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State and local tax advisor: July 2026

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

July 23, 2026 / 55 min read

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

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

Arizona

Multiple taxes: Federal conformity enacted, credits repealed, deductions increased and other changes

Arizona’s 2026 omnibus tax legislation implements a comprehensive set of statutory changes affecting income tax conformity, base computation, deductions, credits, and selected transaction privilege and property tax provisions.

Federal conformity

Arizona updated the statutory definition of the Internal Revenue Code (IRC) of 1986, for taxable years beginning after Dec. 31, 2024, to include all provisions in effect as of Jan. 1, 2026, with the specific adoption of all of the retroactive effective dates. Arizona also updated the definition of the IRC to tax year 2025 to include the provisions of Public Law 119-21, also known as the One, Big, Beautiful Bill Act (OBBBA), that became retroactively effective during the 2025 tax year.

Modifications to income

Additions to Arizona gross income — An addition to income is required for bonus depreciation relating to qualified production property allowed under IRC Section 168(n) for taxable years beginning after Dec. 31, 2025.

Deductions from taxable income —The legislation increases standard deduction amounts to:

The treatment of charitable deductions is restructured beginning in taxable years after Dec. 31, 2025. A taxpayer that takes the standard deduction is allowed to increase the deduction by an amount equal to the total amount of the taxpayer’s charitable contributions, with contribution caps of:

Previously, the charitable deduction was up to 25% of qualifying contributions.

Additionally, beginning with taxable years beginning Jan. 1, 2026, the itemized deduction for state and local taxes (SALT) is limited to $10,000.

Subtractions from Arizona gross income — Multiple new subtractions from income are enacted, generally applying where amounts aren’t already excluded from federal adjusted gross income. These include:

Dependent tax credit

Effective Jan. 1, 2026, the tax credit for dependents under 17 years old at the end of the taxable year is increased to $125 (previously, $100).

Repealed credits

The following credits are repealed effective Jan. 1, 2026:

Veteran’s property tax exemption

The veteran’s property tax exemption is amended to:

Miscellaneous provisions

The Arizona Commerce Authority is prohibited from accepting applications for any new computer data centers from July 1, 2026, through June 30, 2029. No new data centers can qualify for the data center transaction privilege tax exemption during that period.

The aggregate cap of the corporate low-income student tuition tax credit is reduced to $110,000 (previously, $135,000) annually, beginning in fiscal year 2026–2027.

Ch. 140 (H.B. 4168), Laws 2026, effective Sept. 12, 2026, unless otherwise noted above.

California

Sales and use tax: Revenue trailer bill includes expansion of tax to digital products

Under a revenue trailer bill for the 2026–2027 budget, California expands the sales and use tax base to certain digital products.

Definitions amended and enacted

The following definitions are amended or enacted:

The definition of “tangible personal property” is amended to mean either:

A “digital product” is defined as prewritten computer software transferred on tangible storage media, transferred electronically or accessed remotely. The term doesn’t include:

Sourcing of digital products

The place of the sale or purchase of digital products is:

The place of use of a digital product is the place where any right or power is exercised over the digital product. The right or power to remotely access a digital product is exercised at the place where the person accessing the digital product is located. A presumption is enacted that a digital product that was purchased outside California and used in California within 90 days from the date of sale or purchase was purchased for storage, use, or other consumption in California.

Retailer’s relief from liability

Retailer’s liability to pay sales tax — A retailer is relieved from liability to pay sales tax on the sale or purchase of a digital product that’s transferred electronically or accessed remotely if the gross receipts from the sale of digital products by a retailer to a purchaser (unless the purchaser is an insurer) that are transferred electronically or accessed remotely exceed $5 million in the aggregate in the current calendar year, or beginning Jan. 1, 2028, in the current or the preceding calendar year.

The purchaser will become liable for the use tax on the transaction that caused the retailer to exceed the $5 million threshold and any adjustments. If a retailer is relieved from liability to pay sales tax, the purchaser is liable for the use tax and must self-assess and pay directly to the California Department of Tax and Fee Administration (CDTFA) the taxes due, and if otherwise applicable, on the transaction that caused the retailer to exceed the $5 million threshold and any adjustments made.

If a retailer is relieved from liability to pay sales tax, the purchaser is liable for the use tax and must self-assess and pay directly to the CDTFA taxes due and, if otherwise applicable, on the transaction that caused the retailer to exceed the $5 million threshold and any adjustments made.

A retailer is relieved from liability to pay sales tax or collect use tax on the sale or purchase of a digital product transferred electronically or accessed remotely if the place of the sale or purchase of the digital product was deemed to be outside California, and if the retailer demonstrates to the satisfaction of the CDTFA that the retailer made a reasonable effort to obtain accurate and complete address information from the purchaser.

Retailer’s liability to collect use tax — A retailer is relieved of the obligation to collect use tax on the sale or purchase of a digital product that is transferred electronically or accessed remotely if the sales price of digital products purchased by a purchaser from a retailer that are transferred electronically or accessed remotely exceeds $5 million in the aggregate in the current calendar year, or beginning Jan. 1, 2028, in the current or the preceding calendar year.

The purchaser will be responsible for reporting and paying the use tax to the CDTFA on the transaction that caused the purchaser to exceed the $5 million threshold and any adjustments made.

If a retailer is relieved from the obligation to collect use tax, the purchaser must self-assess and pay directly to the CDTFA taxes due and, if otherwise applicable, on the transaction that caused the purchaser to exceed the $5 million threshold and any adjustments made.

