Having completed the first quarter of the year, taxpayers across the nation are witnessing a series of impactful state tax reforms that could significantly affect their financial planning. With numerous states introducing sweeping changes to income, sales, corporate and other tax structures, staying informed is more important than ever.
From reduced tax rates to redefined apportionment formulas and broadened tax bases targeting emerging industries and transactions, these updates are reshaping the fiscal landscape. Here is a detailed breakdown of the state and local tax (SALT) changes:
Northeast
Connecticut
- Net Operating Loss Carryforward Extension: Connecticut businesses can now carry forward net operating losses for up to 30 years, an increase from the previous 20-year limit. This provides extended tax relief for companies with losses.
Maine
- Sales Tax Adjustments for Leased Property: Maine modifies its sales tax structure to ensure leased tangible personal property is taxed more consistently, with refunds available for qualifying purchases.
- Lease Stream Taxation: Maine now taxes each lease payment for tangible personal property, including truck and van rentals, at 5.5%, shifting the tax burden from an upfront cost to a periodic tax.
Massachusetts
- Corporate Apportionment Change: Massachusetts moves to a single sales factor apportionment model for corporate income tax, basing tax liability solely on in-state sales rather than payroll or property presence.
New Hampshire
- Interest and Dividends Tax Repeal: New Hampshire eliminates its tax on interest and dividend income, removing a tax burden on investment earnings.
New Jersey
- Next New Jersey Program: New Jersey introduces new tax credits for artificial intelligence (AI) investments, aiming to attract AI-related businesses and innovation.
Pennsylvania
- Corporate Income Tax Rate Reduction: Pennsylvania decreases its corporate income tax rate to 7.99%, continuing the state’s planned rate reductions.
- Net Operating Loss Calculation Update: Pennsylvania introduces a new formula for net operating loss calculations, potentially affecting businesses with carryforward losses.
Rhode Island
- Net Operating Loss Carryforward Extension: Rhode Island extends the carryforward period for net operating losses to 20 years, giving businesses more time to offset taxable income.
- Taxation of Electronic Nicotine Delivery Systems (Article 6 of the Governor’s FY 2025 Budget): Rhode Island imposes a new tax on electronic nicotine delivery systems, impacting vape and e-cigarette retailers.
- Corporate Apportionment Update (Governor’s Budget Amendment 19): Rhode Island allows multi-state banking institutions to use a single-receipts factor for income tax apportionment, aligning with corporate tax trends in other states.
Vermont
- Meals and Rooms Tax Expansion: Vermont imposes a 12% Meals and Rooms Tax on short-term rental transactions, increasing costs for property owners renting through platforms like Airbnb and Vrbo.
- Electric Vehicle Infrastructure Fee: Vermont introduces a new fee to fund EV infrastructure, potentially affecting EV owners and businesses installing charging stations.
Southeast
Alabama
- Transient Occupancy Tax Expansion (SB 150): Alabama now requires accommodation intermediaries, such as online booking platforms, to collect and remit the state’s transient occupancy tax on short-term rentals.
Florida
- Hillsborough County Sales Tax Adjustment: Florida's Hillsborough County suspends two local surtaxes, keeping the total sales tax rate at 6.5% instead of the expected increase.
Louisiana
- Individual and Corporate Tax Rate Changes (HB 2): Louisiana implements a flat 3% individual income tax and a single 5.5% corporate tax rate, simplifying the state’s tax structure and reducing rates for some taxpayers.
North Carolina
- Individual Income Tax Rate Reduction: North Carolina decreases its rate to 4.25%, continuing the state’s planned tax cuts.
- Corporate Income Tax Rate Reduction: North Carolina's corporate tax rate drops to 2.25%, making the state more competitive for businesses.
- Standard Deduction Adjustments: North Carolina modifies standard deduction amounts, affecting tax liability for filers.
- Alcohol Tax Changes: North Carolina implements new tax policies on alcoholic beverages.
Tennessee
- Alternative Fuels Tax Expansion (Senate Bill 2307): Tennessee adds hydrogen gas to its alternative fuels tax but exempts it from sales tax.
- Drop Shipment Sourcing Rule (Tennessee Revenue Ruling 24-12): Tennessee specifies that drop shipments delivered to state warehouses are sourced to Tennessee only if the final customer is also in the state; otherwise, they are sourced to the customer’s location.
Texas
- Cloud Computing Services and Resale Exemption: Texas clarifies that a company’s purchase of cloud computing services for its logistics platform does not qualify for the resale exemption, as these services are considered internal business use rather than resale inventory.
