The states covered in this issue of our monthly tax advisor include:
California
Corporate income tax: Research tax credit claims rejected
A taxpayer did not demonstrate that it engaged in qualified research for purposes of the California research and development tax credit.
The taxpayer’s principal business activity during the tax years at issue was providing analytical testing services. The taxpayer retained a CPA for a research and development tax credit study for the tax years at issue. The study determined that the taxpayer performed qualified research activities and was entitled to the tax credit. The taxpayer filed returns claiming the credits, but the Franchise Tax Board (FTB) denied the credits on the grounds that the taxpayer failed to provide information in support of the credit claims.
The taxpayer conceded that it hadn’t submitted contemporaneous documentation (e.g., email communications, lab data, notes, or monthly reports) to substantiate the occurrence of the research projects but argued that contemporaneous documentation was not required. According to the Office of Tax Appeals, the taxpayer was incorrect. The tax credit study submitted as evidence, and the taxpayer’s CEO’s testimony did not, either alone or together, provide sufficient detail to establish that the taxpayer satisfied all four tests for establishing that it engaged in qualified research.
The taxpayer also contended that the IRS accepted its research and development tax credit claims, because it received a refund from the IRS. However, there was no evidence in the record that the IRS audited or accepted the taxpayer’s federal tax credit claims. Moreover, the FTB was not bound to follow any IRS decisions it believed to be erroneous.
Advanced American Laboratories, Inc., California Office of Tax Appeals, 2026-OTA-397P, June 9, 2026.
Corporate income tax: Investment bank’s receipts from trading activities properly sourced by FTB
A financial services firm failed to demonstrate that the Franchise Tax Board (FTB) improperly sourced receipts from its investment bank subsidiary’s securities trading transactions to California for tax purposes. During the applicable tax year, the bank engaged in principal, institutional agency, and retail agency securities trading transactions.
The issue on appeal was how to source the receipts from those transactions among the states under California’s former cost-of-performance sourcing rules. The FTB had assigned the receipts based on where the employees performing the relevant income-producing activities were located.
The Office of Tax Appeals (OTA), in a nonprecedential decision, found that the evidence was insufficient to support the firm’s alternative approach or to show that the FTB’s methodology was unreasonable. For institutional sales, the OTA agreed with the FTB’s approach wherein 80% of the receipts were assigned to California based on the location of the researchers responsible for investment analysis. For retail sales, the OTA agreed with the FTB’s approach wherein 53.2686% of the receipts were assigned to California based on the estimated percent of dealers in California. For principal sales, the firm did not dispute the FTB’s finding that 79.4766% of the receipts should be assigned to California based on the location of the employees making trading decisions. The firm made this concession after the OTA rejected its contention that the costs of purchasing securities should be included as part of the cost-of-performance analysis. According to the OTA, receipts from trading activities are properly assigned to the states where the trading activity was conducted, and the costs to purchase the underlying securities have no relevance to the analysis.
Wedbush Capital, California Office of Tax Appeals, 2026-OTA-405, May 22, 2026.
Colorado
Sales and use tax: Wholesale exemption clarified for sales to business outside the United States
Colorado issued guidance on the tax treatment of wholesale sales to a purchaser located outside the United States for resale outside the United States when the purchaser takes title and possession of the goods in Colorado by free on board (FOB) origin shipment. Colorado treats wholesale sales as exempt from Colorado sales tax, regardless of the purchaser’s location, shipping terms, or export status. The seller must document and verify wholesale and other exemptions using form DR 5002, Declaration of Wholesale or Entity Sales Tax Exemption, or equivalent resale or exemption certificates.
General Information Letter GIL 26-002, Colorado Department of Revenue, June 16, 2026.
Sales and use tax: Taxability of inventory for promotional giveaways and nexus for marketplace sellers addressed
Colorado issued sales and use tax guidance on inventory withdrawn for promotional giveaways, credits for tax paid to another state, and sales tax nexus for marketplace sellers.
Inventory withdrawn for promotional giveaways
Tangible personal property purchased tax-exempt at wholesale and later withdrawn from inventory in Colorado for promotional or giveaway purposes, for which the recipient provides no valuable consideration, is subject to Colorado use tax at the time of withdrawal. If the purchaser of the property didn’t pay sales tax at the time of purchase, the purchaser is deemed to be the user-consumer of the property and must remit use tax on the purchase price to the Department of Revenue.
