State and local tax advisor: June 2026

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

• California
• Colorado
• Connecticut
• Florida
• Hawaii
• Illinois
• Minnesota
• Missouri
• New York
• New York City
• Rhode Island
• South Carolina
• Texas

California

Corporate income tax: S corporation was not doing business in state

An S corporation formed in Alaska to hold and rent a piece of property in Alaska was not doing business in California for tax year 2020, because its activities in California did not rise to the level of engaging in transactions for financial or pecuniary gain or profit. Also, the corporation’s commercial domicile did not shift to California during that time. As a result, the corporation was not required to pay California’s annual minimum franchise tax. The Franchise Tax Board (FTB) contended that the corporation’s California shareholders/officers managed the business from California in 2020, which rose to the level of doing business in the state.

However, the corporation’s receipt of income in 2020 occurred in Alaska, not California, because the income was from the sale of the Alaska property pursuant to an installment sale executed in Alaska prior to 2020. Furthermore, tasks performed by the California residents to maintain basic corporate administrative functions, such as writing checks to pay expenses and meeting on internal matters, did not facilitate any income-generating activities. The FTB further argued that the corporation’s commercial domicile shifted to California in 2020 upon the death of an Alaska-based director/officer, at which point the California residents became the corporation’s sole directors/officers. However, the corporation’s funds, accountant, financial records, and financial transactions remained based in Alaska until the end of 2020. Thus, the Office of Tax Appeals concluded that the corporation enjoyed the greatest benefits and protections in Alaska, and it was not doing business in California in 2020.

McDonell Lane, Inc., California Office of Tax Appeals, 2026-OTA-247P, May 28, 2025, petition for rehearing denied, 2026-OTA-248, March 17, 2026 (released June 2026).

Corporate income tax: Out-of-state company not immune from tax

An out-of-state company was not immune from California income tax under the provisions of P.L. 86-272, because it had California activities that exceeded the protection of P.L. 86-272 and those activities were more than de minimis. Under P.L. 86-272, a state cannot impose a tax on the net income derived within the state by a nondomiciliary company whose sole business activity in the state consists of the solicitation of orders of tangible personal property that are approved, fulfilled, and shipped from out-of-state. PL 86-272 contains a de minimis exception, which provides that even if a nondomiciliary company engages in unprotected activity in the state, the company remains immune from the state’s net income tax if the activity does not establish a nontrivial additional connection with the taxing state.

Here, the company’s unprotected activities — collecting competitor samples and customer information for product matching and product creation, as well as menu ideation — were performed by the company’s employees in California as a matter of regular company policy, on a continuing basis, and established a nontrivial additional connection to California. Thus, the company did not qualify for immunity from California income tax.

Ken’s Foods, Inc., California Office of Tax Appeals, 2026-OTA-249P, Aug. 1, 2025, petition for rehearing denied, 2026-OTA-250, March 20, 2026 (released June 2026).

Colorado

Multiple taxes: Changes to combined reporting, tax credits, exemptions, and more enacted

Colorado has enacted tax legislation that makes changes to:

• Combined reporting.
• Listed tax haven jurisdictions.
• Income tax additions and subtractions.
• Income tax credits.
• Sales and use tax exemptions.
• Gasoline and special fuel tax allowances.
• Cigarette, tobacco, and nicotine tax allowances.

Combined reporting

For income tax years commencing on or after Jan. 1, 2027, worldwide combined reporting becomes the default filing method for affiliated C corporations, with an option to elect water’s edge treatment. A water’s edge election is binding for 10 years and renews automatically at the end of that period unless the taxpayer withdraws the election.

Under a water’s-edge election, the combined group must include:

• All domestic members.
• Foreign corporations if at least 20% of their property and payroll is attributable to U.S. Sources.
• Domestic international sales corporations (discs) and export trade corporations.
• Any member incorporated in a designated tax-haven jurisdiction.
• The apportionable income of any foreign corporation in the affiliated group that is effectively connected (or treated as effectively connected) with the conduct of a trade or business in the United States.
• Certain income and apportionment factors of corporations resident in countries that do not have a comprehensive income tax treaty with the United States that derive more than 20% of their net income, directly or indirectly, from intangible property or service-related activities that are deductible from the apportionable income of one or more members of the combined group.

Intercompany dividends, subpart F income, and net CFC tested income are eliminated from the combined report.

Tax haven jurisdictions

For income tax years commencing on or after Jan. 1, 2027, Liechtenstein is removed as a listed tax haven jurisdiction.

Income tax additions and subtractions

Wages and salaries — For income tax years commencing on or after Jan. 1, 2027, Colorado eliminates its corporate income tax subtraction for wages and salaries paid that are not allowed to be deducted at the federal level pursuant to IRC Sec. 280C.

Capital gain reinvested in opportunity funds — For income tax years commencing on or after Jan. 1, 2027, taxpayers must add back to federal taxable income for Colorado tax purposes any capital gain or appreciation excluded from federal gross income pursuant to the special rules for capital gain reinvested in a qualified opportunity zone fund to the extent it was not from an investment in a Colorado Qualified Opportunity Fund. Taxpayers may subtract from federal taxable income the amount of deferred gain later included in federal gross income to the extent the gain was added back for Colorado purposes for a prior tax year.

Income tax credits

Wildfire hazard mitigation tax credit — The allowable costs for which a landowner may claim the wildfire hazard mitigation tax credit have been expanded to include costs to thin woody vegetation that is or may be impacted by pine beetle or spruce beetle infestation. Also, for tax years 2027 through 2030, the maximum credit amount is increased from $1,000 to $2,000, the income limit for a landowner to be eligible for the credit is increased  from an inflation-adjusted $120,000 to an inflation-adjusted $300,000, and excess credit is refundable.

Small food business tax credit — For income tax years commencing on or after Jan. 1, 2027, the tax credit for the purchase of small food business recovery grant program equipment is expanded so it is available to additional food distributors and producers. Taxpayers will be able to claim the credit only if the credit equals $375 or more. The cap on the aggregate amount of small business food tax credits issued changes from $10 million for calendar years commencing before Jan. 1, 2027, to $5 million for the calendar year commencing on Jan. 1, 2027, and a total of $5 million for calendar years commencing on or after Jan. 1, 2028. The time within which the Department of Agriculture must review and approve or disapprove an application for a credit must not exceed 150 days (previously, 90 days) after the filing of the application.

Industrial clean energy and geothermal energy tax credits — For income tax years commencing on or after Jan. 1, 2027, the industrial clean energy tax credit is expanded to be allowed to certain exempt entities, to allow the credit for expenditures to install equipment used for the utilization of biomethane, and to extend the period within which the Colorado Energy Office must complete its review of applications for the credit.

Also, beginning July 1, 2026, the Colorado Energy Office may carry forward any unused portion of the aggregate credit caps for the industrial clean energy and geothermal energy tax credits and allocate the previously unused portions of the credit caps to later years.

