Year-End Planning for State Taxes: Don't be Caught Off Guard!

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

Year-End Planning for State Taxes: Don't be Caught Off Guard

Sarah Weintraub, Eide Bailly

As 2025 rapidly comes to a close, now is the perfect time to review your tax positions and ensure everything is in order before 2026 deadlines. Proactive planning across all tax types—sales and use, property tax, and income-based taxes—can help minimize surprises and position your business for success in the new year. Key areas to focus on before year end:

1. Tax Liability Account Reconciliation
Verify that all tax accounts are accurate and up to date. Confirm ending balances (credit vs. debit) and ensure they align with your payment and filing frequency—for example, quarterly estimates or monthly sales tax prepayments with true-ups.

2. Nexus Footprint Review
Assess where you have tax obligations based on business activities and presence. Consider:

• Were remote employees hired in states where you previously had no physical presence?
• Did you begin storing inventory in an Amazon fulfillment center?
• Have new large customers created economic nexus in additional states?

3. Sales Tax Software Diagnostic
Evaluate your compliance tools for accuracy and efficiency:

• Are new products mapped to the correct tax codes?
• Are exemption certificates current?
• Does the sales tax paid match entries in the liability account?

4. Fixed Asset Schedule Review
Ensure depreciation and capital asset records are properly maintained:

• Were replaced assets removed?
• Were location changes updated?
• Are there duplicate assets that should be eliminated?

5. Review New Tax Laws
Identify recent legislative changes that could impact your business. For example:

• Washington’s changes imposing sales tax on certain services—are your services now taxable?
• Did your B&O category change?
• If you sell SaaS is it taxable in any new states?

Taking these steps now can help reduce risk and avoid costly errors later. Businesses should consider seeking consultation with qualified advisors for their year-end tax planning and review assistance.

State Nexus Laws: Are States Overregulating and Overreaching?

"Nexus Creep" on the Radar as Justice Department Reviews State Laws - Amy Hamilton, Tax Notes ($):

Nexus burdens and gross receipts taxes are among the state tax issues flagged during the comment period for the federal government's request for information on state laws that have adverse out-of-state economic impacts.

As part of the Trump administration's deregulation agenda, the Justice Department and the National Economic Council sought feedback on state laws, regulations, causes of action, policies, and practices that are "significantly and adversely affecting the national economy or interstate commerce," the department said in a request for information published in the Federal Register in August.

The Role of Agency in Taxing Loan Origination - Dilyana Antevil, Tax Notes ($):

There are many state tax pitfalls and opportunities related to agency in loan origination. In this article, I provide examples of the ones that are often missed. I review the federal and state tax principles related to agency and highlight the differences and similarities between the two. I also explore how agency affects the state tax nexus and apportionment of credit funds that originate U.S. loans through agents.

Here, There and Everywhere: Extraterritorial Regulation and the Internet - David Swetnam-Burland and Nathanial A. Bessey, Tax Notes ($):

Over the past two centuries, courts and Congress have upheld the principle, embodied in the commerce clause, that states should not be permitted to fill their coffers at the expense of other states or the national economy through protectionist taxes and regulations. Although the wisdom of this principle has been borne out in the economic successes of the United States during that period, the temptation for states to reach beyond their borders to raise revenue has never gone away. Now, with the development of the internet making effective and immediate long-distance communication and commercial activity possible, further breaking down barriers to entry and participation in a national market, states have become increasingly emboldened in their efforts to regulate and tax out-of-state businesses engaged in interstate activity. [...]

States Use Tax Laws to Incentivize Behavior: Illinois Offers Tax Credit for Hiring Ex-Felons and Ohio Approves Job-Creating Projects for Tax Credits

States to Revisit Plan for Businesses to Pay Overdue Sales Tax - Casey Murray, Bloomberg Tax ($):

A group of states that coordinate on sales tax issues is renewing an effort to establish a limited “lookback period” program for remote sellers with past-due taxes.

The Streamlined Sales Tax Governing Board’s staff will look at the issue again and potentially draft a new proposal, following a unanimous vote Tuesday by the group’s executive committee.

Lookback programs let companies come into compliance for past-due sales taxes while states waive penalties and late fees over a designated period of time. Programs like these have emerged as some sellers, particularly foreign sellers, have remained out of compliance with state sales tax measures since the explosion of online shopping.

