Recent Developments in State and Local Tax

State and local tax developments are constantly changing. From new legislation to expanded compliance obligations, businesses must constantly stay aware of their potential state tax exposure.

Income and Franchise Tax Updates

California: Senate Bill 167 Suspends Net Operating Losses and Caps Tax Credits

California recently enacted Senate Bill 167, which suspends net operating losses (NOLs) and caps tax credits for tax years 2024 through 2026. The NOL suspension applies to taxpayers with over $1 million in taxable income.

For those unable to utilize the NOL due to this suspension, the bill extends the allowable carryforward period as follows:

Three years for losses incurred in tax years beginning before January 1, 2024.
Two years for losses incurred in tax years beginning on or after January 1, 2024, and before January 1, 2025.
One year for losses incurred in tax years beginning on or after January 1, 2025, and before January 1, 2026.

Additionally, total tax credits may not offset more than $5 million in taxable income in a single year. California will extend the carryforward period of the credits by the number of years the credit was disallowed.

Colorado: Combined Return Requirements for C Corporations Effective January 2026

House Bill 24-1134 modifies Colorado's requirements for corporations to file combined returns. Effective January 1, 2026, C corporations that are “sufficiently interdependent, integrated, and interrelated” must file a combined report. Previously, companies had to meet at least three of six specific statutory tests over the current and previous two tax years to file a combined return.

Florida: Internal Revenue Code Effective January 1, 2024

Florida Governor Ron DeSantis recently signed House Bill 7073, updating the state's conformity to the Internal Revenue Code as of January 1, 2024. As a static conformity state, Florida adopts the IRC as of a specific date, necessitating annual legislation to maintain its conformity with federal tax standards.

Minnesota: 70% Net Operating Loss Limitation Postponed Until 2024

Minnesota House File 3769 retroactively changed the effective date to reduce the Corporate Net Operating Loss deduction limitation. For tax years beginning after December 31, 2017, and before January 1, 2024, the NOL deduction is limited to 80% of the corporation's taxable income and for tax years beginning after December 31, 2023, the NOL deduction is limited to 70% of the corporation's taxable income.

New Jersey: Department of Taxation Issues Guidance on Adoption of Federal Partnership Tax Audit

Over a year after enacting P.L. 2022, c. 133, New Jersey issued guidance on adopting the federal centralized partnership audit regime. Effective for federal taxable income adjustments after January 1, 2020, partnerships must report final federal adjustments to the New Jersey Division of Taxation within 90 days, amend relevant state tax forms, and notify partners of their share of adjustments.

The guidance specifies two reporting methods:

Partners Pay (Default): Partners amend their returns and pay additional taxes.
Partnerships Pay (Election): Partnerships can elect to pay taxes on behalf of partners and must notify and file reports to the Division of Taxation.

Sales and Use Tax Developments

Arizona: New Law Postpones Date to Establish Certification Process for Third-Party Providers that Determine TPP Transaction Sourcing

H.B. 2382 mandates that by January 1, 2026, the Arizona Department create a voluntary certification program for third-party service providers that offer certain TPT sourcing services for taxpayers.

Under this new law, the third-party service provider, and not the taxpayer, is liable for incorrect tax paid resulting from sourcing errors unless the third-party service provider received incorrect information from the Arizona Department.

Colorado: New Law Helps Taxpayers Simplify their Sales and Use Tax Filing Process with Colorado “Home Rule” Jurisdictions

H.B. 1041 provides that a Colorado "home rule" taxing jurisdiction that does not use Colorado's sales and use tax simplification system (SUTS) cannot collect sales and use tax from a retailer that does not have in-state physical presence, unless the retailer elects to collect or remit sales tax or enters into a voluntary collection agreement with the home rule jurisdiction.

In general, this bill does not affect cities participating in SUTS, particularly the five highest populated Colorado cities such as Denver, Colorado Springs, Aurora, Fort Collins, and Lakewood. The current list of jurisdictions participating in Colorado SUTS is here.

Beginning January 1, 2025, taxpayers can file once every three months if collecting less than $600 in sales or use tax per month. The Department is authorized to increase this dollar threshold starting January 1, 2026.

Colorado: New Law Creates Dispute Resolution Process to Streamline State and Local Sales and Use Tax Compliance

Effective July 1, 2025, S.B. 25 creates a dispute resolution process for Colorado taxpayers when sales and use tax is paid erroneously to the State or to the incorrect statutory local government, special district, or home rule jurisdiction.

Among other provisions, the law provides that vendors are held harmless for any tax, charge, or fee liability due because of an error in using the department's geographic information system (GIS) database to determine tax owed in a jurisdiction.

The law also clarifies that a statutory local government, special district, or requesting home rule jurisdiction may allow a retailer that collects and remits its sales or use tax to retain a percentage of the amount remitted to cover the vendor's expenses in collecting such taxes without an imposed limit on the amount retained.