Decarbonization tax credits — The innovative motor vehicle tax credit, the innovative truck tax credit, the heat pump technology and thermal energy network tax credit, and the electric bicycle tax credit will be available unconditionally in future tax years without regard to state revenues.

For the innovative motor vehicle tax credit, the base credit amount is increased from $1,000 to $2,000 for category 1 vehicles sold in 2027 and from $500 to $1,000 for category 1 vehicles sold in 2028. Also, for qualifying vehicles sold in 2027 and 2028, an additional tax credit of $2,500 is provided if the manufacturer’s suggested retail price (MSRP) is less than $40,000. No credit is allowed for category 1 vehicles sold in 2027 and 2028 that have an MSRP greater than $50,000.

For the electric bicycle tax credit, additional requirements are imposed on retailers that claim the credit in order to ensure compliance, and the Department of Revenue may disqualify retailers for false reporting or other noncompliance. For the electric bicycle and heat pump credits, the Department of Revenue is authorized to share confidential taxpayer information with the Colorado Energy Office pertinent to credit claims.

Sustainable aviation fuel tax credits — The sustainable aviation fuel production tax credit is repealed after tax year 2026, and a new sustainable aviation fuel purchase tax credit is available for tax years 2027 through 2032.

Electric-powered lawn equipment tax credit — The tax credit for the purchase of new electric-powered lawn equipment is available for an additional three years, through tax year 2029, and qualified retailers are allowed to receive quarterly advance payments of the credit.

Enterprise zone investment tax credits — For income tax years commencing on or after Jan. 1, 2027, a taxpayer who places a renewable energy project in an enterprise zone on or after Jan. 1, 2027, and obtains certification to claim an enterprise zone investment tax credit may elect a refund option for the credit. The refund amount equals 80% of the credit amount.

For income tax years commencing on or after January 1, 2027, taxpayers are no longer allowed a tax credit for qualified investment in a commercial truck, truck tractor, tractor, or semitrailer with a gross vehicle rating of at least 54,000 pounds that is used in an enterprise zone.

Enterprise zone employer-sponsored health insurance tax credit — The enterprise zone employer-sponsored health insurance tax credit is amended so that taxpayers may claim the credit for any two of the first ten full income tax years (previously, simply for the first two full income tax years) while located in an enterprise zone. Also, for income tax years commencing on or after Jan. 1, 2027, businesses with 50 or more employees at any time during an income tax year cannot claim the credit for that tax year.

Enterprise zone research and experimental activities tax credit — For income tax years commencing on or after Jan. 1, 2027, the enterprise zone research and experimental activities tax credit is modified to require at least $150,000 in expenditures in qualified research and experimental activities.

Enterprise zone vacant building tax credit — For income tax years commencing on or after Jan. 1, 2027, the enterprise zone vacant building credit is expanded so that the credit applies to qualified buildings that have been unoccupied for any 135 calendar days within the 180 calendar days preceding when a rehabilitation is placed in service (currently, the required period of unoccupancy is at least two years). In addition, the credit will be allowed in an amount equal to 25% of the qualified expenditures per building or $200,000 (currently, $50,000) per building, whichever is less.

Earned income tax credit — For income tax years commencing on or after Jan. 1, 2028, the Colorado earned income tax credit is expanded to allow taxpayers over age 64 with no qualifying children to claim the credit. The current maximum age for taxpayers with no qualifying children is removed.

Residential energy storage systems tax credit — The residential energy storage systems tax credit is now available for income tax years commencing before Jan. 1, 2030 (previously, Jan. 1, 2027).

Film festival incentive tax credit — The film festival incentive tax credit is now effective for tax years commencing on or after Jan. 1, 2026 (previously, Jan. 1, 2027), and before Jan. 1, 2036 (previously, Jan. 1, 2037).

Sales and use tax exemptions

For tax periods beginning on or after July 1, 2027, the storage, use, or consumption of construction and building materials by or on behalf of a common carrier by rail operating in interstate or foreign commerce is exempt from state use tax (as well as state sales tax) when the storage, use, or consumption of the construction and building materials is pursuant to a contract with the state, a political subdivision of the state, or a special district that allows the contracting government to use the railroad's property or tracks for public passenger rail service. Also, a town, city, or county may not impose use tax on these materials.

The sales and use tax exemption for wood from salvaged trees killed or infested by mountain pine beetles and spruce beetles is extended through Dec. 31, 2030.

The sales and use tax exemption for property used in space flight is repealed for property placed in service between Jan. 1, 2027, and Dec. 31, 2029, with the exemption reinstated beginning Jan. 1, 2030.

Gasoline and special fuel tax allowances

For tax periods beginning on or after Jan. 1, 2027, the allowance to cover losses in transit and in unloading gasoline or special fuel is changed from 2% to 1.5% of the total amount of gasoline or special fuel acquired during any calendar month. Further, the 0.5% allowance to cover the expenses of payment of the tax and bad debt losses is eliminated.

Cigarette, tobacco, and nicotine tax allowances

For tax periods beginning on or after Jan. 1, 2027, the vendor allowances for cigarette, tobacco, and nicotine taxes are eliminated.

H.B. 1289, Laws 2026, effective June 3, 2026, and applicable as noted.

Personal income, sales and use taxes: Software exemption, other credits and deductions modified; new family affordability credit created

Colorado has enacted legislation modifying sales and use tax exemptions, credits, and deductions and creating a new income tax credit. To learn more about Colorado’s expanded SaaS taxability, narrowed software exemptions, and utility-related sales tax relief for restaurants and other prepared food retailers, read our article here.

Downloaded software exemption

The state sales and use tax exemption for downloaded software is narrowed so that only custom software developed for use by a particular user and software governed by a negotiable license agreement is exempt from tax. All other types of downloaded software are subject to state sales and use tax beginning Jan.1, 2027.

Retail food establishment credit for gas and electricity

Retailers with sales of prepared food are currently allowed a credit for sales tax paid on their purchases of gas and electricity used in the processing of the prepared food. The credit has been codified and expanded. Beginning July 1, 2026, but before July 1, 2046, for retailers with prepared food sales exceeding 25% of total sales revenue, 100% of the purchase price paid for the gas and electricity will be exempt from tax, while those with prepared food sales below this threshold will receive a credit equal to 0.5% of prepared food sales.

Restaurant, bar, caterer deduction for certain months

In 2027 and 2028, for July, Aug., Nov., and Dec., certain restaurants, bars, food service contractors, mobile food vendors, and caterers may deduct from state net taxable sales the lesser of:

• State net taxable sales.
• $14,000.

New family affordability credit

For income tax years commencing on or after Jan. 1, 2027, Colorado provides a new income tax credit that expands on the state’s efforts to make Colorado more affordable for families. The new credit may be claimed in addition to the existing child tax credit and family affordability credit. The amount of the new credit allowed will depend on the number and age of the taxpayer’s children, the taxpayer’s income, and legislative council staff’s annual revenue projections. The amount by which the credit exceeds a taxpayer’s income tax liability is refundable to the taxpayer.