Taxable property purchased outside of Colorado and brought into Colorado for use in the state is also subject to Colorado consumer use tax. This applies whether the property was purchased at retail outside the state or purchased at wholesale and pulled from inventory outside the state.
Credits for tax paid to another state
A taxpayer may claim a credit against any Colorado use tax due for any legally imposed use tax previously paid to another state. Credits for tax paid to another state apply first to state-level use tax and then to any subdivision use tax. No credit is allowed if the tax paid to the other state was not legally due.
Nexus for marketplace sellers
Marketplace sellers do not have the rights, obligations, and liabilities of a retailer with respect to sales facilitated by a marketplace facilitator in or through a marketplace. However, if a marketplace seller also offers tangible personal property, commodities, or services for sale through other means, such as their own store or their own website, the marketplace seller is subject to the same licensing, collection, remittance, filing, and record keeping requirements as any other retailer with respect to those sales.
General Information Letter GIL 26-003, Colorado Department of Revenue, June 25, 2026 (released August 2026).
Illinois
Corporate income tax: Wholesaler’s activities did not establish nexus
Illinois issued a general information letter on whether an out-of-state wholesale company established income tax nexus based on sales of disposable food packaging products to an Illinois distributor and reseller. The company did not make retail sales in Illinois, had no office, employees or agents, representatives, warehouse, inventory, or business locations in the state, did not own or lease real or personal property in the state, and did not perform installation, repair, maintenance, assembly, training, or other services in the state. It accepted and processed orders outside Illinois and shipped products to the customer directly from an overseas supplier. Illinois generally doesn’t issue rulings on whether a particular taxpayer has nexus with the state because nexus determinations are fact specific. A nexus determination is only made during an audit where an Illinois Department of Revenue auditor has access to all relevant facts and information. But the ruling concludes based on the facts that the company’s activities possibly did not exceed the “mere solicitation” protection under Public Law 86-272. A nonresident company’s activities that are not entirely ancillary to requests for orders go beyond mere solicitation and become subject to Illinois income taxation, unless the activities are de minimis.
General Information Letter IT 26-0007-GIL, Illinois Department of Revenue, July 24, 2026.
Sales and use tax: Remote retailer amnesty program regulation adopted
Illinois adopted a regulation to implement its sales tax amnesty program for remote retailers. The amnesty program runs from Aug. 1, 2026, through Oct. 31, 2026, and applies to outstanding state and local sales tax liabilities from periods beginning Jan. 1, 2021, through June 30, 2026. A remote retailer is an out-of-state retailer who has no physical presence in Illinois, but who has met the economic nexus threshold requiring the collection and payment of Illinois state and local sales tax.
Illinois will waive and not seek to collect interest and penalties from taxpayers who pay all outstanding tax liabilities during the amnesty period. The state also will not pursue civil or criminal prosecution of taxpayers granted amnesty under the program.
Retailers who want to participate in the remote retailer amnesty program must:
- Complete and file an Illinois business registration application.
- File all returns electronically.
- Pay the outstanding sales tax liability electronically based on the greater of the simplified retailers’ occupation tax rate or, if the tax was collected by the retailer, the amount of the tax collected.
The simplified retailers’ occupation tax rate is set at:
- 9% of the gross receipts from sales of general merchandise.
- 1.75% of the gross receipts from sales of qualifying food not prepared for immediate consumption at the location where it is sold and sales of qualifying drugs and medical applications or devices subject to the reduced 1% statewide rate.
Retailers unable to pay in full can enter into a preapproved payment plan that requires:
- A good faith down payment by Oct. 31, 2026.
- Payment of the remaining balance in equal monthly installments for up to 24 consecutive months beginning Dec. 1, 2026.
Interest applies to the balance during the period of the payment plan.
The amnesty program doesn’t apply to taxpayers who are subject to a pending criminal investigation or civil or criminal litigation in Illinois for nonpayment of tax, tax delinquency, or tax fraud.
