Quarterly State Income Tax Roundup

Texas – Follows bonus depreciation

In a Dec. 1, 2025, notice, the state comptroller announced that despite the state’s Jan. 1, 2007, fixed federal conformity date, Texas will follow bonus depreciation rules under the OBBBA. Effective with the 2026 franchise tax report, Texas will align its franchise tax depreciation rules with the bonus depreciation provisions of the OBBBA. Beginning with the 2026 franchise tax report, businesses may elect to deduct the full cost of qualifying fixed assets – such as machinery, equipment, and furnishings – acquired after Jan. 19, 2025. A Dec. 19, 2025, memo provides additional guidance.

Alabama

Alabama conforms to the IRC on a rolling basis. On Sept. 11, 2025, the Alabama Department of Revenue released NOTICE Research and Experimental Expenditures addressing R&E expenses.

Existing Alabama law decouples from IRC Section 174 in favor of providing taxpayers an option to currently deduct R&E expenditures or treat the expenses in the same manner as IRC Section 174 before the Tax Cuts and Jobs Act of 2017 (TCJA) amendments took effect in tax year 2022. The notice provides that federal catch-up provisions deducted in 2025 or 2026 will need to be added back to Alabama income to the extent they were previously deducted on the 2024 Alabama return due to Section 40-18-62.

Iowa – NCTI and FDDEI guidance

Iowa conforms to the IRC on a rolling basis and issued GILTI/NCTI and FDII/FDDEI guidance on Nov. 4, 2025.

For 2026 and later, Iowa law provides no exclusion or other adjustment for NCTI, and the 60% of NCTI still included in federal taxable income after the Section 250 deduction will be subject to Iowa income tax. Iowa fully conforms with the federal deduction under IRC Section 250(a)(1)(A) for foreign-derived intangible income (FDII) (2019-2025) and foreign-derived deduction eligible income (FDDEI) (2026 and later), with limited exceptions described for certain federal consolidated filers. Net GILTI is excluded from Iowa net income for corporate income and franchise taxpayers for 2019-2025, and the notice describes consolidated filing mechanics at a high level.

Maine – Fixed conformity, no OBBBA conformity

In an October 2025 tax alert, Maine Revenue Services describes Maine’s conformity to the OBBBA. Maine conforms to the IRC as of Dec. 31, 2024, and the Maine Legislature adjourned on June 25, 2025, prior to the July 4, 2025, enactment of the OBBBA, so it has not yet had the opportunity to consider conformity with the federal tax changes in the OBBBA. The alert notes that Maine does not conform to IRC Section 168(k) bonus depreciation. Additionally, the alert recommends legislative decoupling from full expensing of R&E expenses (IRC Section 174A), accelerated depreciation for qualified production property (IRC Section 168(n)), and bonus depreciation (IRC Section 168(k)), while recommending conformity with the IRC Section 163(j) change in the OBBBA.

Massachusetts

Massachusetts conforms to IRC provisions on a rolling basis. A Department of Revenue Technical Information Release Working Draft addresses Massachusetts’ conformity to the OBBBA provisions. Massachusetts conforms to full expensing of domestic research and experimental expenditures, modification of the limitation on business interest, and the special depreciation allowance for qualified production property under IRC Section 168(n). Massachusetts does not conform to full expensing for certain business property under IRC Section 168(k).

Minnesota – Instructions on state adjustments

Under current law, definitions used in determining Minnesota taxable income are based on the IRC as amended through May 1, 2023, but since that date, Congress enacted the OBBBA. Taxpayers might need to make an adjustment to income on their Minnesota return because Minnesota has not adopted the federal changes relating to the OBBBA. If any of the federal provisions in the OBBBA affect the amount of taxable income reported on a federal form, taxpayers must make an adjustment to income on their Minnesota return. The Minnesota Department of Revenue has updated forms and instructions to help calculate nonconformity adjustments.

New Jersey – R&E expense treatment under IRC 174

A law change enacted on July 3, 2023, (A.B. 5323) provides that for privilege periods beginning on and after Jan. 1, 2022, a deduction for R&E expenditures is allowed during the same privilege period for which a credit is claimed under the New Jersey research and development (R&D) credit, notwithstanding the timing schedule required by IRC Section 174.

