Quarterly State Income Tax Roundup

Colorado – Water’s-edge election and combined-reporting changes

Enacted on June 3, 2026, H.B. 26-1289 updates Colorado’s unitary combined group water’s-edge filing election, effective for income tax years beginning on or after Jan. 1, 2027, to make worldwide combined filing the default basis and to expressly include corporations with more than 80% of their property and payroll located outside of the United States (commonly referred to as an 80/20 corporation) in the water’s-edge filing group. The bill also eliminates certain corporate deductions for amounts included in federal taxable income under IRC Sections 951(a) or 951A(a) with respect to a controlled foreign corporation incorporated in a foreign jurisdiction for tax avoidance, repeals the state corporate income tax deduction for wages or salaries paid that are not allowed to be deducted for federal tax purposes under Section 280C, and makes changes to a number of tax credits.

Kansas – Alcoholic liquor manufacturer apportionment

Enacted on April 27, 2026, S.B. 300 allows certain manufacturers of alcoholic liquor to use single-sales-factor apportionment, for tax years beginning on or after Jan. 1, 2027, if specified Kansas property and compensation thresholds are met. Other alcoholic liquor manufacturers continue to use a three-factor formula.

South Carolina – Draft alternative apportionment guidance

On May 18, 2026, the South Carolina Department of Revenue issued a draft revenue procedure #26-x for public comment, addressing the department’s authority to redetermine net income by adjusting transactions or requiring a combined return. The revenue procedure explains how taxpayers may request taxpayer-specific advice from the department and provides the process for taxpayer petitions to use alternative apportionment.

Arizona – Omnibus tax bill includes IRC conformity updates

On June 13, 2026, Arizona enacted H.B. 4168, an omnibus tax bill that updates Arizona income tax conformity to the IRC as amended on Jan. 1, 2026, effective for tax years beginning after Dec. 31, 2025, and includes retroactive conformity for federal provisions enacted during 2025. For corporate taxpayers, the act adds an Arizona modification for IRC Section 168(n) effective for tax years beginning after Dec. 31, 2025, and updates Arizona’s foreign dividend subtraction language so Section 951A income (NCTI) continues to be treated as foreign dividend income, effective for tax years beginning after Dec. 31, 2024. The act also repeals or modifies several tax credit provisions.

Connecticut – Selective OBBBA decoupling

Connecticut enacted S.B. 1 on May 26, 2026, which includes business tax provisions decoupling from IRC Section 168(n) qualified production property expensing and applying Section 174A R&E-related deductions as are in effect under the Tax Cuts and Jobs Act of 2017 (TCJA) provisions. The legislation also creates new flow-through business credits for qualified small-business research and development (R&D) and modifies other selected credit provisions.

Florida – IRC conformity and selective OBBBA decoupling

Florida enacted H.B. 7031 on June 12, 2026, updating Florida’s corporate income tax conformity to the IRC as amended as of Jan. 1, 2026, with significant decoupling from the OBBBA. For corporate income tax purposes, Florida retains Jan. 1, 2025, treatment for IRC Sections 168(k), 174(a), 163(j), 274, and 179, and it does not adopt new IRC Sections 168(n) or 174A, preserving Florida’s existing pre-OBBBA treatment of bonus depreciation, business interest expense, business meals, Section 179 expensing, domestic R&E expensing, and qualified production property. The act applies retroactively to Jan. 1, 2026.

Hawaii – IRC conformity legislation

Enacted on May 26, 2026, H.B. 2329 conforms Hawaii income tax law to the IRC as amended as of Dec. 31, 2025, for tax years beginning after Dec. 31, 2025, while decoupling from IRC Sections 168(n) and 174A. The state continues TCJA-style amortization for R&E, while conforming to the OBBBA Section 163(j) provisions.