86 Ill. Adm. Code Sec. 131.185, Illinois Department of Revenue, effective July 28 2026.
Corporate income tax: Alternative apportionment request to include GILTI denied
Illinois issued a general information letter that denied a company’s petition for alternative apportionment proposing to include 50% of its global intangible low-taxed income (GILTI) in the sales factor denominator because the state subjects 50% of that income to taxation. The company claimed that excluding the income from the sales factor resulted in taxation without factor representation and distortion of income from its economic activity in the state. The company’s petition was not sufficient to satisfy the company’s burden of proving that the statutory method produced a grossly distorted result. The request merely stated without support that the statutory method produced a grossly distorted result due to the exclusion of apportionment factors.
A taxpayer must first use the statutory method to determine if that method reflects the market for the taxpayer’s goods, services, or other sources of business income in Illinois. If the statutory method does not fairly reflect the taxpayer’s market, then the Illinois Department of Revenue can permit an alternative apportionment method. The company’s request contained no information relative to the market for its goods and services, nor information to determine that the statutory method failed to fairly reflect that market.
General Information Letter IT 26-0008-GIL, Illinois Department of Revenue, July 28, 2026.
Sales and use tax: Taxation of inventory for giveaways and promotions discussed
Illinois issued a general information letter discussing use tax rules for inventory purchased free of sales tax that is withdrawn and given away across state lines. The ruling also addresses physical nexus involving inventory owned by a remote seller, but held and controlled by third-party marketplace facilitators. If a donor possesses tangible personal property in Illinois for gift purposes, the donor has made a taxable use of the property in Illinois and is subject to use tax based on the cost price of the property, even if the donor ships or mails that tangible personal property from the state to its agent in another state to give away. If use tax is due and paid in another state on the donated property shipped into that state, the taxpayer can claim a credit for the tax paid in determining its Illinois use tax liability.
A remote retailer’s inventory at a marketplace facilitator’s Illinois location does not create physical presence nexus if used exclusively to fulfill orders made over a marketplace that meets the sales tax economic nexus threshold. The marketplace facilitator is the retailer and must pay sales tax if total gross receipts from sales of tangible personal property to purchasers in Illinois made through the marketplace by the marketplace facilitator and marketplace sellers are $100,000 or more during the previous 12-month period.
General Information Letter ST 26-0024-GIL, Illinois Department of Revenue, June 12, 2026.
Maryland
Miscellaneous tax: Digital advertising tax struck down, refunds ordered
The Maryland Tax Court has ruled that the state’s digital advertising tax violates the federal Internet Tax Freedom Act and the U.S. Constitution and, therefore, ordered a refund of tax paid, with interest.
The Tax Court noted that in enacting the ITFA, Congress made clear that it did not want internet services of any kind taxed unless other similar services were taxed. Further, the comptroller’s attempt to distinguish digital from nondigital advertising was unpersuasive. Since Maryland does not tax advertising that is not digital, including printed media and broadcast radio/television, the tax violates ITFA.
In addition, the tax violates the U.S. Constitution because it is not fairly apportioned and discriminates against interstate commerce. The tax rate increases based on global activities that may not have any connection with Maryland, a violation of fair apportionment. Further, the digital advertising tax favors in-state businesses because, even though it is neutral on its face, there are few Maryland businesses that meet the tax threshold of $100 million per year.
Peacock TV, LLC v. Comptroller of Maryland, Maryland Tax Court, No. #23-DA-OO-0654, Aug. 14, 2026.
Massachusetts
Corporate income tax: Taxpayer qualified as a manufacturer subject to single sales factor formula
The Massachusetts Appeals Court affirmed a corporate excise tax decision that treated the taxpayer as a manufacturing corporation because the Appellate Tax Board found that it engaged in manufacturing in substantial part. The taxpayer, an international footwear retailer and wholesaler, filed its Massachusetts corporate excise tax returns using the three-factor apportionment formula based on property, payroll, and sales, but the commissioner audited the returns and taxed the taxpayer as a manufacturing corporation under the single-factor formula based solely on sales. The taxpayer argued that it designed and marketed footwear and played only an incidental role in the actual production of its shoes, but the board concluded that its California design team, its two offices in China and one in Vietnam, and its work with approximately ten independent factories in China and Vietnam showed substantial manufacturing activity. Because manufacturers with income taxable within and outside Massachusetts had to use single sales factor apportionment, the court upheld the commissioner’s denial of abatement of the assessed tax and interest.
