State Tax News & Views: SALT Caps, Sales Taxes, Targeted Taxes and Breaks

Welcome to this edition of our roundup of state tax developments. Consider the Eide Bailly State & Local Tax team for your state tax planning, compliance, and incentive needs!

Trump Floats Easing Cap on State and Local Tax Deductions - Richard Rubin, Wall Street Journal:

A day ahead of a rally planned Wednesday on New York’s Long Island, Trump posted on his Truth Social network that he would “get SALT back,” a reference to the state and local tax deduction that Trump and Republicans capped at $10,000 per return. That cap, along with other major pieces of the law, is scheduled to expire at the end of 2025, making it part of a complex negotiation that the next president and Congress will navigate.

The tax falls disproportionately on upper-income residents in high-tax blue states, such as New York, and the cap is particularly unpopular on Long Island. Democratic-leaning New York itself isn’t particularly competitive in the presidential election, but the results in the state’s congressional races could tip the balance of power in the House.

Trump indicates he would lift cap on costly state and local tax deduction - Benjamin Guggenheim, Politico:

Trump’s pitch is the latest in a string of tax policies with populist appeal he has proposed recently, including to eliminate taxes on overtime pay, Social Security income and tips.

Together, they would add trillions to the government’s red ink, on top of an estimated $4.6 trillion for extending tax provisions from the 2017 Tax Cuts and Jobs Act that are set to expire at the end of 2025, and which Trump also says he wants to make permanent.

Repealing The SALT Cap Would Overwhelmingly Benefit Those With High Incomes - Howard Gleckman, TaxVox. "The biggest winners would be high-income households who live in high-tax states, such as New York, Connecticut, and California. Their windfall would be magnified even more since Trump has not suggested restoring the pre-TCJA Alternative Minimum Tax, which limited the benefit of the SALT deduction."

Remote Sales Tax Compliance Burdens Small Biz, Senate Told - Stephen Cooper, Law360 Tax Authority ($):

Compliance costs are cutting into the profits of small businesses as they struggle to expand, Joseph Bishop-Henchman, executive vice president of the National Taxpayers Union Foundation, told the Senate Subcommittee on Fiscal Responsibility and Economic Growth.

From Mr. Bishop-Henchman's testimony:

Third, the ugly news: only 24 states are full members of the Streamlined Sales and Use Tax Agreement, and no new states have joined since the Wayfair decision. These are Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Washington, West Virginia, Wisconsin and Wyoming.

In the other 22 states, remote sellers are required to collect sales tax but without many of the efforts at uniformity, simplification, and standardization remote sellers selling into South Dakota benefit from — efforts that the Supreme Court cited favorably when they upheld South Dakota’s law. Many of these states do not provide access to tax rate lookup software for businesses to use. Many of these states do not adhere to uniform definitions of products. Many of these states do not recognize other states’ exemption certificates. Many of these states do not offer centralized registration and filing for all the jurisdictions within the state, much less for all states.

From the Law360 story:

Sen. Maggie Hassan, D-N.H., who chairs the Senate subcommittee, said thousands of state and local tax jurisdictions can have vastly different sales tax rules... Hassan unveiled a legislative discussion draft Wednesday that calls on Congress to require state governments to simplify sales tax laws for remote sellers and provide standardized forms across state lines and centralized filing portals. States should also provide free software and protection from penalties for sales tax mistakes made by software or other third parties, Hassan said."

Excise Taxes and Fees on Wireless Services Increased 8.8 Percent in 2024 - Scott Mackey and Adam Hoffer, Tax Foundation. "Nationally, taxes, fees, and government surcharges make up a record-high 26.8 percent tax on taxable voice services."

State-By-State Roundup

California

Governor Vetoes Tax Credit for California Manufacturing Equipment - Laura Mahoney, Bloomberg ($), "Gov. Gavin Newsom vetoed a bill on Friday that would have made California businesses that buy manufacturing and research equipment eligible for an income tax credit to offset sales tax on the purchases."