H.B. 1223, Laws 2026, effective June 4, 2026, and applicable as noted.

Connecticut

Multiple taxes: Governor signs fiscal year 2027 state budget

Gov. Ned Lamont announced that he signed the fiscal year 2027 budget adjustment bill, which his administration developed in collaboration with legislative leaders and was approved on a bipartisan basis by the members of the Connecticut General Assembly. The legislation:

• Repeals the 6% tax on nursing home and intermediate care facility revenue scheduled to take effect on July 1, 2026, and instead retains the current user fee on these facilities (effective May 26, 2026).
• Extends, to the 2026 and 2027 income years, the 92% redemption rate for film and digital media tax credits claimed against the sales and use tax (effective May 26, 2026).
• Allows municipalities to provide a $50,000 property tax exemption for taxpayers’ primary residences that are single-family homes or units in common interest communities or condominiums (effective May 26, 2026, and applicable to assessment years starting on or after Oct. 1, 2027).
• Creates a refundable sales and use tax credit up to $10 million under which, generally, the facility management company of the PeoplesBank Arena may qualify if it contracts with the University of Connecticut to host at least 20 events per academic year at the arena for an agreed upon period of time (effective July 1, 2026).
• Increases the exemption amount for the annual sales tax holiday from $100 to $300 and adds backpacks and cleated shoes to the list of items that can be purchased tax-free (effective May 26, 2026).
• Establishes a tax credit for two income years against state insurance and healthcare center tax, corporation business tax, or income tax (excluding withholdings generally) for qualified small businesses (those with fewer than 50 employees) that offer employees an individual coverage health reimbursement arrangement (effective May 26, 2026, and applicable to income and taxable years beginning on or after Jan. 1, 2026).
• Replaces the current state taxes on retail sales of cannabis plant material, cannabis edible products, and other cannabis, which are based on the milligrams of total THC, with a single tax at a rate of 10.75% of a retailer’s gross receipts from cannabis sales (effective Oct. 1, 2026, and applicable to sales occurring on or after that date).
• Decouples the state corporation business tax from the federal bonus depreciation deduction for qualified production property, starting with the 2026 income year; delays, by one year, conforming the state corporation business tax to recent changes in the federal deduction for domestic research and experimental (R&E) expenditures and disallows the retroactive application of these changes for the 2022 to 2025 income years; and generally exempts corporation business taxpayers from penalties and interest on any additional tax due to these changes (effective May 26, 2026).
• Creates a personal income tax (other than income tax withholding) credit for qualifying small businesses that incur eligible research and development (R&D) spending in Connecticut and requires the department of economic and community development (DECD) to administer a tax credit voucher system for the credit; caps the maximum amount of these credits that DECD can reserve each tax year at $1.5 million per business and $25 million in total (effective May 26, 2026, and applicable to tax years starting on or after Jan. 1, 2026).
• Creates a nonrefundable personal income tax credit (but not withholding tax) of up to $2,000 for income-eligible family caregivers who incur eligible expenditures to care for and support an eligible family member (effective Jan. 1, 2027, and applicable to tax years starting on or after that date).
• Creates a sales and use tax exemption for non-electronic school supplies (effective July 1, 2026, and applicable to sales occurring on or after that date).
• Creates an additional film and digital media production tax credit, available for the 2027 and 2028 income years, against the insurance premium, corporation business, cable, satellite, and competitive video, and sales and use taxes for certain eligible production companies that film in Bridgeport, Hartford, or New Haven (effective July 1, 2027, and applicable to income years beginning on or after Jan. 1, 2027).
• Creates an income tax deduction for income received by the Commissioned Corps of the U.S. Public Health Service (effective July 1, 2026, and applicable to tax years starting on or after Jan. 1, 2026).
• Makes various changes to the hospital provider tax (effective July 1, 2026).

Act 26-68 (S.B. 1), Laws 2021, effective and applicable as noted; Bill Analysis, Office of Legislative Research, May 5, 2026; Press Release, Office of Connecticut Gov. Ned Lamont, May 26, 2026.

Florida

Corporate income tax: IRC conformity date updated except for certain OBBBA sections

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).

Current law treatment retained for certain issues

The current law treatment of the following issues is retained by an adoption of the IRC as of Jan. 1, 2025:

• Section 168(k), relating to bonus depreciation of assets.
• Section 174(a), relating to amortization of certain research and experimental expenditures.
• Section 163(j), relating to the deduction for interest paid by businesses.
• Section 274, relating to deductions for certain business meals.
• Section 179, relating to deductions made by certain small businesses.

Decoupling from certain OBBBA provisions

New sections created by federal law and found in the following sections are not adopted:

• Section 168(n), related to a deduction for qualified production property.
• Section 174A, a new deduction relating to domestic research and experimental expenditures.

By decoupling from these provisions, the current corporate income tax structure is retained for Florida taxpayers.

Ch. 2026-137 (H.B. 7031), Laws 2026, effective June 11, 2026, and applicable as noted; Final Bill Analysis, Florida House of Representatives, March 13, 2026.

Hawaii

Corporate, personal income taxes: IRC conformity updated

Hawaii has updated its Internal Revenue Code (IRC) tie-in date for computing corporate and individual income tax liability to Dec. 31, 2025, for tax years beginning after Dec. 31, 2025. Previously, the tie-in date was Dec. 31, 2024, for tax years beginning after Dec. 31, 2024. However, a number of IRC provisions are made inoperative for Hawaii income tax purposes, including the following:

• Sec. 139K, relating to scholarships for qualified elementary or secondary education expenses of eligible students.
• Sec. 139L, relating to interest on loans secured by rural or agricultural real property.
• Sec. 174A, relating to domestic research or experimental expenditures.
• Sec. 225, relating to qualified overtime compensation.
• Sec. 1062, relating to gain from the sale or exchange of qualified farmland property to qualified farmers.
• Amendments made after Dec. 31, 2024, to Sec. 68, relating to overall limitation on itemized deductions.
• Sec. 163(h)(4), relating to qualified passenger vehicle loan interest.
• Sec. 164(b)(7), relating to the applicable limitation amount for the deduction of state and local taxes.
• Sec. 168(n), relating to the special allowance for qualified production property.
• Amendments made after Dec. 31, 2024, to Sec. 174, relating to amortization of research and experimental expenditures.
• Amendments made after Dec. 31, 2024, to Sec. 1202, relating to partial exclusion for gain from certain small business stock.

Act 35 (H.B. 2329), Laws 2026, effective May 26, 2026, and applicable as noted.