An expense qualifies for the New Jersey R&D credit only if the expense is incurred in New Jersey. As a result, New Jersey allows full expensing of R&E expenses for both domestic R&E expenses as long as the expense is incurred in New Jersey. For non-New Jersey expenses, TCJA amortization treatment would apply.

New Jersey conforms to the IRC as enacted on Dec. 31, 2022, and therefore does not adopt the OBBBA changes.

The New Jersey Research and Development Tax Credit (updated Nov. 25, 2025), provides guidance regarding federal and state reporting timing differences. If taxpayers amend federal returns pursuant to IRS Revenue Procedure 2025-28 (per accelerated amortization), they must also amend their New Jersey corporate business tax returns.

New Jersey – Section 163(j) reporting and related-party addbacks

New Jersey is a rolling conformity state. On Dec. 4, 2025, the division of taxation revised its TB-87(R), “Guidance for Corporation Business Tax Filers on the IRC § 163(j) Limitation,” stating there is “no change to the way I.R.C. §163(j) income is reported on New Jersey returns” because New Jersey conforms to IRC changes only to the extent that they are consistent with New Jersey’s Corporation Business Tax. The guidance relates to the interplay between the Section 163(j) limitation and the state’s related-party addbacks (which have since been repealed).

The guidance does not indicate a position regarding whether the OBBBA changes to the Section 163(j) limitation are adopted in New Jersey.

New Jersey – Addressing GILTI name change to NCTI

For tax years beginning after Dec. 31, 2025, the OBBBA renamed GILTI as NCTI and FDII as FDDEI for federal purposes.

The treatment of these concepts for New Jersey corporate business tax purposes is unchanged and remains as set forth in the published guidance and regulations. The division of taxation provides that when reviewing prior materials, “keep in mind that any reference to GILTI refers to NCTI and any reference to FDII refers to FDDEI.”

Rhode Island

On Oct. 2, 2025, the Department of Revenue released the advice memorandum, “Rhode Island Decouples From Recently Enacted Federal Legislation – H.R. 1 (ADV 2025-20).” For businesses, the guidance lists OBBBA-related provisions not allowed under Rhode Island law, including changes to business interest expenses, changes to R&D expensing, an increase in cap for depreciation of business assets, a deduction for qualified sound recording equipment, and changes to qualified opportunity zone designations.

Tennessee – No OBBBA conformity for bonus depreciation

Tennessee has rolling conformity to the IRC and, therefore, generally conforms to the OBBBA absent conflicting state treatment. However, existing Tennessee law coupled Tennessee depreciation treatment with TCJA treatment.

In December 2025, the Department of Revenue issued Notice #25-36, “Federal Bonus Depreciation Conformity,” noting that state law provides that for assets purchased on or after Jan. 1, 2023, Section 168 will be applied as it exists and applies under the TCJA. As a result, taxpayers must continue to apply the TCJA bonus depreciation applicable percentages set forth in the TCJA schedule for excise tax purposes.

The notice also provides that bonus depreciation is not allowed for qualified production property, reflecting decoupling from Section 168(n).

Tennessee – Other OBBBA guidance

In December 2025, the Department of Revenue updated its Franchise and Excise Tax Manual to provide that it decouples from Section 168(n) and allows for full expensing of Section 174 R&E. 

Illinois

The governor’s Executive Order 2025-05 released on Sept. 23, 2025, provides that the OBBBA includes significant tax law changes for calendar year 2025 that are expected to have an immediate impact on state revenues during fiscal year 2026 (FY26) and on the state’s revenue outlook for the foreseeable future. The order calls upon each state agency to pause nonessential purchases and operational expenditures. It also calls for eliminating travel that is not essential to agency operations and reviewing and prioritizing potential hires. The order presents these actions as responsive measures to anticipated revenue effects.

Indiana – Special session

Indiana conforms to the IRC as in effect on Jan. 1, 2023. On Oct. 27, 2025, the governor called a special session that was to convene on Nov. 3, 2025. The stated purpose was asking the legislature to conform Indiana’s tax code with new federal tax provisions to ensure stability and certainty for taxpayers and tax preparers for 2026 filings. The special session did not convene, and the legislature is not expected to meet again until January.