Midwest
Illinois
- Franchise Tax Exemption Increase: Illinois businesses are now exempt from franchise tax on the first $10,000 of liability, up from the previous threshold, reducing costs for small and mid-sized businesses.
- Sales Tax Base Expansion: Illinois now imposes sales tax on retail leases of tangible personal property, meaning businesses leasing items such as equipment or furniture will be subject to taxation.
- Retailers’ Discount Cap: Illinois limits the sales tax discount that retailers can claim for timely tax payments to $1,000 per month, reducing potential savings for high-volume businesses.
- Remote Seller Collection Requirements: Illinois requires remote sellers with no physical presence in the state to collect and remit sales tax if they exceed economic nexus thresholds, aligning with nationwide trends in e-commerce taxation.
- Chicago Amusement Tax Increase: The amusement tax on paid television programming, including streaming services, in Chicago increases to 10.25%, raising costs for consumers and providers.
- Lease Taxation Update: Illinois expands the taxation of leased goods, now excluding ATVs but clarifying that flexible equipment rentals with periodic payments are taxed at the property’s location, while non-recurring rentals are taxed as retail sales.
- Dental Fluoride Varnish Taxation: Illinois taxes Class II dental fluoride varnish at 6.25%, as it is not classified as a medicine or medical appliance under state law.
Indiana
- Online Gaming Sales Tax Exemption (Revenue Ruling #2024-04-RST): Indiana clarifies that services related to online gaming, including subscriptions, in-game purchases and virtual currency transactions, are not subject to sales tax, as they do not involve tangible property or specified digital products.
Missouri
- Use Tax on Out-of-State Dealer Rentals: Missouri requires out-of-state dealers that rent property to customers within the state to collect and remit use tax, ensuring tax parity between in-state and remote businesses.
Ohio
- Commercial Activity Tax Exemption (HB 147): Ohio exempts the first $6 million of business gross receipts from the Commercial Activity Tax, reducing tax obligations for small and mid-sized businesses.
- Marketplace Facilitator Taxation (HB 315): Ohio now classifies delivery network companies as marketplace facilitators and requires them to collect and remit sales tax on qualifying transactions.
- Sales Tax Exemption for Sports Facilities: Ohio lessees of county-owned sports facilities must now provide an exemption certificate for building materials to qualify for sales tax exemptions.
West
Alaska
- Economic Nexus Rule Update: Alaska's Remote Seller Sales Tax Commission has eliminated the 200-transaction threshold for sales tax compliance. Remote sellers must now only meet or exceed $100,000 in annual sales to establish nexus and collect tax.
Arizona
- Local Transaction Privilege Tax Exemption (SB 1131): Arizona residential property owners who rent out units for 30 days or more are no longer required to collect local transaction privilege tax, effectively reducing tax burdens for long-term rental operators.
Montana
- Corporate Tax Apportionment Update (SB 124): Montana transitions to a single-receipts factor apportionment formula for corporate income tax, aligning with national trends toward sales-based taxation.
Nebraska
- Individual Income Tax Rate Reduction: Nebraska's top individual income tax rate decreases to 5.2%, providing relief to high-income earners.
- Corporate Income Tax Reduction: Nebraska's corporate tax rate drops to 6.24%, reducing tax burdens for businesses.
- Employee Relocation Tax Credits: Nebraska employers can now claim tax credits for certain relocation expenses incurred when hiring new employees, incentivizing workforce expansion.
- Machinery and Equipment Deductions: Nebraska offers new deductions for qualifying purchases of machinery and equipment, lowering taxable income for businesses investing in capital assets.
New Mexico
- Income Tax Bracket Restructuring: New Mexico adjusts its individual income tax brackets, which could impact taxpayers at different income levels.
- Electric Vehicle and Charging Unit Credits: New Mexico offers new tax credits for the purchase of electric vehicles (EVs) and home or business charging stations.
- Corporate Income Tax Rate Adjustment: New Mexico's corporate tax rate is now a flat 5.9%, replacing the previous tiered structure.
- Gross Receipts Tax Expansion: New Mexico expands its Gross Receipts Tax to include marketplace-related fees, such as return shipment charges and logistics services, unless qualifying for an interstate commerce deduction.
Washington
- Personal Property Tax Exemption for Renewable Energy Facilities: Washington makes qualifying renewable energy facilities eligible for a personal property tax exemption, incentivizing investment in clean energy projects.
Your SALT Guide Forward
As the year progresses, our Cherry Bekaert SALT team will closely monitor changes affecting the tax landscape for various businesses nationwide. With these significant reforms underway, business leaders must remain informed and proactive in adapting their financial strategies. Stay ahead with Cherry Bekaert as your trusted advisor.