Illinois – Omnibus tax bill includes PTET and net operating loss updates

Illinois’ fiscal 2027 budget package includes H.B. 111 and S.B. 3019, which were signed by the governor on June 16, 2026. Key tax provisions include revisions to Illinois’ net operating loss (NOL) deduction limits, with the current $500,000 cap being replaced with percentage of income limits beginning with tax years ending on or after Dec. 31, 2027; and modifications to the pass-through entity tax (PTET) election to allow electing partnerships, for tax years ending on or after Dec. 31, 2026, to use either a full distributive share method for Illinois residents or an Illinois-sourced income method for nonresidents. The bills also extend the Illinois R&D credit through tax years ending before Jan. 1, 2037, extend the funding for the Illinois Independent Tax Tribunal through the state’s fiscal year 2027, and make several broader sales tax, digital advertising, hotel marketplace, gaming, and excise tax changes.

Iowa – NCTI deduction and GILTI terminology update

Enacted on May 15, 2026, S.F. 2492, effective for tax years beginning on or after Jan. 1, 2026, creates a corporate income tax deduction for NCTI and replaces obsolete references to GILTI while preserving Iowa’s deduction for income under IRC Section 951A.

Kansas – NCTI/GILTI terminology conformity

On April 27, 2026, Kansas enacted S.B. 300, which replaces obsolete statutory language referring to GILTI in the subtraction modification for certain foreign-sourced income under IRC Section 951A, reflecting the federal terminology change to NCTI.

Kentucky – IRC conformity and decoupling updates

Enacted on April 14, 2026, H.B. 757/Acts Ch. 161 updates Kentucky’s IRC conformity to Dec. 31, 2025, for taxable years beginning on or after Jan. 1, 2026, generally adopting the OBBBA, while decoupling from the treatment of R&E expenditures and IRC Section 163(j) interest deductions under the OBBBA and instead applying the provisions of Sections 174A and 163(j) as in effect under the TCJA provisions. The Section 174A provisions were clarified further in H.B. 869/Acts Ch. 198 enacted on April 27, 2026, which provided technical corrections to H.B. 757.

Maine – IRC conformity, OBBBA decoupling modifications

On April 10, 2026, Maine enacted L.D. 2212/Public Law Ch. 650, which updates Maine’s conformity date to the IRC as of Dec. 31, 2025, and includes OBBBA-related state decoupling modifications for R&E and IRC Section 168(n) depreciation. Maine will phase in its adoption to the OBBBA Section 174A R&E provisions between 2025 and 2030.

Maryland – Manufacturing depreciation modifications

Maryland enacted S.B. 284/Ch. 6, on April 8, 2026, which, among other changes, modifies Maryland’s treatment of federal depreciation for manufacturing entities. The law limits IRC Section 168(k) bonus depreciation to 20% of adjusted basis of the qualified property and disallows additional depreciation under Section 168(n).

Massachusetts – Phased conformity to OBBBA provisions

On June 12, 2026, Massachusetts enacted H. 5470, which includes significant business tax and PTET provisions. The act delays conformity to deductions for IRC Section 168(n), increased Section 179 limits, and the OBBBA change to Section 163(j) adjusted taxable income until tax years beginning in 2027. Effective for tax years beginning on or after Jan. 1, 2026, Massachusetts will conform to full expensing of Section 174A R&E expenses. Additionally, the act provides for decoupling from some of these deductions if voters approve a ballot initiative to reduce the personal income tax rate and provides that future conformity to IRC changes will not automatically apply subject to certain revenue impact thresholds.

Minnesota – Omnibus tax bill and selective OBBBA conformity

On May 28, 2026, Minnesota enacted H.F. 2438, an omnibus tax bill that conforms Minnesota tax statutes to the IRC as amended through May 1, 2026, while decoupling from the OBBBA’s Section 174A R&E provisions for corporations (it conforms for pass-through entities (PTEs)) and use of the pre-2026 federal computation NCTI, which preserves its treatment as dividend income, subject to the state dividend received deduction limitations. Minnesota updated conformity to the IRC Section 163(j) and Section 168(n) provisions of the OBBBA, while remaining decoupled from Section 168(k) bonus depreciation.