Illinois

Multiple taxes: Bill passed with digital advertising, cryptocurrency, prediction market taxes

The Illinois legislature passed a major tax bill as part of the state’s fiscal year budget, including provisions that:

• Create a 10% tax on targeted digital advertising service providers who have annual gross receipts of $1 million or more from services directed at consumers in the state, effective beginning Jan. 1, 2027.
• Establish a 0.2% tax on the value of cryptocurrency and other digital assets sold to Illinois customers by brokers who have a physical presence in the state or $100,000 or more in sales to customers in the state, effective beginning Jan. 1, 2027.
• Impose a monthly fee on social media platforms at inflation adjusted rates of $0.10 on the number of Illinois users over 100,000 to 500,000, $0.25 on the number of Illinois users over 500,000 to 1 million, plus $40,000, and $0.50 on the number of Illinois users over 1 million, plus $165,000, effective beginning Jan. 1, 2027.
• Freeze the annual motor fuel tax increase from July 1, 2026 until Jan. 1, 2027.
• Extend the hotel operators’ occupation tax to hotel marketplace facilitators, including hotel room re-renters and short-term rental hosting platforms, who have $100,000 or more in annual gross receipts in the state from their own hotel room rentals or rentals for marketplace hotel operators, effective beginning July 1, 2026.
• Modify the hotel operators’ occupation tax nexus threshold for remote re-renters of hotel rooms in the state by adopting a threshold based only on the $100,000 or more gross receipts test and eliminating the 200 or more separate transactions test.
• Remove the bond requirement for cigarette distributor and machine operator licenses, effective beginning July 1, 2027, lengthen the amount of time for challenging the denial of a license, and make other changes to licensing requirements.
• Expand the tobacco products tax to remote retailers of cigars, pipe tobacco, or alternative nicotine products who have annual gross receipts in the state of $100,000 or more, effective beginning Jan. 1, 2027.
• Change the tobacco products tax from a 45% rate based on the wholesale price of products to a rate based on 45% of the actual price paid for each individual SKU before any stated discounts or rebates, effective beginning Jan. 1, 2027.
• Limit the tobacco products tax on each cigar sold, excluding little cigars, to $0.75 from Jan. 1, 2027 to Dec. 31, 2029.
• Require an addition adjustment by partnerships, trusts, estates, and individuals computing state income tax liability for the amount of gain from the sale of qualified small business stock (QSBS) excluded from the taxpayer’s federal return under IRC Sec. 1202, effective beginning with the 2026 tax year.
• Implement a sales tax holiday for 5% of the state sales and use tax normally imposed at 6.25% on certain back-to-school items, effective from Aug. 7, 2026, through Aug. 16, 2026.
• Add a tax on licensees of prediction markets or exchanges tied to sporting contests or events at the rate of 1.75% on each wager for the first $5 million in total wagers during the fiscal year and then 3.5% on each wager exceeding that threshold.
• Allow partnerships computing the optional pass-through entity tax to make a binding election to use either a full distributive share method or Illinois-sourced income method, effective beginning with the 2026 tax year.
• Create a 15% privilege tax on the adjusted gross receipts of licensed businesses or individuals who offer fantasy sports contests to participants in the state, effective beginning July 1, 2026.

The bill also changes the cap on corporate income tax net operating loss carryovers to a cap based on the greater of $500,000 or:

• 15% of net income for the 2027 tax year.
• 30% of net income for the 2028 tax year.
• 50% of net income for the 2029 tax year.
• 65% of net income for the 2030 tax year.
• 80% of net income for tax years after 2030.

Finally, it extends the corporation and personal income tax credits for:

• Donations to affordable housing projects in the state until Dec. 31, 2036.
• Live theater productions in the state until Jan. 1, 2039.
• Research and development activities in the state until Jan. 1, 2037.
• Angel investments provided to new business ventures in the state until Dec. 31, 2032.
• Historic structure restoration and preservation in state River Edge Redevelopment Zones until Jan. 1, 2034.
• Apprenticeship education expenses for state residents until Jan. 1, 2032.
• Reimagining Energy and Vehicles in Illinois (REV Illinois) manufacturers in the state until Dec. 31, 2028.

S.B. 3019, as passed by the Illinois General Assembly on June 1, 2026.

Sales and use tax: Destination-based sales tax guidance issued

Illinois issued a guidance publication on destination-based sales tax for retailers and service providers making sales or transfers of tangible personal property (TPP) as part of a sale of service from outside the state to customers in the state. If retailers or service providers meet the $100,000 economic nexus threshold or have physical presence in Illinois, they must register with the Illinois Department of Revenue (IDOR), collect destination-based sales tax, file returns, and pay the tax to the IDOR. The publication includes guidance on important definitions, registration procedures, the tax treatment of leases and sales or transfers through a marketplace facilitator, the determination of destination-based tax rates, and recordkeeping requirements.

Publication 113-D Overview of Destination-Based Sales Tax, Illinois Department of Revenue, May 2026.

Sales and use tax: Guidance issued on remote retailer amnesty program

Illinois issued guidance on the sales and use tax amnesty program for remote retailers that runs from Aug. 1, 2026, to Oct. 31, 2026. The program applies to unpaid tax liabilities from Jan. 1, 2021, to June 30, 2026. Eligible remote retailers must register with the Illinois Department of Revenue and use the MyTax Illinois platform to electronically file and pay taxes. The simplified sales tax rates are:

• 9% for general merchandise.
• 1.75% for sales of items normally subject to the 1% tax rate, including food for off-site consumption, prescription and nonprescription medicines, drugs, and medical devices.

Illinois will waive and not seek to collect interest and penalties from taxpayers who pay all outstanding tax liabilities during the amnesty period. The guidance includes information on repayment plans due to financial hardship, the use of tax overpayments or credits, and penalties or fees excluded from the amnesty program.

Informational Bulletin FY 2026-28, Illinois Department of Revenue, June 2026.

Minnesota

Multiple taxes: IRC conformity updated, pass-through entity tax extended, and more

Minnesota has enacted omnibus tax legislation that brings state law into further conformity with federal law and makes many other tax changes. The changes include:

• Updating the Internal Revenue Code (IRC) tie-in date.
• Extending the pass-through entity tax.
• Mandating a direct free filing system for individual income tax returns.
• Revising tax credits and exemptions.
• Providing a one-time increase in the homestead credit refund; modifying refund claim time limits.
• Clarifying composite return options.
• Imposing a new tax on amounts obtained by fraud of a public program.