Exemptions

Exemptions are enacted for the gross receipts from:

Income tax changes

Income tax changes made by this legislation are separately reported.

Ch. 23 (S.B. 122), Laws 2026, effective June 29, 2026, and applicable Jan. 1, 2027.

Multiple taxes: Business tax credits limitation extended, minimum franchise tax reduced for new LLCs/LPs/LLPs

California has enacted legislation that:

Business tax credits limitation

The current $5 million per year limitation on the amount of business tax credits that a taxpayer may claim under the corporate tax law or personal income tax law is extended for an additional three years, through tax year 2029. Existing provisions allowing a taxpayer to make an election to receive a refundable credit in later years for the amount of business tax credits over the $5 million cap are also extended.

Beginning in tax year 2030, a new permanent business tax credit limitation applies. The new limit will be $5 million per year or 70% of a taxpayer’s tax liability, whichever is greater.

Exceptions to the limitations are provided for certain refundable credit amounts.

Minimum franchise tax

For tax years 2027 through 2029, the annual minimum franchise tax for LLCs, LPs, and LLPs is reduced from $800 to $400 for an entity’s first tax year.

Tax on federal Anti-Weaponization Fund payments

For tax years 2026 through 2029, California will impose a 100% tax on any settlement fund payments received by taxpayers from the Anti-Weaponization Fund established by the federal Department of Justice or any similar fund, settlement, or agreement. The tax would be imposed in addition to, and not in place of, any corporate tax or personal income tax.

Sales and use tax changes

Sales and use tax changes made by the legislation are separately reported.

Ch. 23 (S.B. 122), Laws 2026, effective June 29, 2026, and applicable as noted.

Corporate income tax: Unitary business determination made, alternative apportionment not allowed

An electric power company that conducted its business through two wholly owned subsidiaries — a rate-regulated electric utility business wholly within Florida and a wholesale energy business solely outside of Florida — was engaged in one unitary business, rather than two separate businesses, for California tax purposes. Furthermore, the company failed to demonstrate that California’s standard allocation and apportionment provisions did not fairly represent the extent of its California business activity.

Unitary business determination made

The Office of Tax Appeals (OTA) applied the dependency or contribution test and found that the following unitary factors were present and were not shown to be immaterial: controlling ownership; strong central management and centralized departments; transfers of key executives; and shared services and intercompany transactions.

Alternative apportionment not allowed

The company asserted that even if it was engaged in a unitary business, the standard allocation and apportionment provisions didn’t fairly represent the extent of its California business activity. The company argued that the combination of its rate-regulated electric utility business wholly in Florida and its wholesale energy business solely outside of Florida caused income to be assigned to a location unrepresentative of the businesses’ respective markets. However, the company failed to identify why that showed distortion and not mere application of the unitary business principle.

NextEra Energy Capital Holdings, Inc., and Affiliates, California Office of Tax Appeals, 2026-OTA-311P, July 2026, petition for rehearing denied, 2026-OTA-312, May 13, 2026.

Colorado

Sales and use tax: Process for claiming wholesale exemption without a sales tax license clarified

Colorado issued guidance on how wholesalers without a state-issued sales tax license may claim a sales tax exemption on purchases made in Colorado. Wholesalers without a state-issued sales tax license may not use the Multistate Tax Commission’s Uniform Sales & Use Tax Resale Certificate to claim an exemption. However, they may provide sellers with Colorado Form DR 5002, Declaration of Wholesale or Entity Sales Exemption, to claim an exemption. Sellers must conduct due diligence to verify the information provided and the purchasers’ exemption eligibility.

GIL 26-001, Colorado Department of Revenue, June 9, 2026.

Insurance tax: Sale of credits to noninsurance entities authorized

Colorado has enacted legislation authorizing the Department of the Treasury to sell insurance premium tax credits to noninsurance entities. Prior legislation authorized the department to sell a limited amount of tax credits to insurance companies. The new legislation allows the department, following the application process for insurance companies to purchase tax credits, to sell remaining tax credits to noninsurance entities. A noninsurance entity purchasing such credit may transfer the credit once to an insurance company, and that insurance company may not further transfer the credit.

Ch. 274 (H.B. 1346), Laws 2026, effective June 1, 2026.

Connecticut

Corporate income tax: Guidance on 2026 legislation affecting conformity to IRC Section 174 and IRC Section 174a

Guidance is provided regarding 2026 legislation that modified Connecticut’s conformity to IRC Section 174 and IRC Section 174A. IRC Section 174 was substantially amended in 2025 by OBBBA (Federal P.L. 119-121). The changes to IRC Section 174 that were made by OBBBA took effect July 4, 2025. Legislation enacted in 2026 expressly conformed to IRC Section 174 as it existed on July 3, 2025, and did so for the income years starting on and after Jan. 1, 2022, and prior to Jan. 1, 2026. Moreover, OBBBA also enacted IRC Section 174A, which permanently allows taxpayers at the federal level to fully expense domestic research or experimental expenditures paid or incurred in taxable years beginning after Dec. 31, 2024. The legislation enacted in 2026 expressly provided that corporations are not eligible to claim the deduction allowed under IRC Section 174A in the 2025 income year, but will allow such deduction in income years starting on and after Jan. 1, 2026. As a result, the Connecticut General Assembly delayed Connecticut’s conformity to IRC Section 174A by one year.

