taxpayer’s goods, services, or other sources of business income in the state. The unitary group’s request did not meet this requirement.
The request merely stated that the statutory and alternative apportionment methods reached different results and that the group expected the alternative methods to result in a smaller Illinois apportionment factor. Illinois doesn’t allow taxpayers to use an alternative apportionment simply because it reaches a different apportionment percentage than the required statutory formula. The exclusion of the throwback rule also failed to address the group’s problem with the statutory formula. The intent of the throwback rule is to ensure that 100% of a taxpayer’s business income is apportioned to states that have the jurisdiction to do so. Excluding these sales results in “nowhere income” that is not taxed by any jurisdiction, which is contrary to the rule’s legislative intent. The fact that the inclusion of throwback sales increases the Illinois sales factor numerator does not, in itself, demonstrate a grossly distortive or unfair representation of a taxpayer’s market in the state. If a unitary group benefits from Illinois’ markets and legal protections, there’s a presumption the statutory formula, including throwback sales, is the fair measure of that benefit.
General Information Letter IT 26-0002-GIL, Illinois Department of Revenue, March 30, 2026, released May 14, 2026.
Corporate income tax: Product shipments from independent packager's warehouse creates nexus
Illinois issued a general information letter discussing the application of nexus standards to an out-of-state S corporation that used an independent contract packager in the state to bottle, package, and ship its products from an inventory at the packager’s warehouse to purchasers throughout the United States. Nexus determinations are highly fact-specific and are not generally suitable for resolution by letter ruling. The Illinois Department of Revenue will make a determination only in the context of an audit where a department auditor has access to all relevant facts and information.
Illinois can impose income tax on nonresident taxpayers if the taxpayer’s activities in the state exceed the mere solicitation of sales protected under federal Public Law (P.L.) 86-272 and are more than de minimis. The state construes the protection of P.L. 86-272 very narrowly. A corporation that retains ownership of a stock of merchandise located in an Illinois warehouse before being shipped from the facility by a contract packager is engaging in more than de minimis activity and will create physical presence nexus in the state for income tax purposes.
General Information Letter IT 26-0001, Illinois Department of Revenue, March 16, 2026, released May 14, 2026.
Indiana
Multiple taxes: Tax amnesty 2026 eligibility tool is available
Beginning May 18, 2026, taxpayers can check their eligibility for tax amnesty 2026. During the amnesty period, taxpayers may pay past due eligible taxes and receive a waiver on penalties, interest, and collection fees. Tax amnesty 2026 runs from July 15 through Sept. 9, 2026. Taxpayers with existing tax liabilities for all listed tax types that are managed by the Indiana Department of Revenue or the Motor Carrier Services for periods prior to Jan. 1, 2024, qualify for the program.
Amnesty eligibility tool on INTIME
The amnesty eligibility tool, available through INTIME at taxamnesty.in.gov, allows individuals and businesses to check their eligibility to participate in the program. Taxpayers need to log in to INTIME or create an account for more information regarding eligible liabilities. If a taxpayer isn’t logged in to INTIME, the eligibility tool only indicates that the taxpayer owes amnesty-eligible liabilities. The department or the United Collection Bureau (UCB) will also contact taxpayers directly regarding amnesty eligibility.
Once the amnesty period begins on July 15, taxpayers can contact UCB to pay their eligible liabilities in full or arrange an amnesty payment plan. There’s also a self-service option on INTIME under the “Tax Amnesty” section on the summary tab.
Starting July 15, INTIME will allow taxpayers to opt-in to amnesty, make amnesty payments, and enter into an amnesty payment plan.
Participation in tax amnesty 2026
Participation in the amnesty program requires a taxpayer to agree to amnesty terms and either:
- Pay the base tax in full between July 15, 2026, and Sept. 9, 2026.
- Set up and complete the terms of an amnesty payment plan agreement before June 7, 2027.
To qualify for a payment plan, eligible liabilities must total at least $100 for individuals, and $500 for businesses. Once a payment plan has been established, individuals and businesses may check the status on INTIME provided they have an account.
News Release, Indiana Department of Revenue, May 18, 2026.