Federal conformity

Minnesota’s new IRC tie-in date for income and franchise tax purposes is May 1, 2026 (previously, May 1, 2023). Incorporated federal changes are generally effective for Minnesota purposes at the same time they were effective for federal purposes. However, some federal changes are not adopted. The following modifications apply:

• For taxable years beginning after Dec. 31, 2025, the itemized deduction for charitable contributions for an individual is limited to contributions in excess of 1% of the taxpayer’s contribution base for the year.
• An addition to income is required for distributions from a 529 plan used to pay for postsecondary credentialing expenses, effective retroactively at the same time the changes under the One Big Beautiful Bill Act (OBBBA) (P.L. 119-21) became effective.
• For taxable years beginning after Dec. 31, 2025, an addition to income is required for employer student loan payments, as well as other forms of educational assistance in excess of $5,250.
• For taxable years beginning after Dec. 31, 2025, an addition to income is required for qualified transportation fringe benefits in excess of the limit in effect prior to the passage of OBBBA.
• For taxable years beginning after Dec. 31, 2025, an addition to income is required for any income that is nontaxable federally as hazard duty pay for services provided in the Sinai Peninsula, Kenya, Mali, Burkina Faso, and Chad.
• For taxable years beginning after Dec. 31, 2026, an addition to income is required to offset the federal tax benefits for capital gains in an Opportunity Zone.
• For taxable years beginning after Dec. 31, 2026, the amount of capital gains in an Opportunity Zone that was previously deferred under federal law and added to Minnesota income may be subtracted under Minnesota law when the gain is recognized federally.
• An addition to income is required for the amount of interest on loans secured by rural or agricultural real property that was excluded from gross income for federal purposes, effective retroactively at the same time the provision in the OBBBA became effective.
• For taxable years beginning after Dec. 31, 2025, an addition to income is required for the amount of business meal expenses in excess of the 50% limitation that are deducted under federal law for meals provided on certain fishing vessels, fish processing facilities, and oil and gas platforms, plus the amount of expenses allowed as a deduction for goods and services sold by a taxpayer in a bona fide transaction.
• For taxable years beginning after Dec. 31, 2025, a subtraction from income is allowed for net CFC tested income, similar to the amount allowed under prior law for qualified business asset investment.
• For purposes of determining net CFC tested income or subpart F income, OBBBA provisions relating to the look-through rule do not apply and adjustments are required.
• For corporations, additions to income are required for 80% of the amount of deduction claimed for domestic research and experimental expenditures that are expensed federally, effective retroactively for taxable years beginning after 2021, and for the amount of deduction claimed for unamortized amounts, effective retroactively for taxable years beginning after 2024.
• Subtractions to income are allowed for the 80% addition for research and experimental expenditures, effective retroactively for taxable years beginning after 2022, and for unamortized amounts deducted federally over an accelerated timeframe and added back for Minnesota purposes, effective retroactively for taxable years beginning after 2024.
• For taxable years beginning after Dec. 31, 2025, Minnesota decouples from federal changes to the dependent care credit and adopts a version of the credit that was allowed federally prior to OBBBA.

Alternative minimum tax definitions are also modified to account for additions and subtractions required due to the state’s selective conformity to federal law.

Pass-through entity tax

The Minnesota pass-through entity tax is extended so that it is available through tax years 2026 and 2027. The related credit for pass-through entity tax paid is similarly extended. Estimated tax payment relief is provided for tax year 2026.

Direct free filing system

The Department of Revenue (DOR) must establish an electronic system through which taxpayers can directly file their individual income tax returns electronically for free. The DOR must make the system available on its website for taxable years beginning after Dec. 31, 2026, and must not limit access based on income. The system must allow taxpayers to claim the marriage penalty credit, education credit, child and working families credits, dependent care credit, student loan credit, and renter’s credit.

Credits and exemptions

Sustainable aviation fuel credit — Changes to the sustainable aviation fuel credit include:

• Modifying the definition of “biomass” to exclude certain agricultural feedstocks and include gaseous carbon oxides and certain hydrogen.
• Providing that carbon oxides sequestered as part of the production process must not be used as tertiary injectants in qualified enhanced oil recovery projects.
• Allowing a supplemental credit of $0.02 per gallon, up to $2.00 per gallon total, for projects meeting certain carbon intensity reductions.
• Increasing the total amount of credits that may be allocated.
• Extending the credit through tax year 2035.

Agricultural asset owner credit — For tax year 2026 only, the annual $4 million cap on tax credits for agricultural asset owners that sell or rent assets to beginning farmers is temporarily removed.

Championship golf exemption — Sales of admission to a world championship golf tournament sponsored by the Professional Golfer’s Association of America (PGA) and related events sponsored by the PGA are exempt from sales tax, effective for sales made after June 30, 2026.

Property taxes

Homestead credit refund — For homestead credit refund claims based on property taxes payable in 2026, the refund otherwise payable is increased by 14.88%.

Class 1c properties — The tier thresholds for class 1c homestead resort properties are increased. The threshold for the first tier increases from $600,000 to $1,500,000 and the threshold for the second tier increases from $1,700,000 to $3,000,000, effective beginning with assessment year 2026.

Property owned by certain tribes — An existing exemption for a medical clinic in Duluth owned by the Fond du Lac Band of Lake Superior Chippewa is modified, effective beginning with assessment year 2027, by adding the clinic’s parking lot to the exemption, allowing the property to consist of up to five (previously, two contiguous) parcels and structures, and extending the expiration of the exemption from 2028 to 2038.

Also, a new exemption is established for a parcel of property in Cloquet that is owned by the Fond du Lac Band of Lake Superior Chippewa and used to store medical equipment and materials, effective beginning with taxes payable in 2027.

Refund claim time limits

The general timeframe for filing claims for refund of state tax is changed to the later of:

• Three and one-half years from the date the return was due, including any extension granted (if filed within the extended time).
• Two years from the date the tax, penalties, or interest was paid (previously, one year from the date of an order assessing tax, an order determining an administrative appeal, or a return made by the Commissioner of Revenue where the taxpayer failed to file a return).

Composite returns

Nonresident partners who incur accelerated gain under an installment sale may opt to file composite returns, unless they defer the gain, in which case they would need to report the deferred gain on individual income tax returns, effective for taxable years beginning after Dec. 31, 2025.

Tax on amounts obtained by fraud

A tax equal to 100% of the program fraud amount will be imposed on any individual or organization convicted of public program fraud, effective for convictions after 2025.

Also, for amounts obtained by fraud of a public program, as determined by the Commissioner of Revenue, for which a conviction has not been made, a penalty equal to 100% of the amount attributable to the fraud may be imposed, effective for determinations of fraud made after 2025.

Ch. 128 (H.F. 2438), Laws 2026, effective as noted.

Missouri

Sales and use tax: Taxability of drop-shipped orders discussed

A Missouri-based business should charge and remit Missouri sales tax on orders placed at its Missouri headquarters and drop-shipped from Arkansas to customers in Missouri because the orders are taken in Missouri.

Letter Ruling No. LR 8390, Missouri Department of Revenue, April 23, 2026.

New York

Multiple taxes: Enacted budget includes tax on luxury second homes in New York City, extended corporate rates and makes other changes

Enacted as part of New York’s 2026-27 budget package, S.B. 9009 contains a variety of New York state and New York City personal income, corporate franchise, sales and use, property, tobacco, motor fuel, gaming, and other tax changes, including those detailed below.