Massachusetts

At the Sept. 30, 2025, Mid-Year Economic Roundtable, the Massachusetts Department of Revenue commissioner provided that the OBBBA will reduce state tax collections by more than $650 million in FY26 and that six major line items represent the bulk of the impact.

Gov. Maura Healey released an “Impact of Trump Administration and Congressional Cuts on Massachusetts” dashboard that estimates a loss of $664 million of funding for the state budget for the 2025-2026 year.

Wisconsin

The Department of Health Services estimates that the OBBBA will cost Wisconsin taxpayers at least $142 million in the next fiscal year. Gov. Tony Evers issued a release stating that the state legislature would cost Wisconsin taxpayers over $284 million in future budgets.

An Oct. 8, 2025, Legislative Fiscal Bureau memo written in conjunction with the Department of Revenue estimates a nine-year cost of the OBBBA to be between $80 million and $242 million per year.

South Carolina – Determining nexus and VDA program

The Department of Revenue posted on its website guidance to assist taxpayers in determining whether they have income tax or sales tax nexus with the state. The guidance explains that nexus “is a sufficient connection between South Carolina and a taxpayer that allows the state to impose its taxing jurisdiction on that taxpayer.” Nexus may be established through physical or economic presence.

Per the guidance, taxpayers can complete the nexus questionnaire on MyDORWAY to determine nexus status, and the Department of Revenue will contact the taxpayer using the information included in the questionnaire to determine whether nexus is established. Information on the department’s voluntary disclosure program is provided in the guidance.

Wisconsin – Sourcing intangible income to licensee, not sublicensee

In Intersystems Corp. v. Wisconsin Department of Revenue, the Wisconsin Tax Appeals Commission concluded that end users of software were neither purchasers nor licensees of the taxpayer’s software, and therefore receipts from end users were not sourced to Wisconsin under statutes governing computer software, royalties, or intangible property. Instead, the relevant licensees were the application providers (APs), and revenue was sourced based on whether those APs used their licenses in Wisconsin. The characterization of the revenue as either royalties or sales of intangible property was immaterial because the sourcing outcome was the same in either case.

Florida – Interest income received out of state not sourced to Florida

A Florida trial court held that interest income received by a financial organization outside Florida is not sourced to Florida, even when the customers are located in the state.

In Capital One Bank (USA), N.A. v. State of Florida Deptartment of Revenue, the court found that Florida’s statute clearly sources interest income based on the location where the income is received, not customer location. The court rejected the department’s reliance on statutory intent language, concluding that such intent cannot override unambiguous statutory text. The court also noted that the department’s own administrative rule tracked the statutory sourcing language.

Illinois – Updated regulation on financial organization sourcing of investment income

On June 7, 2024, Illinois enacted H.B. 4951, changing how financial organizations source investment and trading income for Illinois apportionment purposes. For tax years ending on or after Dec. 31, 2024, such income generally is sourced based on the taxpayer’s Illinois factor for other noninvestment and trading revenue, rather than being assigned to a fixed place of business. Click here for the Crowe alert on the Illinois change.

On Sept. 12, 2025, Illinois updated 86 Ill. Adm. Code 100.3405, with language that generally tracks the statutory changes.

Florida – Sues California over apportionment, seeks U.S. Supreme Court relief

On Oct. 28, 2025, Florida filed a motion for leave to file a bill of complaint with the U.S. Supreme Court challenging California’s single-sales factor combined with its occasional sale rule. Florida asserts that excluding occasional sale proceeds “supercharges” California’s single-sales factor in an unconstitutional manner. California has until Jan. 28, 2026, to respond. The U.S. Supreme Court has original jurisdiction over disputes between states and may either accept the case or deny the request, which would end the litigation.

Alaska – Not enacting market-based sourcing

S.B. 113 would have moved Alaska from a cost-of-performance sourcing regime to market-based sourcing for service revenue beginning in the 2026 tax year. On Oct. 15, 2025, the governor vetoed the bill.