New Jersey – NCTI/FDDEI corporation business tax guidance

New Jersey issued revised T.B. 110 on May 6, 2026, to update references from GILTI and foreign-derived intangible income (FDII) to NCTI and foreign-derived deduction eligible income (FDDEI). According to the Division of Taxation, the terminology change does not change New Jersey corporate business tax treatment. The bulletin states that NCTI generally is treated as a dividend and may be excluded or eliminated under the state’s dividend-received deduction provisions and confirms that NCTI and the gross amount of FDDEI is included in the apportionment denominator and that IRC Section 250 deductions no longer are allowed.

New York – Fiscal year 2027 revenue budget bill

New York enacted its fiscal year 2027 revenue budget bill S. 9009-C/A. 10009-C on May 28, 2026, extending the current corporate business income and capital base tax rates through tax years beginning before Jan. 1, 2030. The bill also adds New York state and New York City OBBBA decoupling modifications for IRC Section 168(n) depreciation and applies the TCJA amortization provisions for R&E expensing. Effective for tax years beginning on or after Dec. 31, 2024, the bill adjusts New York City interest limitation calculations to use earnings before income and taxes; updates New York City language to remove GILTI and include Section 951A net of Section 250 deductions in the business income tax base and receipts-factor denominator; and provides relief from interest and penalty assessments related to the New York City interest and Section 951A changes. The bill also extends or increases certain business credits.

Oregon – IRC conformity and prospective bonus depreciation modifications

On April 9, 2026, Oregon enacted S.B. 1507, which updates Oregon’s IRC conformity and includes business tax modifications. For corporate excise and income tax purposes, the bill includes an addback for IRC Section 168(k) bonus depreciation and subtractions over the remaining life of the assets for property placed in service in tax years beginning on or after Jan. 1, 2026.

Rhode Island – OBBBA decoupling regulation

Rhode Island adopted 280-RICR-20-25-17 on April 16, 2026, which provides guidance and examples for required decoupling adjustments, including provisions addressing IRC Sections 163(j), 168(k), 174A, and 179.

Arkansas – Gain from sale of franchise-related intangible assets treated as nonbusiness income

In Hudson v. United States Beef Corp., the Arkansas Supreme Court held that gain from the liquidation and sale of franchise-related intangible assets was nonbusiness income under the pre-2026 Arkansas Uniform Division of Income for Tax Purposes Act framework and did not meet the functional test, as the complete liquidation of a line of business was not a recuring part of the taxpayer’s trade or business. As a result, the gain was allocable to the taxpayer’s commercial domicile rather than apportionable as business income.

Maine – In-state inventory and regulated distribution defeat P.L. 86-272 protection

In State Tax Assessor v. Fifth Generation Inc., the Maine Supreme Judicial Court held that a Texas-based S corporation had Maine income tax nexus and was not protected by P.L. 86-272. The taxpayer owned vodka inventory in a Maine bailment warehouse and sold product from that warehouse to the state liquor bureau. The court concluded the in-state bailment, delayed title transfer of the inventory, and sale structure went beyond protected solicitation and was not ancillary to the request for orders.

New York – P.L. 86-272 internet-activities regulation upheld against facial challenge

In American Catalog Mailers Association v. Department of Taxation and Finance, the New York Appellate Division affirmed that New York’s P.L. 86-272 internet-activities regulation, 20 NYCRR 1-2.10, is not facially preempted by P.L. 86-272. The court did not decide how the rule applies to any specific taxpayer; it only upheld New York’s regulation on its face and stated that whether the New York Department of Taxation and Finance’s application of the regulation complies with P.L. 86-272 will depend on the specific facts of taxpayers.