Pied-a-terre tax — A so-called pied-a-terre tax is created for luxury second homes in New York City valued at $5 million or more when measured by sales of comparable properties. Specifically, beginning July 1, 2026, the tax is an annual surcharge imposed in New York City on a covered property, or in the case of a covered property that is a residential cooperative property, a residential cooperative dwelling unit, that is not a primary residence. The surcharge only applies to those homes that are not the primary residence of the owner or are not rented to a primary resident or occupied by the owner’s family.

However, since many homes have not historically been valued using comparable sales methods, the surcharge is imposed in two phases. Phase one uses current valuation methods and phase two uses comparable sales as follows:

• Phase 1: For fiscal years beginning on or after July 1, 2026, and before July 1, 2028, the phase one market value of such covered property that is a class one property is equal to or greater than $5 million dollars, the phase one market value of such covered property that is a residential condominium dwelling unit is equal to or greater than $1 million, or, in the case of a covered property that is a residential cooperative property, the phase one market value of a residential cooperative dwelling unit within such residential cooperative property is equal to or greater than $1 million.
• Phase 2: For fiscal years beginning on or after July 1, 2028, the phase two market value of such covered property or, in the case of a covered property that is a residential cooperative property, such residential cooperative dwelling unit, is equal to or greater than $5 million when measured by sales of comparable properties.

The surcharge rates are calculated as follows:

• Phase 1: For fiscal years beginning on or after July 1, 2026, and before July 1, 2028, (1) for covered property that is in class one, where the phase one market value is (A) greater than or equal to $5 million, but less than or equal to $15 million, at a rate of 0.8%; (B) greater than $15 million dollars, but less than or equal to $25 million, at a rate of 1.05%; (C) greater than $25 million, at a rate of 1.3%; and (2) for covered property that is a residential condominium dwelling unit or, in the case of a residential cooperative property, a residential cooperative dwelling unit, where the phase one market value is (A) greater than or equal to $1 million, but less than or equal to $3 million, at a rate of 4.0%; (B) greater than $3 million, but less than or equal to $5 million, at a rate of 5.25%; and (C) greater than $5 million, at a rate of 6.5%.
• Phase 2: For fiscal years beginning on or after July 1, 2028, for covered property or, in the case of a residential cooperative property, a residential cooperative dwelling unit, where the phase two market value is (1) greater than or equal to $5 million, but less than or equal to $15 million, at a rate of 0.8%; (2) greater than $15 million, but less than or equal to $25 million, at a rate of 1.05%; and (3) greater than $25 million, at a rate of 1.3%.

The New York City Department of Finance must make, on an annual basis, an initial determination that a covered property, or, in the case of a covered property that is a residential cooperative property, a residential cooperative dwelling unit, that has a phase one or phase two market value equal to, or greater than, the above thresholds, is not a primary residence. The department must provide notice to the owner of a covered property, or, in the case of a covered property that is a residential cooperative property, a residential cooperative dwelling unit, of such initial determination, provided that, for the fiscal year beginning July 1, 2026, the notice must be provided no later than August 30, 2026. Such notice must include an opportunity for the owner to submit proof of primary residence, to the satisfaction of the department. The department may require that the owner provide a certification that such covered property or residential cooperative dwelling unit is a primary residence, as well as any documentation demonstrating specific statutory requirements.

“Covered property” means real property, other than excluded property, classified as:

• Class one property, other than vacant land.
• Class two property that is a residential cooperative property in which at least one residential cooperative dwelling unit: (A) has a phase one market value equal to or greater than $1 million or phase two market value equal to or greater than $5 million; and (B) is not a primary residence.
• Class two property that is a residential condominium dwelling unit.

“Excluded property” means a class one or class two property:

• For which a temporary or permanent certificate of occupancy is required and has not yet been issued.
• A residential condominium dwelling unit or residential cooperative dwelling unit that is subject to an offering plan required by Sec. 352-e of the General Business Law and such unit has not been sold, or an economic interest in such unit has not been transferred, by the person, partnership, corporation, company, trust or association who has filed such plan.

“Primary residence” means the use of a covered property, or, in the case of a residential cooperative property, a residential cooperative dwelling unit, as of the taxable status date immediately preceding the fiscal year in which the surcharge is imposed, as a primary residence of (1) one or more of the covered owners, or an immediate family member of one or more of the covered owners, provided such covered owners are natural persons; or (2) one or more lessees, and any sub-lessees to which a lessee has sublet the covered property or residential cooperative dwelling unit, provided any such lessee or sub-lessee is a natural person occupying such covered property or residential cooperative dwelling unit pursuant to a bona fide lease agreement negotiated in an arms-length transaction with a term of not less than one year. For purposes of this article, “immediate family member” means a spouse, child, sibling, parent, grandparent, or grandchild.

Alternative nicotine products — The tobacco products excise tax is expanded to include alternative nicotine products, applicable to all sales of such products on or after Sept. 1, 2026. However, the tax does not apply to 75 units or less of alternative nicotine products. An “alternative nicotine product” is any noncombustible product, other than vapor products, which contains nicotine but not tobacco and is intended for human consumption, whether chewed, absorbed, dissolved, or ingested by any other means. “Alternative nicotine product” does not include any product regulated as a drug or device by the U.S. Food and Drug Administration (FDA). The term “unit” as it relates to alternative nicotine products means any cannister, pack, box, carton, or container of any kind or, if no other container, any wrapping, in which an alternative nicotine product is offered for sale, sold, or otherwise distributed to consumers.

Corporate franchise tax rates — The budget extends the current 7.25% business income tax rate for three years, through tax year 2029, for taxpayers with a business income base over $5 million. In addition, the current 0.1875% capital base tax rate is also extended for three years, through tax year 2029.

Tipped wages — A personal income tax subtraction is enacted for up to $25,000 of qualified tips, to the extent a federal deduction is allowed under IRC Sec. 224. The modification applies for taxable years beginning on or after Jan. 1, 2026.

Vendor re-registration program — The Department of Taxation and Finance is required to undertake a complete sales tax vendor re-registration program in phases, to be completed by Dec. 31, 2030. This allows the department to determine the order in which current sales tax vendors must re-register within the overall re-registration program. Also, the bill sets timelines for applications, department determinations and taxpayer protests.

In addition, the bill establishes a sales and use tax penalty and interest discount program to incentivize current sales tax debtors to resolve their outstanding sales tax liabilities before the re-registration program begins. For purposes of the penalty and interest discount program, an eligible taxpayer is any person who is a holder of a current certificate of authority subject to the reregistration program who has an eligible tax liability, and who meets the statutory conditions. An eligible tax liability is a liability for sales and use taxes, including any interest or penalty thereon, that is fixed and final on or before Sept. 1, 2026, such that the taxpayer no longer has any right to an administrative or judicial review. The discounted amount due under the program for an eligible taxpayer with an eligible tax liability is the sales or use tax liability plus 50% of the interest accrued through Dec. 31, 2026. The Commissioner of Taxation and Finance must identify the eligible taxpayers with eligible tax liabilities, compute the discounted amount due on such eligible tax liabilities, and notify eligible taxpayers of the discounted amount due. The discount will not be granted unless the eligible taxpayer pays the discounted amount due in full on or before Dec. 31, 2026.