Iowa
Corporate income tax: NCTI deduction enacted
Iowa Governor Kim Reynolds has signed legislation establishing a state corporate income tax deduction for net controlled foreign corporation tested income (NCTI), retroactively effective for tax years starting Jan. 1, 2026. S.F. 2492 has removed the GILTI “global intangible low-taxed” language and allows a subtraction for NCTI to the extent it was included in the Iowa tax base under IRC Sec. 951A.
S.F. 2492, Laws 2026, effective as noted above.
Maine
Corporate, personal income taxes: Maine decouples from IRC sec. 168(k)
For tax years beginning in 2025, Maine decouples from IRC Section 168 (k) by requiring a corporate and personal income tax addition to federal gross income equal to the net increase in depreciation attributable to the depreciation deduction taken under that section.
L.D. 2188 (H.P. 1469), Laws 2026, effective as noted.
Maryland
Sales and use tax: MPU certificates for digital products provisions amended
Maryland sales and use provisions concerning multiple points of use (MPU) certificates have been amended to allow buyers to issue MPU certificates for the purchase and use of specified digital codes, digital products, and taxable data and information technology services if:
- The buyer registers with the comptroller and becomes authorized to issue MPU certificates.
- Has paid all undisputed taxes.
The authorization to issue is valid for two years unless suspended or revoked. The comptroller may revoke the certificate for fraud, gross negligence, or misuse. All vendors that have received the MPU certificate from the buyer must be notified of the revocation.
Ch. 198 H.B. 933, Laws 2026, effective Jan. 1, 2027.
Michigan
Corporate income tax: Proration percentages for research and development credit announced
The Michigan Department of Treasury has announced the proration percentages to apply to tentative claims for corporate income tax and withholding tax credits for qualifying research and development expenses. A large employer (with over 250 employees) must multiply its tentative claim by 50.96%. A small employer (with less than 250 employees) must multiple its tentative claim by 59.88%. The credit is claimed on the CIT annual return (Form 4891, 4905, or 4908) or the withholding tax annual return (Form 5081).
Research and Development Credit Proration Notice for Credits Based on 2025 Expenses, Michigan Department of Treasury, April 24, 2026.
Personal income tax: New forms for flow-through entity tax reporting issued
For the 2025 tax year, the Michigan Department of Treasury has issued two new individual income tax forms for persons and fiduciaries to report the credit and other adjustments for the flow-through entity tax (FTE). The forms are “Michigan Schedule FTE (Form 6072)” and “Michigan Schedule of Tiered Entities (Form 6074).” On Form 6072, the filer reports information on indirect ownership in a credit generating entity. This information is carried to Form 6074, where both direct and indirect FTE tax credits are reported.
Michigan Department of Treasury Update, Michigan Department of Treasury, April 30, 2026.
Minnesota
Corporate, personal income taxes: Advances from corporation properly reclassified as taxable shareholder distributions
The Minnesota Tax Court upheld the Commissioner of Revenue’s classification of advances made by an S corporation to a shareholder as taxable shareholder distributions rather than bona fide loans. The court determined that the advances lacked the formal and economic indicia of indebtedness required to establish a true debtor-creditor relationship. Although promissory notes were created to document the advances, their terms — such as no fixed maturity date, discretion to call the debt, and the lack of repayment — did not demonstrate an unconditional intent to enforce repayment or a real expectation of repayment. The court noted that the taxpayer wholly owned and controlled the S corporation, requiring heightened scrutiny of the related-party transaction. Because the taxpayer substantially understated the amount of tax owed and with disregard of the applicable law, the penalties assessed by the commissioner were upheld.
Purcell v. Commissioner of Revenue, Minnesota Tax Court, No. 9694-R, April 24, 2026.
Missouri
Multiple taxes: Voters to decide whether to grant legislature authority to expand sales tax base to eliminate individual income tax
The Missouri House of Representatives passed joint resolutions that place a proposed amendment to the Missouri Constitution on the ballot for the November 2026 election (or a special election to be called by the governor) that would phase out the state individual income tax and authorize an expansion of the sales and use tax base to replace lost revenue. Specifically, if voters approve the constitutional amendment, the general assembly would be required to enact legislation to reduce and eliminate the state individual income tax by requiring reductions to the top rate of the tax based on revenue growth until such tax eliminated. Upon elimination of the individual income tax, the general assembly would be prohibited from enacting or imposing any state individual income tax.