TSSB 2026-2, Connecticut Department of Revenue Services, July 2, 2026.

Florida

Corporate income tax: Guidance issued on updated IRC conformity

Guidance is issued regarding recently enacted legislation that amended the definition of “Internal Revenue Code” in the Florida Income Tax Code to adopt the IRC retroactively to Jan. 1, 2026. As a result, Florida will follow the computation of federal taxable income except for several sections from which Florida is specifically decoupling.

Applicable retroactively to Jan. 1, 2026, Florida adopts the Internal Revenue Code as amended and in effect on Jan. 1, 2026, for corporate income tax purposes, with the exception of certain changes made by the federal One, Big, Beautiful Bill Act (OBBBA, H.R. 1, P.L. 119-21).

IRC code sections included in definition of “Internal Revenue Code” as in effect on Jan. 1, 2025

The following sections of the IRC are included in the definition of “Internal Revenue Code” as amended and in effect on Jan. 1, 2025 (i.e., without taking into consideration any amendments made to these sections by the One, Big, Beautiful Bill Act (Public Law 119-21)):

Sections not included in definition of “Internal Revenue Code”

These sections of the IRC are not included in the definition of “Internal Revenue Code:”

Tax Information Publication, No. 26C01-01, Florida Department of Revenue, July 7, 2026.

Illinois

Corporate income tax: Unitary combined reporting rules adopted and amended

Illinois adopted and amended rules on unitary combined reporting groups to implement a change in how a group determines nexus and the apportionable income of each group member. Effective for tax years ending on or after Dec. 31, 2025, unitary business groups must make these determinations using the “Finnigan” method, instead of the “Joyce” method. Under this method, a unitary business group is taxable in a state if any member of the group is subject to tax in that state. When computing the unitary business group’s sales factor apportionment, each taxpayer member of the group must include in its sales factor numerator part of the aggregate Illinois sales of members who are not taxable in the state based on a ratio. The numerator of which is that taxpayer member’s Illinois sales taking into account its sales factor. The denominator of which is the aggregate Illinois sales of all the taxpayer members of the group taking into account their respective sales factor.

86 Ill. Adm. Code Secs. 100.3200, 100.3370, 100.3375 100.5200, 100.5201, 100.5210, 100.5215, 100.5250, 100.5270, 100.9720, Illinois Department of Revenue, effective June 2, 2026.

Corporate, personal income taxes: Impact of 2026 law changes on current year tax liabilities discussed

Illinois issued guidance discussing law changes that may impact tax 2026 liabilities for certain taxpayers. Effective beginning with the 2026 tax year, partnerships, trusts and estates, and individuals computing Illinois income tax liability must add back the amount of gain from the sale of qualified small business stock excluded from the taxpayer’s federal return under IRC Section 1202.

Illinois also changed how partnerships must compute the elective pass-through entity tax beginning with the 2026 tax year. Electing partnerships must compute the tax based on either the distributive share of Illinois-sourced income for all partners or the full distributive share of income for resident partners plus the distributive share of Illinois-sourced income for nonresident partners. The guidance advises taxpayers affected by the changes to consider making or adjusting their estimated tax payments for the current tax year to avoid underpayment penalties.

Informational Bulletin FY 2027-01, Illinois Department of Revenue, July 2026.

Indiana

Multiple taxes: Tax amnesty 2026 has begun

During the tax amnesty period, from July 15, 2026, through Sept. 9, 2026, taxpayers may pay past due eligible taxes and receive a waiver on related penalties, interest, and collection fees. 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. The department is partnering with United Collection Bureau (UCB) for this limited-time opportunity.

Participation in Tax amnesty 2026

Participation in Tax amnesty 2026 requires agreeing to amnesty terms and either paying the base tax in full or establishing a payment plan before Sept. 9, 2026. Amnesty payment plans must be completed according to their terms before June 7, 2027.

Taxpayers with eligible liabilities

Taxpayers with eligible liabilities can:

To qualify for a payment plan

To qualify for a payment plan, eligible liabilities must total at least $100 for individuals or $500 for businesses. Once a payment plan has been established, individuals and businesses may check the status of the plan on INTIME provided they have an account. In addition, INTIME provides an eligibility tool to assist taxpayers who may be unsure if they have amnesty-eligible liabilities.

News Release, Indiana Department of Revenue, July 15, 2026.

Massachusetts

Multiple taxes: Delayed federal conformity, new credits, a sales tax exemption, and additional PTE election enacted

Massachusetts has enacted a supplemental budget that includes IRC conformity provisions, new income tax credits, a new pass-through entity excise, a new sales and use tax exemption, and tax relief for some 2025 income tax filers.

Delayed tax conformity

Massachusetts has enacted delayed conformity to specific federal provisions in Public Law 119-21, also known as the One, Big, Beautiful Bill Act (OBBBA). The delayed conformity results in Massachusetts temporarily decoupling from multiple IRC sections over a two-year period. Delayed conformity applies to:

Tax relief for 2025 returns

The supplemental budget provides relief for taxpayers who filed their 2025 returns using the new federal rules before the state law was enacted. If those taxpayers file an amended return to comply with the new Massachusetts rules within 90 days after June 12, 2026 (the date of the bill enactment), they will not be subject to interest or penalties on any resulting underpayments, late payments, or estimated tax shortfalls. This relief applies specifically to adjustments related to business interest deductions, bonus depreciation, research and experimental expenditures, expensing of business assets, and opportunity zone exclusions.