Colorado: Online Marketplace’s Subscription-Based Membership Fees for Free Delivery Services are Not Taxable

The Colorado Department of Revenue held that a subscription-based delivery membership fee provided by an online marketplace was not subject to Colorado sales or use tax since the fee was separately stated on the purchase invoice and it is not an enumerated taxable service. For more details see Private Letter Ruling PLR-23-006.

Iowa: New Law Exempts Certain Vehicle Leases / Rentals Between Affiliates from Taxation

H.F. 664 generally exempts the lease or rental of vehicles leased between affiliates from the fee for new registration and sales and use tax when either was paid by the lessor or entity prior to providing the lease or rental.

The bill is effective immediately and is applicable retroactively to January 1, 2015, for leases or rentals occurring on or after such date. This bill specifically prohibits refunds for this transaction occurring between January 1, 2015, and the bill's effective date.

New York: Facility Management Subscription Fees Deemed Taxable When Bundled with Prewritten Software

The New York Division of Tax Appeals held that New York sales tax applies when a taxable and non-taxable property are bundled into one charge. The taxpayer sold taxable prewritten software bundled with non-taxable facilities management services for one single subscription charge.

For more information see Determination DTA Nos. 829500 and 829501, N.Y. Div of Tax App., ALJ Div. (5/9/24).

Credits and Incentives Updates

Colorado: Refundable state income tax credit available for apprenticeship programs

Colorado Governor Jared Polis signed into legislation a refundable state income tax credit for companies that employ an apprentice for at least six months during an income tax year and either have a registered apprenticeship program or are an employer-partner of a registered apprenticeship program.

Qualified businesses may be eligible to receive a refundable Colorado income tax credit up to $126,000 annually for tax years beginning on January 1, 2025, but before January 1, 2035.

Virginia: Newly enacted law modifies R&D Tax Credit and Major R&D Tax Credit

House Bill 1518 modified the state’s Research and Development Tax Credit (R&D Tax Credit) and Major Research and Development Expenses Tax Credit (Major R&D Tax Credit).

Effective for years beginning on or after January 1, 2023, the annual aggregate amount of R&D Tax Credit available has been increased from $7.77 million to $15.77 million while the annual aggregate amount of the Major R&D Tax Credit is reduced to $16 million from $24 million.

Gross Receipts Tax Updates

Washington: DOR amends rules in the sourcing of services for Washington B&O Tax purposes

The Washington Department of Revenue has amended its guidance on the sourcing of service receipts. CR-103P WAC 458-20-19402 clarifies how to determine if receipts from services are from Washington sources for Business and Occupation Tax (“B&O Tax”) purposes, while providing several new examples.

Unclaimed Property Updates

Florida: Reporting and remitting of virtual currency for unclaimed property purposes

House Bill 989 made significant unclaimed property law changes. The new law updated the statutory definition of intangible property to include virtual currency as well as provided new requirements for this property to be reported and remitted for unclaimed property purposes. Under the new provisions, a five-year dormancy period is assigned to virtual currency mandating liquidation within thirty days before the holder files the unclaimed property report.

Wisconsin: Permanent Voluntary Disclosure Program now available for unclaimed property

A.B. 742 (2023 Wis. Act 138) removes the limited timeframe for the Wisconsin Department of Revenue to enter into a voluntary disclosure agreement and to waive penalties for holders that voluntarily disclose and report unclaimed property.

Notable State Rate Changes Q2 2024
State	Tax Type	Old Rate	New Rate	Effective Date	Link to Support	Notes
AR	Corporate Income Tax	4.80%	4.30%	1-Jan-24	Senate Bill 1	Applies to net income exceeding $11,000.
CO	Corporate Income Tax	4.40%	4.25%	1-Jan-24	Senate Bill 228	Only applies for 2024 tax year.
FL	Sales and Use Tax	4.50%	2.00%	1-Jan-24	Tax Information Publication	Only applies to commercial rent of real property.
GA	Corporate Income Tax	5.75%	5.39%	1-Jan-24	House Bill 1015
ID	Corporate Income Tax	5.80%	5.695%	1-Jan-24	House Bill 521
ID	Individual Income Tax	5.80%	5.695%	1-Jan-24	House Bill 521	Also applies to estates and trusts.
KS	Privilege Tax	2.25%	1.94%	1-Jan-24	Senate Bill 1	Applicable to national banking associations and state banks.
KS	Privilege Tax	2.25%	1.93%	1-Jan-24	Senate Bill 1	Applicable to trusts, and savings and loan associations.
NJ	Corporate Business Surtax		2.25%	1-Jan-24	Assembly Bill 4704	Surtax is in addition to the 9% statutory corporate income tax. Applicable to businesses with NJ allocated net taxable income greater than $10 million. Effective through 12/31/2028.

Monitor State and Local Tax Changes

Recent developments in state and local tax and unclaimed property can have a lasting impact on businesses throughout the country. These developments highlight the importance of staying up to date with state and local tax obligations and the potential risks associated with non-compliance.

Professional guidance can help you understand and address your own state and local tax situation. Eide Bailly’s state and local tax team can help you take a proactive approach to managing your taxation issues.