Skechers USA, Inc. v. Commissioner of Revenue, Appeals Court of Massachusetts, No. 25-P-928, July 30, 2026.
Nebraska
Corporate income tax: Grow the Good Life Act authorized; ImagiNE Nebraska and Nebraska Advantage Acts amended
Nebraska has authorized the Grow the Good Life Act to provide tax incentives for businesses that have merged or combined with an out-of-state business to retain Nebraska employment and to encourage relocation of jobs to the state. Wage and investment credits for certain levels have been increased under the ImagiNE Nebraska Act, and provisions relating to Tier 6 projects under the Nebraska Advantage Act have also been amended.
Grow the Good Life Act
In order to be eligible for the wage retention credits under this act, an employer must meet the following conditions:
- The merger or combination must occur between Jan. 1, 2026, and Dec. 31, 2028.
- The employer had more than 3,000 full-time employees in Nebraska immediately prior to the date of the merger or combination.
- The out-of-state company had an actual or implied value greater than $50 billion immediately prior to the date of the merger or combination.
- The employer maintained its headquarters in Nebraska for at least ten years before the merger.
- The shareholders of the out-of-state company receive at least 20% of the ownership share value or voting equity of the new company.
- The employer must retain at least 90% of its base-year employment in Nebraska.
- The business must be a qualified location under the ImagiNE Nebraska Act.
Businesses may file an application from Jan. 1, 2027, through May 31, 2029, with the director of the Department of Economic Development. If the application is approved, the business will enter into a written agreement stating that it will maintain its headquarters in Nebraska and retain 90% of its base-year employment throughout the earning and usage periods (ending Dec. 31, 2040).
The wage retention credits equal 5% of the total compensation paid by the employer to all retained employees in Nebraska who are paid wages at a rate equal to at least 100% of the Nebraska statewide average hourly wage for the year of application. The credit may be earned for the year of application and the next nine years (the earning period). The credits are limited to a maximum of $5 million per year. The credits may be used against the applicant’s income tax or withholding tax liability. The “usage period” for the credits is a 10-year period beginning Jan. 1, 2031. The total amount of wage retention credits under the program is capped at $50 million.
ImagiNE Nebraska Act
For businesses with applications filed on or after April 16, 2026, wage credits under the ImagiNE Nebraska Act have been increased as follows:
- For taxpayers hiring 10 full-time employees, making a $1 million investment in a county with a population of 100,000 or more, and engaged primarily in activities under Section 77-6818(1)(a) or (1)(n), the credit increases to 5%.
- For taxpayers hiring 10 full-time employees, making a $1 million investment in a county with a population of less than 100,000, and engaged primarily in activities under Section 77-6818(1)(a) or (1)(n), the credit increases to 7%.
- For taxpayers hiring 20 full-time employees, the credit increases to 6% if the average wages are at least 100% of the state average (8% if the average wages are at least 150% of state average and 10% if the average wages are at least 200% of state average).
Investment credits are amended as follows:
- For taxpayers hiring 10 full-time employees, making a $1 million investment in a county with a population of 100,000 or more, and engaged primarily in activities under Section 77-6818(1)(a) or (1)(n), the credit increases to 5% (8% if the investment exceeds $10 million).
- For taxpayers hiring 10 full-time employees, making a $1 million investment in a county with a population of less than 100,000, and engaged primarily in activities under Section 77-6818(1)(a) or (1)(n), the credit increases to 5% (8% if the investment exceeds $10 million).
An additional 1% wage and 1% investment credit are applied at all levels of the ImagiNE Nebraska Act for any business that (i) employs 3,000 or more Nebraska-based, full-time equivalent employees as defined in Section 4980H of the Internal Revenue Code of 1986, and (ii) within a seven-year period starting when a change in ownership and control as defined in the Grow the Good Life Act occurs, hires 500 or more new employees who are paid at least $100,000 per year. The additional 1% credit bonus for benefit corporations is eliminated.
Employers may use tax credits to pay for up to 50% of employees’ childcare costs. This amendment replaces the use of credits for employer-sponsored childcare at the qualified location.