Conformity with future IRC amendments

The supplemental budget establishes a new rule governing how Massachusetts adopts federal tax changes. Under this framework, newly enacted federal tax provisions are not incorporated for Massachusetts income tax or corporate excise purposes for the taxable year in which the federal change is enacted or for any prior taxable years, but it may apply in future years.

An exception applies where a federal amendment is determined to have a limited fiscal impact, defined as less than $20 million based on a rolling three-year average adjusted for inflation, in which case earlier conformity may be permitted. The commissioner is required to evaluate each federal tax change and estimate and report its fiscal impact within 90 days of enactment.

New sustainable aviation fuel credit

For taxable years beginning on or after Jan. 1, 2026, and ending on or before Dec. 31, 2030, the legislation creates a nonrefundable, nontransferable credit for taxpayers that purchase sustainable aviation fuel for flights departing from Massachusetts. The credit equals the lesser of the jet fuel excise tax paid or a per-gallon amount (generally $1.50 per gallon, increased for greater emissions reductions, up to $2.00 per gallon).

The credit may be carried forward for up to five years and is subject to recapture if requirements are not met. Total credits are capped at $10 million per year, with any unused amounts carried forward to future years.

New farm food donation credit

For taxable years ending on or after Dec. 31, 2026, and before Jan. 1, 2029, the legislation creates a refundable, nontransferable credit for farm businesses that donate food, meals, or crops to qualifying nonprofit food distribution organizations and do not claim a separate deduction for the same donation. The credit equals the fair market value of the donated items, up to $5,000 per year, and is claimed in the year of donation. To qualify, the donated items must be distributed free of charge or at cost, and the taxpayer must obtain written certification from the recipient organization detailing the donation. Any excess credit is refunded to the taxpayer without interest.

New additional pass-through entity excise election

For taxable years beginning on or after Jan. 1, 2026, the legislation allows pass-through entities (PTE) to elect to pay an additional 4% excise on income allocated to members subject to Massachusetts income tax that exceeds the state surtax threshold. Qualified members of a PTE making the election are allowed a refundable credit against the PTE tax. The credit is limited to 90% of the PTE tax.

Additionally, the PTE election doesn’t apply to any tax year that the federal limitation on the state and local taxes (SALT) deduction has expired or otherwise is not in effect.

Allocations of PFML contributions amended

For taxable years beginning on or after Jan. 1, 2026, the supplemental budget revises how Massachusetts paid and medical leave (PFML) contributions are split between employers and employees. Employers may withhold up to 40% of family leave contributions from wages and must fund the remaining 60% (for employers with 25 or more employees), while they may withhold 100% of medical leave contributions from employees.

As a result, family leave benefits remain fully taxable, but medical leave benefits become fully excluded from Massachusetts gross income.

New sales tax exemption for materials, tools, and fuel used in the development of multifamily housing

Effective Jan. 1, 2027, the supplemental budget provides a new sales tax exemption for materials, tools, and fuel used directly and exclusively in qualifying multifamily housing construction projects. To qualify, projects must be approved by the state housing agency, and either be located in lower-income areas or include at least 15% affordable units.

Developers must obtain an approval certificate and present it to vendors to claim the exemption. Both the developer and vendor must maintain records supporting the exempt purchases. The exemption is subject to a statewide annual cap of $35 million, and approvals will not be granted if the cap would be exceeded. Certificates may be revoked if the project doesn’t begin within two years, no longer qualifies, or the exemption is misused.

Ch. 101 (H.B. 5470), Laws 2026, effective June 12, 2026.

Missouri

Multiple taxes: Provisions related to financial and tax incentives for economic development modified and established

Enacted Missouri legislation modifies and enacts various financial and tax incentives for economic development, including those detailed below.

Missouri downtown and rural economic stimulus act

The “Missouri Downtown and Rural Economic Stimulus Act” is expanded by increasing allowable tax increments, extending project durations, and broadening eligibility and financing mechanisms for redevelopment projects.

Capital investment tax credit

An additional capital investment income tax credit is created within the Missouri Works Program. Specifically, beginning Jan. 1, 2027, qualified companies may receive tax credits if the Department of Economic Development approves a benefits proposal and the company makes at least $30 million in new capital investments within two years if located within a certified Missouri innovation zone, or at least $50 million in new capital investments if located outside such a zone. Data storage centers are not eligible for the credit.

The credit may not exceed 2.5% of new capital investment made at the project facility during the three-year period following submission of a notice of intent. Investments made prior to the notice of intent do not qualify. Credits expire if the company fails to satisfy minimum investment requirements within two years. No more than $106 million in tax credits may be authorized for each fiscal year.

A qualified company that intends to seek this tax credit must submit a notice of intent. The Department of Economic Development must respond to notices of intent within 30 days by approving, rejecting, or conditionally approving the request. In determining benefits, the department must consider the qualified company’s need for program benefits; the overall size and quality of the proposed project, including the number of jobs created or retained, new capital investment, proposed wages, growth potential of the qualified company, and similar factors; financial stability and creditworthiness of the qualified company; level of economic distress in the area; competitiveness of alternative locations for the project facility; and the percent of local incentives committed.

The cap on this new capital investment tax credit is subject to the annual cap of the Missouri Works Program.

Missouri Innovation, Public Safety, and Accountability Act

The legislation establishes the “Missouri Innovation, Public Safety, and Accountability Act” by authorizing the designation of Missouri innovation zones and the use of certain economic development incentives administered by the Department of Economic Development (DED) and local municipalities. The provisions sunset 10 years after the effective date. Existing approvals and benefits may continue for their authorized duration.