Alternative fuels exemptions — The expiration date for the alternative fuel tax exemptions for fuel types E-85, compressed natural gas (CNG) and hydrogen, and the partial exemption for B-20, is extended to September 1, 2031. Previously, the exemptions were scheduled to expire Sept. 1, 2026.

Residential energy storage system exemptions — The expiration dates of the existing sales and use tax exemptions for receipts from retail sales of residential energy storage systems equipment and the service of installing these systems, as well as sales of electricity by a person primarily engaged in the sale of energy storage system equipment, are extended until June 1, 2028. Previously, these exemptions were scheduled to expire June 1, 2026.

Vending machine sales tax exemption — The existing sales and use tax exemption for certain food and drink purchased from vending machines is extended until May 31, 2029. Previously, the exemption was scheduled to expire May 31, 2026.

Exemption for certain student food donations — The sales and use tax exemption for food sold to a student enrolled in a college, university or school purchasing a meal using an approved donation program of funds or food points is modified. Specifically, effective June 1, 2026, a contractual arrangement between an enrolled student and a college, university or school may include a provision permitting such enrolled student to donate unused meal funds, meals or meal points to other students enrolled in such school, college or university who are facing food insecurity through a program operated by such school, college or university directly or through a contract with a nonprofit organization that is exempt from federal taxation. However, no part of the donated funds, meals, or meal points can inure to the benefit of such school, college, university or nonprofit organization.

STAR exemption and STAR credit programs —Technical corrections are made to simplify the administration of the STAR exemption and credit programs by:

• Updating the “good cause” provision of the STAR program to reflect that there are no longer any applications for the Enhanced STAR exemption.
• Making the eligibility determination and protest provisions uniform across all variations of the STAR program.
• Providing that STAR credit eligibility must be based on ownership status as of July 1, consistent with the residency eligibility date set forth in existing law.
• Restoring former Tax Law §606(eee)(2), which authorized the credit and was inadvertently repealed.
• Clarifying that the age requirement for the Enhanced STAR credit applies to taxable years commencing in 2026.
• Eliminating the Department of Taxation and Finance’s obligation to allow credit recipients to apply for supplemental payments (Form IT-119) when filing their personal income tax returns.

Petroleum business tax filing deadline for commercial vessel operators — Non-exempt commercial vessel operators are required to file petroleum business tax returns on an annual basis on or before March 20th of each year, instead of on a monthly basis. The provision is effective Sept. 1, 2026. However, a petroleum business that is required to file an annual return pursuant to existing law must file monthly returns for periods ending on or before Sept. 1, 2026, and file an annual return for the remainder of the annual period of March 1, 2026, through Feb. 28, 2027, on or before March 20, 2027. These businesses are required to file annual returns going forward.

Exemptions for senior citizens and persons with disabilities — The Senior Citizen Rent Increase Exemption (SCRIE) and the Disability Rent Increase Exemption (DRIE) programs are extended until June 30, 2028. Previously, they were scheduled to expire June 30, 2026. In addition, the income eligibility thresholds for both programs, as well as certain exemptions for senior citizens and persons with disabilities, are expanded from $50,000 to $75,000. Further, the bill provides notice to tenants regarding rent increase exemptions.

Telecommunications ceiling program — The telecommunications ceiling program that was created to provide a standardized, state level process for determining the taxable assessed value of local public utility mass real property under Article 4, Title 5, of the Real Property Tax Law, is extended until Jan. 1, 2031. Previously, the program was scheduled to expire Jan. 1, 2027.

Exemption for certain disabled veterans — Applicable to assessment rolls based on taxable status dates occurring on and after Oct. 1, 2026, the property tax exemption for certain disabled veterans is amended. Specifically, a locality may adopt a local law or resolution providing that the primary residence of any seriously disabled veteran is fully exempt from property tax. To be eligible for the exemption, a veteran:

• Must have been discharged or released from active military, naval, space or air service, including army and air national guard service performed pursuant to federal order, under honorable conditions.
• Must have a qualifying condition and must have received a discharge other than bad conduct or dishonorable from such service.
• Must be a discharged LGBT veteran and must have received a discharge other than bad conduct or dishonorable from such service.
• Must be considered by the U.S. Department of Veterans Affairs to be permanently and totally disabled as a result of military service, as evidenced by a letter, official form, or other document sent to such veteran from such department that specifically states such veteran is considered to be permanently and totally disabled as a result of such service.

Reduced transfer tax rates for qualifying REITs — The tax rate reductions for conveyances of real property to qualified existing real estate investment trusts (REITs) under the New York state real estate transfer tax and the New York City real property transfer tax are extended until Sept. 1, 2029. Previously, such rates were set to expire on Sept. 1, 2026.

Decoupling from certain OBBBA provisions — The law is amended to decouple from certain provisions of federal P.L. 119-21. Specifically, New York’s existing treatment of depreciation for qualified production property is preserved. In addition, New York is decoupled from the federal accelerated deductions for pre-2025 domestic research and experimental (R&E) expenditures and the ability to immediately deduct domestic R&E expenditures in the year incurred. Also, the bill aligns the state’s treatment of domestic and foreign R&E expenditures, with all qualifying R&E expenditures deductible over a five-year period. The provisions apply to tax years beginning on or after Jan. 1, 2025.

Similar modifications are enacted for New York City business income tax purposes concerning qualified production property and domestic R&E expenditures. Further, additional New York City decoupling provisions are enacted for business interest expenses (requiring taxpayers to compute adjusted taxable income with regard to depreciation, amortization, and depletion as in place before the OBBBA) and the expensing of depreciable business assets (applying deduction limits that were in place before the OBBBA).

Child and dependent care credit — The child and dependent care credit is revised for taxable years beginning after 2025 to simplify the calculation and enhance the benefit provided. For purposes of the revised credit, any references to the IRC are to the Code as it existed before Jan. 1, 2025.

Charitable contributions — The law is amended to retain the deductibility of certain charitable contributions as a New York itemized deduction for individual contributions to entities that lose their federal tax-exempt status. Specifically, contributions to an organization that meets the definition of an exempt organization under New York Tax Law Sec. 1116(a)(4) or to organizations that were approved for tax-exempt status under IRC Sec. 501(c) by the IRS before Jan. 1, 2025, will continue to qualify as charitable contributions allowable as a New York itemized deduction, even if the IRS revokes the organization’s tax-exempt status. The organization must establish that the revocation was unrelated to its charitable mission and that it continues to meet the statutory requirements of IRC Sec. 501(c)(3). The provisions apply to taxable years beginning on or after Jan. 1, 2026.

Farmer definition — A uniform definition of “eligible farmer” is created across various tax credits to streamline the process for claiming the credits. The definition is simplified for purposes of the agricultural property tax credit, and that definition is cross-referenced from the farm workforce retention credit, the farm employer overtime credit, and the credit for farm donations to food pantries. The changes apply to taxable years beginning on or after Jan. 1, 2026.