Nebraska Advantage Act
Beginning July 17, 2026, the period by which the employment and investment thresholds must be met have been amended for Tier 6 projects with agreements signed on or after Dec. 31, 2020. For these projects, employment and investment thresholds must be met by the end of the ninth year after the year the application was submitted. Taxpayers with active Tier 6 agreements must make an election to extend the attainment period and pay a $90,000 fee to the Department of Revenue.
L.B. 1165, Laws 2026, effective April 16, 2026, and as noted above.
New York
Corporate income tax: Sell-side of buy/sell transactions did not constitute sales for apportionment purposes
In a New York corporate franchise tax case involving a taxpayer that engaged in oil buy/sell transactions with third-party petroleum dealers, an appellate court upheld the tax appeals tribunal’s denial of the taxpayer’s refund request. The taxpayer argued unsuccessfully that the tribunal erred in determining that the buy/sell transactions were inventory exchanges and that the sell-side did not constitute sales within the meaning of the tax law and, therefore, were not includible in its business allocation percentage calculations. The taxpayer ultimately treated the receivables from the purported sales as negative costs of goods sold and reported them as cost of goods sold on its federal tax form, as opposed to gross receipts or sales. Considering that any value derived from the purported sales was zeroed out at the end of each month, either because an equivalent value in oil was exchanged or due to a net-out agreement, inclusion of the zeroed-out value from the buy/sell transactions on the taxpayer’s federal tax documents did not render the sell-side of the transactions business receipts includible in entire net income.
Even if the court accepted the contention that the challenged transactions constituted independent sales and should have been included in the receipts factor computation, that did not resolve the issue that counting both the sell-side and the end sale to the customer became an inaccurate reflection of the taxpayer’s economic activity in New York. The court was persuaded by the tribunal’s conclusion that the purpose of the series of steps in the buy/sell transactions was to serve the overall plan of fulfilling orders to the end customer, not generally sales between petroleum dealers. Looking at the entirety of the transactions through the lens of the step transaction doctrine, the tribunal’s determination that the taxpayer failed to meet its burden of proving entitlement to the claimed refunds was rational and supported by substantial evidence in the record.
Sunoco, Inc. v. Tax Appeals Tribunal, Appellate Division of the Supreme Court of New York, Third Department, No. CV-25-0480, July 23, 2026.
Corporate income tax: Challenge to tax reform apportionment regulations rejected
A New York appellate court found that an action by a professional employer organization (PEO) challenging certain corporate franchise tax apportionment regulations was properly dismissed by the lower court. The PEO sought a declaration that the challenged regulations were invalid, alleging that the exclusion of PEO reimbursements from the business apportionment factor would significantly increase its New York tax liability. However, the PEO’s request for declaratory judgment was unripe for review. The PEO also claimed that its due process rights were violated by Department of Taxation and Finance’s retroactive application of the regulations, which were promulgated in 2023 and intended to interpret and construe the tax reform statutory scheme enacted in 2015. Because the PEO settled any claims through May 31, 2019, the relevant retroactivity period was four and half years, rather than nine years as claimed by the PEO. It was also evident that the PEO had forewarning, considering the years of communication it had with the department and its numerous comments concerning the proposed regulations. In addition, retroactive application of the challenged regulations supported a valid public purpose, as they were intended to avoid distortions in apportionment, rather than increase tax receipts. The PEO could also request an adjustment if it believed that the business apportionment factor did not accurately reflect its business income within the state. Accordingly, the lower court properly found that the retroactivity period did not violate due process.
Paychex, Inc. v. Department of Taxation and Finance, Appellate Division of the Supreme Court of New York, Third Department, No. CV-25-0098, July 23, 2026.
North Carolina
Corporate, personal income taxes: Guidance issued on recently enacted legislation that may affect income tax returns
Two bills enacted in July 2026 (S.L. 2026-31 (S.B. 595), Laws 2026, and S.L. 2026-41 (S.B. 257), Laws 2026) made various changes to the North Carolina Revenue Act, including changes that may affect state individual and corporate income tax returns. The North Carolina Department of Revenue has issued guidance to explain how certain income tax provisions included in the new laws impact individuals and corporations and to provide instructions on how these laws impact state tax returns for tax years prior to 2026.