Missouri Innovation Zone — The legislation establishes the Missouri Innovation Zone program. Eligible cities may designate one geographic area as a certified Missouri Innovation Zone for purposes of receiving and administering specified economic development incentives. Participation in the program is voluntary; no city may have more than one certified zone, and a certified Missouri Innovation Zone must be contiguous and may not exceed 10% of the total area of the participating city. The executive branch of the participating city must prepare and submit a master plan to the Department of Economic Development. The master plan must identify zone boundaries, vacant or underutilized properties, infrastructure priorities, public safety strategies, reinvestment plans for net-new revenues, and projected housing, population, and employment impacts.

The department must approve, conditionally approve, or deny complete applications within 45 calendar days. If an application is incomplete, the department must issue a notice of deficiency within 45 days, and the applicant will have 15 days to cure deficiencies while retaining its position in the application review process. Failure by the department to issue a determination within the required period may result in deemed approval if statutory requirements are otherwise satisfied.

Certified Missouri Innovation Zones qualify for several state-administered incentives, including employer retention and reinvestment incentives, employer relocation incentives, office-to-residential conversion incentives, Missouri opportunity zone tax deferrals, and Missouri angel investment incentives. Certified zones will also qualify as redevelopment areas for purposes of Chapters 99 and 353, RSMo, allowing the use of local tax increment financing and property tax abatement tools.

The legislation authorizes the department to charge application, participation, or administrative fees of up to 2.5% of the tax credits issued under the program. The Missouri Innovation Zone program sunsets 10 years after the effective date and terminates on September 1 of the following calendar year. Existing certifications and benefits may continue for their authorized duration following the sunset.

Employer retention and reinvestment incentive — An employer retention and reinvestment incentive is established within the Missouri Works Program providing withholding benefits to qualified companies that maintain a continued presence in a Missouri innovation zone and reinvest in their operations. Specifically, for all tax years beginning on or after Jan. 1, 2027, a qualified company that enters into a benefit agreement is allowed to receive a withholding benefit attributable to covered employees. The withholding benefit may be delivered either as a withholding tax credit or as authorized retention of state income tax withholdings.

To qualify, a company must employ at least three covered employees at the certified zone location. The Department of Economic Development must approve or deny complete applications within 45 calendar days, and failure to issue a determination within the required time period will result in deemed approval if statutory requirements are satisfied. The legislation prohibits companies from relocating or transferring operations from another Missouri location into the zone if such relocation materially reduces payroll at the originating location. Payroll used for this incentive may not also be used for the employer relocation incentive.

The withholding benefit can’t exceed 3% of the aggregate gross wages paid to new and retained jobs at the certified innovation zone location during a single tax year, and the benefit can be authorized for three to 10 years. Tax credits authorized under the incentive are nonrefundable, may be carried forward for up to five tax years, and may not be transferred, sold, assigned, or otherwise conveyed.

Employer relocation incentive — The legislation creates an employer relocation incentive within the Missouri One Start program for eligible qualified companies creating eligible relocated jobs or new jobs within a certified Missouri Innovation Zone. Eligible qualified companies may receive benefits relating to relocated employees establishing Missouri residency and creating new employment opportunities within the zone. Specifically, for all tax years beginning on or after Jan. 1, 2027, an eligible qualified company is allowed to claim a tax credit in an amount equal to the eligible relocation expenses actually incurred and paid by the company on behalf of an eligible relocated employee during the tax year in which the employee relocated to a certified Missouri innovation zone, not to exceed $5,000 per tax year per eligible relocated employee. To qualify, a company must create at least three eligible relocated jobs or new jobs within the zone. Eligible relocated employees must receive annual wages of at least $70,000. If an eligible relocated employee fails to maintain the primary residence requirement for 12 consecutive months following relocation, any state tax credit attributable to that employee will be subject to recapture from the eligible qualified company.

Tax credits authorized under the incentive are nonrefundable, may be carried forward for up to five tax years, and may not be transferred, sold, assigned, or otherwise conveyed.

Office-to-residential conversion tax credit — The legislation creates office-to-residential conversion income tax or sales and use tax credits for redevelopment projects converting eligible office properties into residential use within certified Missouri Innovation Zones. The tax credit may be applied at the election of the taxpayer against: (1) the taxpayer’s income tax liability under Chapter 143, excluding any tax required to be withheld or remitted on behalf of another person under Chapter 143 or 148; or (2) the taxpayer’s liability for state sales and use taxes, provided, however, that the tax credits authorized under this section may be applied against state sales and use tax only for any tax year in which the top rate of tax imposed pursuant to Section 143.011 is equal to or less than 2.5%.

The tax credits for qualified conversion expenditures apply for all tax years starting on or after Jan. 1, 2027. Specifically, taxpayers are allowed a tax credit of up to 25% of qualified conversion expenditures incurred on or after Jan. 1, 2027, with respect to a qualified converted building or upper-floor housing located either: (1) within a certified Missouri innovation zone; or (2) within a qualified Missouri main street district that is not located within a certified Missouri innovation zone, provided that the city in which such main street district is located has established a certified Missouri innovation zone. Also, taxpayers are allowed a tax credit of up to 30% percent of qualified conversion expenditures incurred on or after Jan. 1, 2027, with respect to upper-floor housing located in a qualified Missouri main street district.