San Francisco – Market-based sourcing regulations issued

On Oct. 24, 2025, the San Francisco treasurer and tax collector issued Tax Collector Regulation 2025-1, “Gross Receipts Tax – Allocation of Gross Receipts from Services, Intangible Property, and Sales of Financial Instruments.” The regulations are similar to California Franchise Tax Board rules and provide cascading sourcing rules based on the type of service or property involved. The regulations also include a professional services safe harbor that generally assigns receipts to customer billing addresses when services are provided to more than 250 customers, subject to a concentration exception.

Texas Supreme Court denies review – COGS does not include legal settlement

On Nov. 21, 2025, the Texas Supreme Court denied review in Anadarko Petroleum Corporation v. Glenn Hegar and Ken Paxton. The denial left in place a lower court ruling that a taxpayer could not include a lawsuit settlement payment in its cost of goods sold (COGS) deduction.

Illinois – PTET and excess business loss provisions made permanent

On Dec. 12, 2025, Illinois enacted S.B. 1911 (House Floor Amendment No. 1), which makes two pass-through-related provisions permanent. The Illinois pass-through entity tax (PTET), previously scheduled to sunset on Dec. 31, 2025, now is permanent. In addition, Illinois removed the sunset date for its adoption of IRC Section 461(l)(1)(B), making the excess business loss limitation permanent for Illinois purposes.

Virginia – Apportionment guidance for nonunitary PTE ownership

The Virginia Court of Appeals held in Department of Taxation v. FJ Management Inc. that when a corporate owner does not have a unitary relationship with a pass-through entity (PTE), the corporate owner may not include its share of the PTE’s property, payroll, and sales factors in its own apportionment formula. Instead, the amount of the nonunitary PTE’s income taxable to the corporate partner equals the partner’s distributive share of income as apportioned at the PTE level using the PTE’s own apportionment factors.

In Tax Bulletin 25-5, the Virginia Department of Taxation acknowledges its long-standing general policy of blended apportionment and provides revised guidance following the FJ Management decision. The bulletin states the guidance is temporary until forms are updated and that amended returns will not be required for 2024 and prior years.

Massachusetts – Updated regulation describes activities exceeding P.L. 86-272 protection

On Oct. 10, 2025, the Department of Revenue updated 830 CMR 63.39.1, expanding the description of in-state activities that exceed P.L. 86-272 protection. The updated regulation provides that:

“[I]n-state activities that are conducted by a vendor through an Internet website accessible by persons in the state may include activity that is not entirely ancillary to the solicitation of orders of tangible personal property, such as the placement of Internet cookies onto the computers or other electronic devices of in-state customers that gather customer search information used to adjust production schedules and inventory amounts, develop new products, or identify new items to offer for sale.”

New York City – Proposed regulations addressing internet activities

The New York City Department of Finance issued the proposed rules “Business Corporation Tax Implementation Rules,” which generally follow the Multistate Tax Commission’s guidance regarding internet activities that exceed P.L. 86-272 protection. The proposed regulations identify activities such as placing internet cookies on customer devices, regularly providing post-sale assistance by email or electronic chat, and soliciting sales on a website while providing customer assistance through a posted FAQ.

A public hearing was held on Nov. 20, 2025. The department notes that future developments can be found on its proposed rules website.

Illinois – STAR bond districts

On Dec. 12, 2025, Illinois enacted S.B. 1911 (House Floor Amendment No. 3), which created the statewide Innovation Development and Economy Act. Sales tax and revenue (STAR) bonds existed prior to this legislation but were limited in scope and applied only to a single locality in Marion, Illinois, as described on the department’s website. The act expands the STAR bond program statewide by authorizing municipalities and counties to issue STAR bonds to finance qualifying projects in state-designated eligible areas. STAR bond projects rely on increases in sales tax revenue to promote development of major tourism, entertainment, retail, and related projects intended to stimulate capital investment and job creation.

North Carolina – No deference to state agency on state matters

The North Carolina Supreme Court held that a state administrative agency’s interpretation of state regulations is not entitled to substantial deference. In Mitchell v. University of North Carolina Board of Governors, the court stated that an appellate court may freely substitute its judgment for that of the agency and apply de novo review when interpreting state law. The court distinguished this from situations involving federal law, in which deference to a federal agency’s interpretation still may apply.