Colorado

Colorado Announces New Equipment Tax Credit - Melissa Menter, Eide Bailly. "The Colorado Department of Agriculture announced a new Equipment Tax Credit. The refundable credit equal to 85% of the amount spent is available to Small Food Retailers and Small Family Farms. Purchased equipment must help to increase access to or lower prices for healthy food in low income, low access and underserved areas of the state."

District of Columbia

D.C. Enacts Permanent Budget Bill With Combined Reporting Change - Tyrah Burris, Tax Notes ($):

Under the act, the District switches from the Joyce method to the Finnigan method of apportioning income for combined reporting purposes, requiring corporate groups to be treated as a single taxpayer beginning January 1, 2026.

...

Under the bill, the District's sales tax will also increase from 6 percent to 6.5 percent on October 1, 2025, and to 7 percent beginning October 1, 2026. It also repeals the 3 percent special tax rate for capital gains from the sale or exchange of an investment in a qualified high technology company.

Link: B-25-784

Maine

Maine Poised to Reveal How Many Corporations Paid No State Tax - Michael Bologna, Bloomberg ($). "In January 2025, and every two years after that, Maine Revenue Services will have to provide the state Legislature with a corporate tax transparency report to help lawmakers better understand the taxes collected—or not collected—from the largest corporations operating in Maine. Among other things, the report will reveal the number, though not the names, of large, profitable companies operating in Maine that paid zero income taxes."

Minnesota

Company Loses Minnesota Tax Suit for Failure to Disclose Financials - Cameron Browne, Tax Notes ($):

A company’s property tax challenge has been dismissed after it failed to disclose financial information required under Minnesota's mandatory disclosure rule.

In a September 16 opinion in M2R2 LLC v. Olmsted County, the Minnesota Tax Court granted the county's motion to dismiss after finding that the company failed to provide the county with its anticipated income and expense information as required under Minn. Stat. section 278.05(6).

Montana

Mont. Regs Carry Out Individual Income Tax Changes - Zak Kostro, Law360 Tax Authority ($). "The department adopted the regulations as they were initially proposed in July, according to the notice published Friday. The regulations implement legislation Republican Gov. Greg Gianforte signed in 2021, known as S.B. 399, that simplified Montana's individual income tax filing procedures via revised filing statuses and calculation of taxable income."

New Jersey

New Jersey Exempts Investment Bullion From Sales Tax - Matthew Pertz, Tax Notes ($). "S. 721, signed September 12 by Gov. Phil Murphy (D), will take effect on January 1, 2025. The bill exempts investment coins, defined as any kind of metal with a fair market value of at least $1,000, and investment bullion — which can be gold, silver, platinum, palladium, or any other elementary precious meta"

New York

Hochul Says She Won't Raise NY Income Taxes in Next Budget - Danielle Muoio Dunn, Bloomberg ($):

“I don’t think it’s a good strategy for economic development to find more reasons for businesses to leave the state of New York,” or for high net-worth people to leave, the Democratic governor said in an address to the Business Council of New York State. “Maybe they didn’t hear that for a long time with Occupy Wall Street and all this other socialism that was going on, but you need to be reassured that the people who are actually elected office in the highest positions right here don’t support that.”

New York Properly Taxed All of Investment Banker's 2020 Income - Perry Cooper, Bloomberg ($). "The New York Division of Taxation allocated all of Bryant’s NN Investment income to New York, reducing the couple’s refund to less than $2,500. The state applied the convenience of the employer test, which considers a nonresident who teleworks outside the state to be working at his employer’s New York location—and thus sourcing the wages to New York—unless he teleworks out of necessity for the employer."

New York City Walks Back Partnership Income Sourcing Reg Proposal - Emily Hollingsworth, Tax Notes ($):

While the city intends to adopt the state’s primary apportionment method based on the location of the investors that contribute to the pooled capital, it proposes a different "fallback method" of a flat 8 percent allocation rate if the department can't determine the investor's location. According to the DOF, under the state’s second apportionment method, "the place where the contract is managed is a singular location, and the potential for the manipulation of that location is a concern for the city."