Qualified conversion expenditures include capital expenditures associated with rehabilitation, reconstruction, or adaptive reuse of an existing structure.

The total amount of tax credits authorized may not exceed $50 million in any fiscal year. The tax credits are not refundable but can be carried forward for 10 years. The credits may also be transferred, sold, or assigned. However, taxpayers may only receive one of the credits for the same qualified conversion. Also, the tax credits authorized constitute a single tax credit program.

Missouri Opportunity Zone — The Missouri Opportunity Zone program is created within certified Missouri Innovation Zones. The program is designed to encourage long-term private investment by allowing a taxpayer to defer certain Missouri income tax liabilities when eligible gains are reinvested into qualifying businesses or property located within such zones. The Department of Revenue will administer tax filings, certifications, and reporting requirements for the program.

Missouri Angel Investment Program Credit — The legislation creates an angel investment incentive to be administered by the Department of Economic Development and the Missouri Technology Corporation (MTC). For tax years beginning on or after Jan. 1, 2027, an income tax credit is allowed for an investor’s cash investments in the qualified securities of qualified Missouri businesses operating within certified Missouri Innovation Zones. The amount of the credit is 40% of a cash investment, 50% if the business is located in a rural county, or 60% if the business is located in a certified innovation zone. Unused credits may be carried forward for two years.

A single qualified investor is not allowed to receive more than $75,000 in credits, and no qualified entity investor is allowed to receive more than $300,000 in tax credits for a single year. The total amount of tax credits that may be allowed can’t exceed $6 million during either calendar year 2027 or 2028. Beginning in calendar year 2029, the total amount of tax credits allowed must not exceed $7 million as long as the total amount of tax credits allowed in the immediately preceding calendar year was issued during such calendar year. The total amount is allowed to increase to $8 million as long as the total amount of tax credits allowed in the immediately preceding calendar year was completely issued.

Qualified Missouri businesses are subject to reporting requirements, compliance standards, and clawback provisions if headquarters or substantial Missouri operations are relocated outside the state within 10 years after receiving assistance. The bill permits issued tax credits to be transferred to another natural person if the original investor has not yet claimed the credit. Qualified businesses receiving investments must submit annual reports to the MTC, and the MTC must submit quarterly and annual reports relating to tax credit allocations, investments, jobs, economic impacts, and business retention outcomes to the director of the Department of Economic Development.

H.B. 3231, Laws 2026, effective Aug. 28, 2026, except as noted.

New Jersey

Corporate income tax: Net operating loss deduction temporarily capped

New Jersey is temporarily capping the corporate business tax net operating loss deduction at $1 million, for privilege periods ending on or after July 31, 2026, but before July 31, 2030. For privilege periods ending on or after July 31, 2030, but before July 31, 2032, the previously disallowed deduction amounts may be used but the deduction may reduce the taxpayer’s allocated entire net income by no more than 75% for the period. Reduced or disallowed deduction amounts can be carried forward for six additional privilege periods. The cap doesn’t apply to a public utility.

Ch. 21 (A.B. 5322), Laws 2026, effective June 30, 2026.

North Carolina

Corporate, personal income taxes: IRC conformity; decoupling for domestic R&E expenditures; other changes enacted

North Carolina has enacted omnibus tax legislation that:

S.L. 2026-31 (S.B. 595), Laws 2026, effective and applicable as noted; Fiscal Note, Legislative Analysis Division, June 22, 2026.

Vermont

Multiple taxes: IRC conformity, decoupling, other provisions enacted

Vermont enacted a law changing the state’s IRC conformity date from Dec. 31, 2024, to Dec. 31, 2025, applicable to taxable years beginning on and after Jan. 1, 2025. However, Vermont has decoupled from several federal OBBBA provisions, as discussed below.

Domestic research and experimental (R&E) expenditures — For tax years beginning on or after Jan. 1, 2025, Vermont doesn’t adopt the federal treatment for domestic R&E expenditures under new IRC Section 174A for large businesses. Specifically, a new modification adds back deductions for domestic R&E expenditures taken under IRC Section 174A and under the recovery of unamortized amount method of P.L. 119-21, 139 Statement 72 (2025) Section 70302(f)(2) for all businesses that don’t qualify as an “eligible taxpayer.” Businesses required to make the addback are allowed a corresponding Vermont deduction in the amount that would have been allowed under IRC Section 174 as in effect on Dec. 31, 2024 (i.e., five-year amortization).

Foreign R&E expenditures remain unchanged by the OBBBA, using the 15-year amortization period under IRC Section 174, and Vermont makes no modification to those expenses.

An "eligible taxpayer” is defined as a corporation or partnership (other than a tax shelter) that meets the gross receipts test of IRC Section 448(c). For tax year 2025, a taxpayer meets the gross receipts test if average annual gross receipts are $31 million or less for the three prior tax years.

Small businesses — For tax years beginning on or after Jan. 1, 2025, Vermont adopts the federal treatment of R&E under IRC Section 174A for “eligible taxpayers.” As a result of Vermont's conformity, these businesses will not be required to make any Vermont modifications for expenditures paid or incurred in taxable years beginning on or after Jan. 1, 2025. For eligible taxpayers that elected the small business retroactive method of P.L. 119-21, 139 Statement 72 (2025) Section 70302(f)(1) and accordingly amended their federal returns, these filers will be eligible to deduct those remaining unamortized Vermont amounts on their Vermont return in tax year 2025, or in tax years 2025 and 2026 under the recovery of unamortized amount method.