Although the court did not reference the 2024 U.S. Supreme Court Loper Bright Enterprises v. Raimondo decision, the opinion is consistent with Loper Bright’s rejection of broad administrative deference.

Proposals (including noncorporate income tax)

California

A current ballot initiative would require billionaires living in California on Jan. 1, 2026, to pay a one-time state tax equal to 5% of their net worth, due in 2027. Taxpayers could elect to spread payments over five years at an increased cost, and real estate, pensions, and retirement accounts would be excluded from the net worth calculation. Most of the revenue would be set aside for healthcare, and inclusion on the November 2026 ballot requires a sufficient number of signatures.

Illinois

House Joint Resolution 21 would amend the Illinois Constitution to impose an additional 3% income tax on the portion of an individual’s net income exceeding $1 million. If the resolution passes, 50% of the revenue would be used for property tax relief and 50% would be distributed to school districts on a per-pupil basis.

Michigan

A proposed ballot initiative would amend the Michigan Constitution to impose a 5% tax on annual income over $500,000 for single filers and $1 million for joint filers.

Legislative action

Colorado – High-earner taxation enacted

On Nov. 4, 2025, Colorado voters approved Proposition MM, increasing taxes on high earners to fund the state’s free school meals program. An estimated $95 million in additional revenue will be generated by limiting itemized or standard deductions to $1,000 for single filers and $2,000 for married filers with income over $300,000. The additional revenue will fund access to healthy food for children and families, including the Healthy School Meals for All program.

Illinois – Billionaires’ tax proposed, rejected

Illinois transit funding bill S.B. 2111 included House Floor Amendment No. 2, which would have enacted the Extremely High Wealth Mark-to-Market Tax Act. The act would have applied to Illinois resident taxpayers with worldwide net assets exceeding $1 billion and would have treated assets as sold at fair market value annually, with gains taxed at 4.95%. On Oct. 31, 2025, House Floor Amendment No. 3, which did not include the act, was adopted, and S.B. 2111 passed both chambers without the wealth tax.

Pennsylvania

H.B. 2051 proposes to enact the Pennsylvania False Claims Act. The bill does not provide an exception for state taxes.

Washington – International remote seller voluntary disclosure program

The Washington Department of Revenue will offer an international remote seller voluntary disclosure program. The program will accept applications from Feb. 1, 2026, through May 31, 2026. Eligible participants must be headquartered outside the United States, have no recent registration or enforcement contact within the statutory period, and must not have engaged in evasion or misrepresentation. Benefits include a four-year limited lookback for business and occupation tax, a 12-month lookback for sales tax, and up to 39% of penalties potentially waived.

Indiana – Tax amnesty program

The Indiana Department of Revenue released its 2026 Tax Chapter for the 2025 Filing Year, which summarizes the state’s tax amnesty program.

Enacted on May 6, 2025, H.B. 1001 requires the Indiana Department of Revenue to conduct an eight-week tax amnesty program ending prior to Jan. 1, 2027. The program will allow qualified taxpayers to pay outstanding liabilities without penalties or interest. Eligibility is limited to liabilities due for tax periods ending before Jan. 1, 2023, and excludes taxpayers that participated in prior amnesty programs. The program will take place in the second half of 2026, with details to be announced.

New Hampshire – Tax amnesty program

Enacted on June 27, 2025, H.B. 2 establishes a tax amnesty program for all taxes administered by the New Hampshire Department of Revenue. The program runs from Dec. 1, 2025, through Feb. 15, 2026. Benefits include amnesty from all penalties and 50% of interest. Amnesty is available regardless of assessment status or appeal posture for taxes due on or before June 30, 2025.

California – IRC conformity updated

Enacted on Oct. 1, 2025, S.B. 711 updates California’s conformity to the IRC as enacted on Jan. 1, 2025, replacing the prior Jan. 1, 2015, conformity date.

The bill modifies conformity by providing that IRC Section 163(j) relating to the limitation on business interest shall not apply, that IRC Section 174 shall apply as enacted on Jan. 1, 2015, and that IRC Section 168(k) shall not apply.