Oregon

Oregon Measure 118 Penalizes Oregon Small Businesses - Jared Walczak, Tax Foundation. "Make no mistake: Oregon’s small businesses will pay this tax. They will pay it multiple times on everything they produce. And this will leave them at a competitive disadvantage against out-of-state businesses that weren’t taxed quite so many times. They may find that the price point at which they would turn a profit is significantly higher than what their out-of-state competitors can charge, and lose market share to, or even be run out of business by, these out-of-state companies less impacted by the tax."

South Dakota

South Dakota Ballot Measure Would Nix Sales Tax on Food - Emily Hollingsworth, Tax Notes ($):

If passed by voters, the measure would forbid applying the state’s 4.2 percent sales tax on “anything sold for human consumption.” Municipalities could still levy local sales taxes for such items under the measure, and the tax repeal wouldn’t apply to alcoholic beverages or prepared foods.

...

But a South Dakota coalition is concerned that the measure as written could apply to more than food.

While the group is called Coalition of Organizations Opposed to IM-28, its funding mechanism is called South Dakotans Against a State Income Tax. Nathan Sanderson of the coalition told Tax Notes on September 20 that if the term “human consumption” is broadly applied, an increased loss in revenue to the tune of $646 million “would result in major cuts to education and healthcare.”

Utah

Billionaire NBA Owner Nears $900 Million Salt Lake Revamp Deal - Sophie Alexander, Bloomberg via MSN. "Smith Entertainment Group — owner of the Jazz, two pro soccer teams and a yet-unnamed NHL club — is proposing a makeover of the city’s downtown that includes a remodeled arena, new hotel and a residential tower that could become the city’s tallest. Residents and visitors would subsidize the development through a higher sales tax, the proceeds of which would mostly flow to Smith’s group."

Tax Policy Corner

New York, Amazon, and Company-Specific Tax Incentives: A Microcosm of a National Problem - Nicholas Lott, Tax Notes ($, footnotes omitted):

States should enter into interstate compacts with neighboring states to prohibit company-specific tax incentives. Neighboring states often engage in “border wars” to lure large companies into their own borders. This harmful practice serves little purpose besides driving down value for the implicated states. For instance, New Jersey sought to outdo New York by offering Amazon $7 billion in tax perks — doubling New York’s already aggressive offer. Similarly, Missouri and Kansas waged border wars for decades as they poached and re-poached companies from one another. In 2019 Missouri and Kansas recognized the detrimental effects these wars had on their economies and signed an interstate compact to eradicate the senseless practice. While interstate compacts only apply between the states that have signed it, they nonetheless eliminate the most harmful form of company-specific tax incentives. Thus, neighboring states should sign interstate compacts.

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States should outsource the process of selecting corporations. States have no discernible method for choosing the companies or industries they target for tax incentives. Correspondingly, governments are significantly worse at selecting corporate winners than venture capitalists or private money managers are. Even state politicians have conceded that states should get “out of the business of picking winners and losers.” Thus, if states insist on continuing to lure companies with individualized tax incentives, they should outsource the selection process to venture capitalists, private equity analysts, or valuation experts with a track record of selecting winners.

Tax History Corner

Place-specific tax provisions go back a long way. In 167 BC, The Roman Senate made the island of Delos a "duty free" port, according to this paper. But taxes aren't everything. From Wikipedia: "The Roman destruction of Corinth in 146 BC allowed Delos to at least partially assume Corinth's role as the premier trading center of Greece, but Delos' commercial prosperity, construction activity, and population waned significantly after the island was assaulted by the forces of Mithridates VI of Pontus in 88 and 69 BC, during the Mithridatic Wars with Rome."

State Tax News & Views: SALT Caps, Sales Taxes, Targeted Taxes and Breaks

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Joe B. Kristan, CPA