Qualified production property — For tax years beginning on or after Jan. 1, 2025, Vermont does not adopt the new expensing rule for qualified production property under IRC Section 168(n). Specifically, a new modification adds back all bonus depreciation for qualified production properties taken under IRC Section 168(n). Businesses required to make the addback are provided a corresponding Vermont deduction in the amount that would have been allowed under IRC Section 167(a) for the affected nonresidential real property notwithstanding the creation of IRC Section 168(n) by the OBBBA.

FDII and GILTI deduction — For tax years beginning on or after Jan. 1, 2025, Vermont no longer adopts IRC Section 250 and disallows this deduction in full.

The Department of Taxes has issued a summary of the required modifications, including line-by-line instructions to be used by affected taxpayers in preparing or amending their 2025 Vermont income tax returns.

Qualified small business stock — An addition modification is enacted for income or gain from the sale or exchange of qualified small business stock excluded from federal gross income under IRC Section 1202(a), applicable to tax years beginning on and after Jan. 1, 2026.

Credit for tax paid by S corporations — The law removes the prohibition on credits for taxes paid in another state by an S corporation, applicable to tax years beginning on or after Jan. 1, 2025.

Nonresident apportionment — The law adjusts the manner in which Vermont income tax is apportioned for nonresident individuals, trusts, and estates to include Vermont-specific modifications to federal income calculations in the numerator and denominator for purposes of apportioning nonresident income.

Research and development credit — The credit is increased from 27 to 75% of the federal credit amount, applicable to tax years beginning after 2026.

Downtown and village center credit — The annual credit maximum is increased from $3 million to $3.5 million.

Property transfer tax — The law makes a change to prevent property buyers from avoiding the higher property transfer tax rate on nonprincipal residences.

Property tax — The law includes various property tax changes, such as clarifying the definition of “communications property.”

Act 164 (H.B. 933), Laws 2026, effective June 18, 2026, applicable as noted.

Virginia

Corporate income tax: Taxpayer not required to use single sales factor apportionment method

The Virginia Department of Taxation issued a corporate income tax ruling regarding the appropriate apportionment method that the taxpayer was required to use. Specifically, the department ruled that the taxpayer was incorrectly treated as a retail company required to use single sales factor apportionment instead of the standard three-factor method.

The taxpayer filed its Virginia corporate income tax returns for the taxable years at issue using the standard three-factor apportionment formula. Under audit, the department applied the single sales factor apportionment method required for the retail trade sector on the basis that the taxpayer classified itself as a retailer on its Virginia and federal corporate income tax returns. The taxpayer filed an application for correction, contending that it wasn’t a retailer required to use the single sales factor apportionment method. The taxpayer asserted that its business activities changed over time from primarily retail to primarily wholesale. The taxpayer provided documentation indicating that approximately 68% of its gross sales for each of the taxable years at issue were generated from wholesale trade activities.

The audit staff didn’t consider the taxpayer’s documentation supporting its claim that it wasn’t a retailer. Rather, the audit staff disallowed the standard three-factor apportionment method because the taxpayer classified itself as a retailer on its federal and Virginia income tax returns, and had not amended its federal returns to report a different designation. However, the department has determined that a taxpayer wasn’t required to file a federal amended return in order to amend a Virginia income tax return in cases where the change to the Virginia return doesn’t affect the taxpayer’s federal taxable income. As such, the fact that the taxpayer hadn’t amended its federal income tax returns to change its NAICS classification would not preclude the taxpayer from amending its Virginia income tax return to change the reported NAICS code because such change wouldn’t have impacted federal taxable income.

In addition, the department has ruled that a taxpayer reporting a NAICS retailer code would be required to use the single sales factor method of apportionment provided that the code accurately reflected that taxpayer’s primary activities. Implicit in that ruling is that the department has the authority to independently consider the true nature of a taxpayer’s business activities to determine the proper method of apportionment. Based on the information provided by the taxpayer here, in the department’s opinion, the NAICS retail classification code didn’t properly reflect the taxpayer’s primary activities for the taxable years at issue. Thus, the taxpayer wasn’t required to use the single sales factor method of apportionment. The audit adjustments to the taxpayer’s apportionment factors are reversed and adjusted assessments will be issued accordingly. The taxpayer should remit any resulting balance due within 30 days of the bill dates to avoid further collection actions.

Ruling of Commissioner, P.D. 26-25, Virginia Department of Taxation, May 11, 2026.

Multiple taxes: Enacted budget imposes data center electricity tax, authorizes local taxes, and makes other tax changes

Virginia enacted the 2026–2028 biennial budget legislation containing various corporate income, personal income, retail sales and use, property, utility, cigarette, tobacco products, miscellaneous, and other tax provisions.

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.

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’s 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.

Data centers

Data center electricity consumption tax — Beginning on and after July 1, 2026, but before July 1, 2028, there is imposed upon every data center operator in Virginia an electricity consumption tax at the rate of $0.011/kWh of all electricity consumed at each data center per month.

“Data center” means a facility whose primary services are to centralize the storage, management, and processing of digital data and is used to house:

“Data center” does not include a facility whose primary function is to facilitate the provision of internet access service, a communication service, or any combination thereof.

“Data center operator” means any person who (1) owns, operates, or occupies a data center in Virginia, or (2) owns or operates a data center in Virginia that utilizes self-supplied electricity generation.