The state’s reference to the Internal Revenue Code was updated to July 5, 2025 (formerly Jan. 1, 2023). As such, to the extent North Carolina conforms to federal income tax law, North Carolina follows the IRC in effect as of July 5, 2025.
The bills also enacted:
- A new decoupling adjustment for individuals and corporations that incurred domestic research and experimental expenditures.
- A new personal income tax deduction that allows an individual who incurred a financial loss from the destruction or damage of timberland due to Hurricane Helene to deduct, subject to certain limitations, an eligible timber casualty loss from AGI when calculating North Carolina taxable income.
- A new itemized deduction for individuals who incurred gambling losses.
Details, examples, and effective dates are provided.
Important Notice: Impact of Recently Enacted Laws on North Carolina Individual and Corporate Income Tax Returns, North Carolina Department of Revenue, July 23, 2026, updated July 29, 2026.
Sales and use tax: Extended compliance period for certain remote sellers discussed
Under a provision of recently enacted legislation (S.L. 2026-31 (S.B. 595), Laws 2026) made effective July 2, 2026, a remote seller that solely exceeds the sales threshold (i.e., gross sales in excess of $100,000, as specified) is allowed at least 60 days to register and begin collecting and remitting sales and use tax. The additional time only applies to remote sellers that exceed the sales threshold but do not satisfy any of the other statutory conditions to be considered engaged in business in North Carolina.
As amended, a remote seller is considered engaged in business in North Carolina on the first day of the first calendar month that begins at least 60 days after the retailer exceeds the applicable threshold if the retailer is engaged in business solely because they exceed the sales threshold. The legislation provides a 60-day grace period to remote sellers to register with the North Carolina Department of Revenue upon exceeding the economic nexus threshold, which occurs when a remote retailer makes gross sales sourced to North Carolina in excess of $100,000 (formerly, a remote seller would have to comply with the registration requirement on the next sale occurring after it exceeds the threshold). As a result of the legislation, retailers must constantly monitor their remote sales and immediately register. This provision applies to retailers that exceed the threshold on or after July 2, 2026. Registration requirements and examples are provided.
Important Notice: Extended Compliance Period for Certain Remote Sellers, North Carolina Department of Revenue, Aug. 6, 2026.
Oklahoma
Multiple taxes: Rules for income tax credits, sales/use tax exemptions, gross production tax, cigarette stamp tax, and ad valorem tax amended
The Oklahoma Tax Commission has updated various income tax, gross production, property tax, sales and use tax, cigarette stamp tax, and withholding tax rules.
Ad valorem tax
Minimum data elements required for listing a manufactured home, with a certified OTC Form 936 Manufactured Home Certificate, are listed in 68 O.S. Section 2813.
Income tax
Parental Choice Tax Credit: Only tax credit payments included in a taxpayer’s federal taxable income are exempt from Oklahoma taxable income.
Agricultural commodity processing facility investment exclusion: For investments made on or after Jan. 1, 1999, and before Jan. 1, 2022, the adjusted percentage allowable will be determined by dividing $1,000,000 by the Oklahoma corporate income tax rate in effect for that year, then further dividing the result by the total previous year’s investment subject to exclusion.
Aerospace income tax credit: The sunset date for aerospace sector income tax credits is extended to the 2031 tax year.
Biomedical research institute or qualified cancer research center credit: The definition of qualified independent biomedical research institute is amended to include an exempt organization that receives at least $20,000,000 (formerly $15,000,000) in National Institutes of Health funding each year. For tax years 2026 and later, for donations to a qualified independent biomedical research institute, the credit is 50% of the amount donated but may not exceed $1,000 for taxpayers filing as single or $2,000 for taxpayers filing as married joint, head of household or surviving spouse, or $25,000 for any taxpayer which is a legal business entity. For donations to a qualified cancer research institute, the credit is 50% of the amount donated but may not exceed $1,000 for taxpayers filing as single or $2,000 for taxpayers filing as married joint, head of household, surviving spouse, or any taxpayer which is a legal business entity.
Credit for nonrecurring adoption expenses: For taxable years beginning on or after Jan. 1, 2026, the amount of the credit is 15% of the qualified expenses but cannot exceed $3,000 per calendar year ($6,000 if married filing joint return).