Farm donations to food pantries credit — For taxable years beginning on and after Jan. 1, 2026, the credit for farm donations to food pantries is increased to 50% (previously 25%) of the fair market value of the taxpayer’s qualified donations made to any eligible food pantry during the taxable year, not to exceed $20,000 (previously $5,000) per taxable year.

POWER rebates — A program called the Protecting Our Wallets Energy Rebate (POWER) credit is created, under which checks of up to $200 will be available to certain New York residents, based on 2024 tax returns.

Commercial security credit — The commercial security tax credit is extended for three years, through tax year 2028.

New York City musical and theatrical production credit — The aggregate amount available under the New York City musical and theatrical tax credit program is increased by $150 million. The increase applies to qualified New York city musical and theatrical production companies whose first performance was on or after Dec. 1, 2025.

Election by individuals to be subject to tax at corporate rates — A personal income tax subtraction is enacted for the amount of any distribution included in federal adjusted gross income under IRC Sec. 962(d), applicable to taxable years beginning on or after Jan. 1, 2026.

Brownfield credits — The law extends the duration of certain brownfield redevelopment and remediation tax credits for specified sites.

Ch. 59 (S.B. 9009), Laws 2026, effective May 28, 2026, except as noted.

New York City

Corporate, personal income taxes: Guidance issued on reporting certain depreciation and research deductions for 2025

New York issued a notice discussing recent amendments in the budget that decoupled from federal accelerated depreciation for qualified production property and from the federal treatment of research and experimental expenditures, applicable to tax years beginning on or after Jan. 1, 2025. Penalty and interest relief is available to taxpayers that timely file or amend a tax year 2025 return reporting the necessary modifications.

Depreciation for Qualified Production Property — New York does not conform to the federal law that allows accelerated depreciation for qualified production property under IRC Sec. 168(n). Therefore, the New York State tax return must be adjusted as follows: (1) the full amount of any federal deduction for accelerated depreciation on qualified production property under IRC Sec. 168(n) must be added back, and (2) a subtraction is allowed for the amount reported as depreciation on qualified production property, calculated as if the special depreciation election had not been made.

Foreign and Domestic Research and Experimental Expenditures — New York also decoupled from the federal treatment of foreign and domestic research and experimental (R&E) expenditures, applicable to tax years beginning on or after Jan. 1, 2025. Accordingly, New York State tax returns must be modified to add back the full amount of any federal deduction for foreign and domestic R&E expenditures and to subtract R&E expenditures using the following rules: (1) for foreign and domestic R&E expenditures paid or incurred on or after Jan. 1, 2025, the expenditures must be amortized over a 60-month period; (2) for foreign and domestic R&E expenditures paid or incurred before Jan. 1, 2025, the expenditures must continue to be amortized under the federal rules in effect on Jan. 1, 2022.

Important Notice N-26-1, New York State Department of Taxation and Finance, June 16, 2026.

Corporate, personal income taxes: Income tax rates extended —The New York City general corporation tax rates currently imposed under Administrative Code Sec. 11-604(1)(E) are extended for three years, through 2029. The transition to New York City personal income tax rates imposed under Tax Law Sec. 1304(b) is delayed until tax years beginning after 2029. The additional personal income tax surcharge, imposed at the rate of 14%, is also extended through taxable years beginning before 2030. Previously, the additional tax surcharge was authorized only for taxable years beginning before 2027.

Ch. 127 (A.B. 11561), Laws 2026, effective June 5, 2026.

Rhode Island

Multiple taxes: Budget contains decoupling, high earners tax, amnesty

The Rhode Island budget for the fiscal year ending June 30, 2027, signed by Governor Dan McKee on June 12, 2026, contains the following tax changes.

Decoupling changes — Rhode Island decoupled from all tax year 2025 and before impacts of H.R. 1 (the One Big Beautiful Bill Act). Rhode Island also permanently decoupled from H.R. 1’s provision regarding research and development expensing that allows entities to accelerate the expensing of costs related to research and development, such as wages, supplies, rent, and equipment, over a one-year or two-year period for tax years beginning in 2026.

Beginning in tax year 2027, amounts excluded from federal income pursuant to IRC Secs. 1202 and 163(j)(8)(A)(v) must be added back.

High income earners — For taxable incomes over $1 million, an additional 1% tax will be imposed for the 2027 tax year. The additional tax increases to 2% for 2028, and 3% for tax years 2029 and after.

Child tax credit — For tax years beginning in 2027, a child tax credit in the amount of $330 per child is allowed, subject to phaseout.

Tax amnesty — A tax amnesty program will be conducted for 75 days and end on Feb. 15, 2027. The amnesty applies to any taxes due before December 31, 2025, and interest due will be reduced by 25%.

H.B. 7127, Laws 2026, effective as noted.

South Carolina

Corporate income tax: Required use of combined reporting upheld

The South Carolina Court of Appeals affirmed a decision holding that it was permissible for the Department of Revenue to require a group to use combined unitary reporting because separate entity reporting did not fairly represent the parent company’s business activity in the state. The department presented sufficient testimony showing that the parent’s inflated transfer pricing resulted in distortion of its South Carolina business activity under the standard sales factor formula by allowing the parent to artificially shift income to a subsidiary. Further expert testimony also established that combined reporting was both reasonable and equitable, and it cured the distortion created by use of the standard formula. The taxpayer’s claim that the department violated the South Carolina Administrative Procedures Act was also rejected. The court was persuaded by the department’s argument that because the taxpayer chose to file a unitary combined return in South Carolina for tax year 2012, it could not now credibly argue that it was unfairly surprised when the department required combined reporting in 2014 and 2015.

Tractor Supply Co. v. South Carolina Department of Revenue, Court of Appeals of South Carolina, No. 6148, June 17, 2026.

Texas

Corporate income tax: Cost of goods sold rule amended

Texas revised its rule regarding the cost of goods sold (COGS) deduction under the state’s franchise tax to address some recent legislation, policy changes, and court cases. The amendments include:

• Depreciation — The amendments tie depreciation includable in COGS to current federal tax law, rather than the law in effect in 2007. This implements a policy change the Comptroller previously announced. The amendments also allow a one-time net depreciation adjustment in 2026 to implement the change.
• Expenses paid with grants — Taxpayers may now include costs paid with certain broadband deployment grants and certain COVID-19 relief loans/grants in their COGS deduction, even if those grants or relief payments were excluded from the taxpayer’s total revenue. This implements recent legislation.
• Broadcasting — The “film and television production” COGS provision now expressly includes television or radio broadcasting and defines it by FCC license. This implements recent legislation.
• Movie theaters — The rule now defines “movie theater” and “motion picture” for COGS provisions specific to that industry. This provision is the result of litigation and policy changes.

Regulations, Texas Comptroller of Public Accounts, June 1, 2026.

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