“Electricity consumption tax” means the amount that each data center operator must pay for each kWh used, regardless of whether the electricity is provided through an incumbent electric utility, an incumbent electric cooperative, a competitive service provider, or is self-supplied. For electricity that’s self-supplied, the data center operator must report its usage quarterly to the Department of Environmental Quality, who must verify such usage with the State Corporation Commission. For electricity supplied by an incumbent electric utility, an incumbent electric cooperative, or a competitive service provider, the supplier must list the applicable tax as a separate line item on the data center operator’s billing invoice.

The tax must be collected monthly by the State Corporation Commission. However, the first collection of the tax imposed must occur in September of 2026 and the payment due for such first collection must include all taxes owned for the period beginning on and after July 1, 2026, through Sept. 1, 2026. Also, revenue collected through the tax is capped at $600 million during any fiscal year. Any mony collected over that amount must be refunded to each data center operator on a pro-rata basis at the end of the fiscal year.

Water supply planning — In a cooling water scarcity area, prior to July 1, 2032, a data center must demonstrate to the satisfaction of the department that it has minimized the use of any type of water for cooling purposes and demonstrated the use of best available water-efficient technologies, including air cooling, closed-loop systems, recycled water, stormwater reuse, nonpotable reclaimed water, or other technologies approved by the department. A data center must only use direct evaporative cooling in conjunction with one of the department’s approved primary technologies. In the Eastern Virginia Groundwater Management Area, a new data center that submits a complete application for a Department of Environmental Quality air permit after Jan. 1, 2027, must demonstrate to the satisfaction of the department that it has minimized the use of any type of water for cooling purposes and demonstrate the use of best available water-efficient technologies, including air cooling, closed-loop systems, recycled water, stormwater reuse, nonpotable reclaimed water, or other technologies approved by the department. A data center must only use direct evaporative cooling in conjunction with one of the department’s approved primary technologies. The department, by Oct. 15, 2026, must conduct a study and provide a plan on the retrofitting of existing data centers in the Eastern Virginia Groundwater Management Area to use air cooling systems, 100% recycled water and/or stormwater for cooling, or use a closed-loop system.

Sales and use tax exemption — The existing sales and use tax exemption for data centers remains in place. The Joint Subcommittee on Tax Policy must study the data center sales and use tax exemption and other data center impacts during the 2026 interim, and report recommendations to the General Assembly by Dec. 15, 2026.

Standard deduction

For tax year 2027, the standard personal income tax deduction increases to $9,200 for single individuals or a married individual filing separately and $18,400 for married persons. For tax years 2028 and 2029, the standard deduction increases to $9,300 for single individuals or a married individual filing separately and $18,600 for married persons. For all tax years after 2029, the standard deduction decreases to $3,000 for single individuals or a married individual filing separately and $6,000 for married persons.

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

The increase in the amount of the refundable earned income tax credit for low-income taxpayers from 15 to 20% is extended through 2029.

Local sales and use tax authorization

Any county and city not located in Planning District 8 is authorized to impose an additional local sales and use tax at a rate of up to 1% provided the revenue is used only for capital projects for the construction or renovation of schools if such tax is approved in a voter referendum. In addition, any county or city that is located in Planning District 8 is authorized to impose an additional local sales and use tax of up to 1% provided the revenue is only used for (1) capital projects for the construction or renovation of schools, (2) public transportation, or (3) a combination thereof, if such levy is approved in a voter referendum.

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.

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 2027 and 2028, the amount of the credit available is limited to $20 million, with allocations specified in the law.

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.

Recyclable materials processing equipment tax credit

The income tax credit for the purchase of machinery and equipment used for advanced recycling and processing recyclable materials remains in effect through 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, 2028.

Exemption for bullion and legal tender coins

The retail sales and use tax exemption applicable to gold, silver, platinum bullion, or legal tender coins remains in effect through July 1, 2028.

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.

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.

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.

Liquid nicotine — The tobacco products tax is imposed on liquid nicotine products at the rate of $0.066 per milliliter, beginning July 1, 2020, until July 1, 2024. Beginning July 1, 2024, the tax is imposed at the rate of $0.11 per milliliter.

Heated tobacco products — The tobacco products tax is imposed on any heated tobacco product at the rate of 2.25 cents per stick, beginning Jan. 1, 2021, until July 1, 2024. Beginning July 1, 2024, the tax is imposed at the rate of 20% of the wholesale price.

Stafford County admissions tax

Stafford County is authorized to impose a tax on admissions to an entertainment venue located in the county:

The tax must not exceed 10% of the amount charged for admission to any such venue. The authority to impose the tax expires on July 1, 2019, if no entertainment venues exist in Stafford County by that date.

Dealer discounts and allowances

Dealer discounts aren’t available for any dealer required to remit retail sales and use tax by electronic funds transfer, beginning with the June 2010 return. The compensation available to all other dealers is limited to the following percentages of the first 3% of the sales and use tax levied:

Also, the legislation suspends provisions that allow compensation to retailers liable for the tire recycling fee, the communications sales and use tax, the tobacco products tax, and the tax for enhanced E-911 service, beginning with the June 2010 return. However, the compensation allowed for the tobacco products tax under Virginia Code Section 58.1-1021.03 is reinstated, beginning with the June 2011 return.

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 Virginia Code Section 58.1-3201.

Ch. 1 (H.B. 30), Laws 2026, Special Session I, effective July 1, 2026, except 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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