Maine – New elective PTET

Enacted on April 10, 2026, L.D. 2212/Public Law Ch. 650 creates an elective Maine PTET for eligible partnerships, S corporations, estates, and trusts effective for tax years beginning on or after Jan. 1, 2026. The election is annual, made on a timely filed return including extensions, and irrevocable after the due date including extensions. The PTET is computed using the highest marginal individual income tax rate, excluding the surcharge, and updates Maine’s credit for taxes-paid provisions to allow Maine residents credit for PTET paid to other states.

Maryland – PTET calculation changes

Enacted on April 8, 2026, S.B. 284/Ch. 6 modifies Maryland’s PTE taxable income and PTET calculation rules, including requiring a state addition modification for net income taxes and deferring the effective date of a resident-member election to use distributive income everywhere in computing their Maryland PTE taxable income until 2027.

Massachusetts – Elective 4% PTET excise

Massachusetts H. 5470, enacted on June 12, 2026, creates a new annual elective 4% PTE excise tax on qualified income above the Massachusetts surtax threshold, with a refundable owner credit equal to 90% of the PTE excise tax.

Minnesota – 2-year extension of PTET

As part of Minnesota’s omnibus tax bill H.F. 2438, enacted on May 28, 2026, Minnesota extended PTET through tax years 2026 and 2027 and provides no 2026 estimated payment penalties on PTET due to the retroactive extension of the PTE provisions.

Indiana – Tax Amnesty 2026

The Indiana Department of Revenue (DOR) issued guidance on April 6, 2026, including details on its 2026 Tax Amnesty program, which offers waiver of interest and penalties. The program runs from July 15, 2026, through Sept. 9, 2026, for eligible tax liabilities for listed taxes administered by the DOR for tax periods ending before Jan. 1, 2024. Additional information, including a tax amnesty eligibility lookup tool, is available on the department’s website.

Louisiana – Inventory tax credit guidance

The Louisiana Department of Revenue issued Revenue Information Bulletin 26-011 on March 27, 2026, addressing updates to the inventory tax credit. The guidance states that C corporations generally are prohibited from earning the inventory tax credit for ad valorem taxes paid on or after July 1, 2026, except for certain cooperatives, while S corporations and partnerships may continue to earn and pass through credits subject to statutory rules.

Louisiana – Assessment and refund appeal period extension

Enacted on May 11, 2026, S.B. 196/Act 97 increases the time period from 60 days to 90 days for taxpayers to appeal a notice of assessment or disallowance of a refund claim.

Louisiana – Estimated tax filing due dates

Louisiana enacted H.B. 633/Act 307 on May 22, 2026, which modifies individual and corporate taxpayer estimated payment filing deadlines from the 15th day of the fourth month to the 15th day of the fifth month following the close of the taxable year and updates the safe-harbor provisions for underpayment of estimated tax penalties.

Maine – Independent Office of Tax Appeals

Enacted on April 16, 2026, L.D. 2178/Public Law Ch. 734, beginning Jan. 1, 2027, creates an Independent Office of Tax Appeals in the Department of Administrative and Financial Services to replace the Maine Board of Tax Appeals.

Michigan – R&D credit proration guidance

On April 24, 2026, the Michigan Department of Treasury issued a notice providing R&D credit proration guidance because 2025 tentative claims submitted by April 1, 2026, exceeded statutory caps. The guidance states that large-employer claims will be prorated to 50.96% and small-employer claims to 59.88%.

Oregon – New jobs credit

Enacted on April 9, 2026, and effective beginning for tax years beginning on or after Jan. 1, 2026, S.B. 1507 creates a nonrefundable Oregon jobs credit for personal and corporate income tax. The credit generally equals $1,000 per net new job created, subject to limits, wage requirements, certification, carryforward, and aggregate cap rules.

Wisconsin – Research credit carryforward extension

On April 8, 2026, Wisconsin enacted S.B. 482, which extends the Wisconsin research credit carryforward period from 15 taxable years to 50 taxable years.