Also, the amendment would authorize state and local sales and use taxes (or any similar transaction-based tax) to be expanded by legislation to impose taxes on transactions involving any goods or services for the purpose of reducing and eliminating the state individual income tax.
Beginning 12 months from the effective date for legislation in which the general assembly expands the sales and use tax base, any political subdivision that imposes a sales and use tax must make a one-time adjustment to one or more of the following rates of tax to reduce the amount of revenue generated thereby in an amount that’s substantially equal to 97% of the additional revenue produced by the expansion of the sales and use tax base:
- The sales and use tax rate.
- The levy imposed on property in class 2.
- The levy imposed on property in subclass (1) of class 1.
- The levy imposed on all class 1 property if such political subdivision imposes a single rate of levy on all such property.
- The rate of any tax imposed on earnings.
H.J.R. 173 and H.J.R. 174, Laws 2026, effective Aug. 28, 2026, subject to voter approval.
New York
Corporate income tax: Nexus regulation not preempted by federal law
A New York appellate court affirmed a lower court decision that upheld a corporate franchise tax nexus regulation adopted in 2023 (Reg. Section 1-2.10) but that also found retroactive application of the regulation to be unconstitutional. Taxpayers argued that the regulation conflicted with and was preempted by P.L. 86-272, but that argument was rejected.
The appellate court stated that it agreed with the Department of Taxation and Finance that the regulation is reasonably understood as protecting an out-of-state corporation from franchise tax liability when all of its in-state business activities are confined to solicitation, activities ancillary thereto, or de minimis, and as withholding immunity when any of its in-state business activities, however conducted, exceed those limits.
Regarding the taxpayers’ concerns about whether the department can, in practice, administer the regulation in accordance with P.L. 86-272's in-state activity requirement, the court noted that this will need to be assessed on a factual record, not the text of the regulation itself.
The taxpayers didn’t demonstrate that the regulation, as written, revokes franchise tax immunity where P.L. 86-272 requires it, or that the regulation obstructs the purposes for which that law was enacted. Consequently, it was proper for the lower court to declare that the regulation was not preempted by P.L. 86-272.
American Catalog Mailers Association v. Department of Taxation and Finance, Appellate Division, Third Department, No. CV-25-0865, May 7, 2026.
Ohio
Sales and use tax: Transactions taxable ADP and EIS
On remand from the Ohio Supreme Court, the Board of Tax Appeals denied a taxpayer’s sales and use tax refund claim, concluding that the true object of the transactions was taxable automatic data processing (ADP) and taxable electronic information services (EIS). Applying the true object test, the board determined that the primary purpose of the transactions was the provision of daily, real-time access to stored business data via telecommunication equipment, as outlined in the record. The board found that these services, performed without cognitive involvement or professional customization, meet the statutory definitions of taxable ADP and EIS.
Cincinnati Federal Savings & Loan Co. v. Patricia Harris, Ohio Board of Tax Appeals, No. 2018-2247, May 11, 2026.
Tennessee
Miscellaneous tax: Business tax treatment of software and cloud services determined
A Tennessee appellate court upheld a lower court’s conclusion that sales of computer software were not subject to business tax because they constituted sales of intangible personal property. The lower court also correctly concluded that tax did apply to the company’s sales of cloud-based services. However, the appellate court reversed the lower court’s decision that the company’s cloud hosting sales constituted nontaxable leases of tangible personal property outside the state.
The company argued that its cloud hosting and cloud-based services were not delivered in Tennessee, as required by the law, but that was rejected. The company made its hardware and servers, software platform, and cloud-based services accessible to customers electronically in Tennessee; accordingly, delivery was completed when the customers electronically accessed those services from their places of business in Tennessee. Further, because the company produced no evidence that the Tennessee businesses listed on its invoices didn’t access the cloud hosting and cloud-based services from the locations identified on the invoices, the appellate court concluded that the Department of Revenue properly included those gross receipts in its calculation of the business tax assessment.
SAP America, Inc. v. Gerregano, Court of Appeals of Tennessee, No. M2024-01399-COA-R3-CV, May 13, 2026.
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