Faculty preceptorship credit: For tax years beginning on or after Jan. 1, 2026, a nonrefundable income tax credit is allowed for a faculty preceptor who conducts a preceptorship rotation. An applicant must submit a completed application to the Health Care Workforce Training Commission (HWTC).
Parental Choice Tax Credit Act: Rules pertaining to this credit have been amended to address the amount of the credit (excluding scholarships and discounts), timelines for applications and credit payments and clarify eligible homeschool expenses and processes for tuition adjustments and school transfers. A new rule is promulgated in order to create an expedited protest process for denied applications.
Net operating loss carryback: A taxpayer entitled to a carryback may elect to forego the carryback period by making the election on a timely filed original Oklahoma loss year return. The election may be made by checking the designated box on the return or by attaching a written statement to the return.
Gross production tax
Rules have been imposed to establish procedures for administering the reduced gross production tax rate for certain orphan well recovery projects. “Orphan well recovery project” means a project involving the production of oil or gas from a well that has been removed from the orphan well list maintained by the Oklahoma Corporation Commission (OCC). A well that qualifies will be eligible for the 2.5% reduced rate for a period of 36 months beginning on the project start date or July 1, 2025, whichever is later.
Sales and use tax
Rules relating to vendor duties and liabilities, sales tax credits and refunds, vehicle sales tax, and veterans’ exemptions have been amended. New rules on firearm and gun safety devices and organizations providing school supplies to underserved students have been imposed. Vendor requirements relating to the sales tax exemption claims of 100% disabled veterans apply only to Oklahoma residents. The requirement that credits may not be taken on the sales tax reporting form until a valid letter of credit has been received from the commission is eliminated. If a motor vehicle sale includes a trade-in, the taxable gross receipts will be calculated on the difference between the actual sales price of the purchased vehicle and the value of the trade-in vehicle. A veteran qualifying for the 100% disabled exemption or an unremarried spouse of a qualifying veteran need not provide a letter, but only verification from the U.S. Department of Veteran Affairs.
Sales to or by a 501(c)(3) nonprofit whose principal purpose is to provide school supplies or clothing for underserved pre-K through 12th grade public school students are exempt. To apply for this exemption permit, a completed Form 13-16-A must be mailed to the Oklahoma Tax Commission. A rule on firearm and gun safety devices is created to reflect the sales tax exemption effective as of Nov. 1, 2025, and to provide examples.
Cigarette stamp tax
The rule relating to vending machine cigarette licenses is updated to reflect that a separate sales tax permit is required for each machine. However, a separate permit is not required if the vending machine is owned or operated by, and located within, a business that already holds a cigarette or tobacco sales tax permit. A rule is imposed on wholesaler’s vehicle cigarette licenses. Retail sales from vehicles are not allowed. Vehicle cigarette licenses may only be issued to licensed cigarette wholesalers.
Withholding tax
Recipients of nonperiodic payments from pensions, annuities and other deferred income may (i) elect to have income tax withheld at the top marginal individual income tax rate; (ii) elect to have income tax withheld at the top marginal individual income tax rate plus an additional specified amount; or (iii) elect to have no income tax withheld.
The Oklahoma Register, Volume 43, Issue 20 (Rules 710:10-9-1, 710:45-9-102, 710:45-9-140, 710:45-9-141, 710:45-9-142, 710:50-1-7, 710:50-3-41, 710:50-15-36, 710:50-15-53, 710:50-15-62, 710:50-15-83, 710:50-15-91, 710:50-15-92, 710:50-15-105, 710:50-15-109, 710:50-15-111, 710:50-15-113, 710:50-15-118, 710:50-15-120, 710:50-15-121, 710:50-15-171, 710:50-15-172, 710:50-15-173, 710:50-15-174, 710:50-15-175, 710:50-15-176, 710:50-17-51, 710:50-23-1, 710:50-25-1, 710:65-7-17.1, 710:65-11-1, 710:65-13-275, 710:65-13-373, 710:65-19-117, 710:65-19-215, 710:70-2-9.1, 710:70-2-9.2, 710:90-1-13) Oklahoma Tax Commission, effective July 11, 2026.