Illinois Increases Credit for Hiring Formerly Incarcerated People - Emily Hollingsworth,Tax Notes ($):

Illinois's income tax credit for hiring formerly incarcerated residents has been increased from 5 percent to 15 percent, according to the Department of Revenue.

The per-hire cap on the credit has also been increased from $1,500 to $7,500, and an annual cap of $1 million will apply, according to November 12 guidance from the DOR. The changes take effect for tax years ending on or after December 31, 2025, and were enacted under the fiscal 2025 budget revenue bill (H.B. 4951) signed in June 2024 and H.B. 4636, which became law in December 2024.

Ohio Approves Tax Breaks for Job Creation, Data Centers - Kennedy Wahrmund,Tax Notes ($):

The Ohio Tax Credit Authority (TCA) has approved tax breaks for 12 projects that are expected to create more than 1,100 new jobs and generate over $2 billion in new investments statewide.

[...]

Ohio's job creation tax credit is a refundable credit that's calculated as a portion of the payroll created and can be used against a company's commercial activity tax liability. The data center tax break is a partial or full exemption for purchases of qualifying equipment.

Other SALT Updates: Colorado Plans Agenda for 2026, Idaho to Require E-Filing, and Nebraska Gets Aggressive to Collect Tax Dollars

Colorado

Rules on AMT, Unitary Businesses on Colorado DOR's 2026 Agenda - Emily Hollingsworth,Tax Notes ($):

New rules on unitary businesses, the alternative minimum tax, and the definition of food for sales tax purposes are among the changes on the Colorado Department of Revenue's 2026 regulatory agenda.

The agenda, published in Colorado’s November 10 register, contains approximately 50 tax rules that the DOR’s taxation division intends to create, repeal, or modify in 2026. State agencies are required by Colorado law to submit their annual regulatory agendas on November 1.

Idaho

Idaho Tax Agency Alerts Businesses to New Filing Requirements - Emily Hollingsworth,Tax Notes ($):

The Idaho State Tax Commission will be requiring businesses that have been filing paper returns to file electronically through the commission's online portal, part of its effort to cut mailing costs and fulfill a spending reduction order from the governor.

In a November 12 notice, the tax commission announced that businesses with tax permits that file W-2s, 1099s, and other returns must submit their returns through the Taxpayer Access Point (TAP) portal beginning with 2026 returns. The commission said it will stop sending paper returns for businesses to file, including returns for the December filing period for quarterly, semiannual, and annual filers.

Missouri

Missouri Justices Won't Consider REIT's Bid To Avoid City Tax - Maria Koklanaris, Law360 ($):

The Missouri Supreme Court won't review an appellate court ruling that said rental income from property owned by a healthcare real estate investment trust is subject to tax in Kansas City, Missouri, the justices said in an order.

The state's highest court said Tuesday it would not take the case as a transfer from the Missouri Court of Appeals. In June, the trust, Ventas Inc., asked the appeals court for transfer, challenging its June 3 decision rejecting the company's argument that rental income it earned as an REIT was not subject to Kansas City's 1% business earnings tax.

Nebraska

Nebraska Audit Urges Aggressive Collection of Unpaid Taxes - Emily Hollingsworth, Tax Notes ($):

The Nebraska Department of Revenue should redouble its efforts to collect delinquent taxes, which have soared to roughly $311 million in fiscal 2025, according to the state auditor.

In a November 17 preliminary audit report, the office of Auditor of Public Accounts Mike Foley (R) says unpaid state taxes increased from nearly $270 million at the end of fiscal 2024 to around $311 million in fiscal 2025 — a 15 percent increase. It notes that delinquent tax balances totaled approximately $139 million in fiscal 2016 — an increase of 124 percent over 10 years.

Oregon

Ore. Subtraction For Retirement Distribution OK'd By Court - Sanjay Talwani, Law360 ($):

In a decision Friday, the Oregon Tax Court allowed a $1,000 subtraction from the 2023 state income of Steven and Christine Ward for a distribution from an individual retirement account created with the rollover of a 401(k) plan that was funded with contributions previously taxed in Pennsylvania. The court reversed the decision of the Oregon Department of Revenue, which argued that state law allowed the subtraction for distributions only if the original contributions were made to IRA, Keogh or simplified employee pension plans.

Year-End Planning for State Taxes: Don't be Caught Off Guard!