State Tax News & Views: Who Can Utilize the SALT PTE Election? Do You Owe CA Minimum Franchise Tax? And More

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.

SALT Workaround Used by Doctors, Lawyers Axed in GOP Tax Bill - Michael Bologna, Bloomberg ($):

Professional groups, including the American Institute of CPAs, are already asking for changes that would restore the value of pass-through entity tax regimes that became popular in 36 states and New York City after the 2017 law put a $10,000 limit on state and local tax payments that can be deducted from individuals’ federal returns.

These tax strategies give partnerships and S corporations the option to pay state and local taxes at the entity level, instead of having individual members pay as they normally would, and thus help the individuals avoid the SALT limit.

Melanie Lauridsen, vice president for tax policy at AICPA, said the House proposal, approved in a Ways and Means Committee vote Wednesday, was drafted to exclude businesses characterized as a “specified service trade or business” from using PTET workarounds to minimize their members’ federal tax obligations. This change in policy, if implemented, would boost taxes for millions of businesses providing accounting, legal, consulting, medical, and financial services, she said.

Tax Exemption Case May Bring Sweeping Impact, Attys Say - Sanjay Talwani, Law360 ($):

Washington - A U.S. Supreme Court case considering a religious exemption to unemployment taxes sought by a charity could have implications across a broad swath of organizations, tax practitioners said Friday.

Attorneys said the case before the justices, in which a group of Catholic charities are challenging the denial by the Wisconsin Supreme Court of tax exemptions for religious groups, could affect religious exemptions in several contexts. The attorneys spoke at a panel at the American Bar Association tax section's May meeting in Washington, D.C.

State-By-State Roundup

Alabama

Alabama Set to Enact 30-Day Mobile Workforce Tax Safe Harbor - Michael J. Bologna, Bloomberg ($):

Alabama is poised to be the next state to enact a mobile workforce tax administration law featuring the 30-day safe harbor favored by employers, under a bill headed to the desk of Gov. Kay Ivey (R).

Ivey is expected to sign HB 379, which creates a 30-day threshold before nonresident employees working in Alabama would be subject to the state’s income tax. The proposed law also relieves employers of tax withholding duties within the 30 days. In an increasingly mobile business environment, workers frequently cross state lines to meet with clients, sell products, or attend trade shows. Others live in different states than their employer.

Arkansas

Arkansas Modernizes Multistate Corporate Income Taxation, Adopts Market-Based Sourcing - Bloomberg ($):

The Arkansas Governor signed a law to modernize the law concerning the apportionment of income derived from multistate operations, and to change the method for sourcing of receipts for services and intangibles. The law includes: 1) adoption of market-based sourcing of sales for sales other than sales of tangible personal property; 2) providing guidance for utilizing alternative apportionment including requiring equal application of rules, standards of proof, and anti-penalty provisions; 3) allowing providers of telecommunications services, internet services, and some television services to elect to use cost of performance sourcing until Dec. 31, 2035; and 4) excluding income of nonresident corporations or partnerships from income tax if the business has no physical presence in Arkansas and its Arkansas receipts for the preceding year were $250,000 or less. The law is effective for tax years beginning on and after Jan. 1, 2026. [S.B. 567, enacted 04/16/25]

California

A recent California case underscores the importance of formally withdrawing from the state when a taxpayer or entity is no longer doing business there. Failing to properly terminate business activities can result in ongoing obligations — even if operations have ceased.

One key issue is California’s $800 minimum franchise tax, which applies to entities considered to be “doing business” in the state. While $800 may not seem significant at first glance, it can quickly snowball due to late filing penalties, interest, and compliance costs.

Takeaway: If your business has stopped operating in California, ensure that all appropriate steps — such as filing a final return and formally dissolving or withdrawing the entity with the Secretary of State — are completed promptly to avoid unnecessary tax exposure.

California OTA: Art Company Owes Minimum Franchise Tax - Cameron Browne, Tax Notes ($):

A California art investment company is not entitled to a waiver of annual minimum franchise taxes for 2020 because it was not dissolved until 2021, the California Office of Tax Appeals (OTA) ruled.

Indiana

Ind. Allows Credit For Taxes Paid On Behalf Of Pass-Throughs - Zac Kostro, Law360 ($).

Indiana authorized electing pass-through entities to claim a credit for taxes paid on their behalf under a bill signed by the governor.

H.B. 1427, which Republican Gov. Mike Braun signed Tuesday, specifies that an electing entity or pass-through entity may claim a credit for taxes paid or withheld on the entity's behalf, according to a fiscal impact statement.

The bill also allows eligible entities to make elections to claim credits against certain state tax liabilities and provides requirements governing such elections, according to the statement.

Missouri

Missouri House Votes to Eliminate Income Tax on Capital Gains - Rudi Keller, Governing:

Missouri lawmakers are playing tax cut tennis, and on Monday the state House served its latest offering when it narrowed the differences with the state Senate in a bill that helps wealthy taxpayers and some who are at the bottom of the income scale.

New York

New York Boosts Payroll Tax For Large Biz, Cuts Income Tax Rates - Michael Nunes, Law360 ($):

New York will reduce income taxes on lower- to middle-income taxpayers, increase payroll taxes for big businesses in the New York City metro area and allow tax liabilities to be pushed out to partners under a budget bill that Gov. Kathy Hochul signed Friday.

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The approved budget bill will also reconfigure the state's individual income tax regime to lower rates on the bottom five brackets. The state currently has eight tax brackets.

Oklahoma

Oklahoma Governor Signs Law on Tax Protest Process, Tax Credit Denial Appeals - Bloomberg ($):

The Oklahoma Governor signed a law modifying provisions related to the tax protest process and tax credit denial appeals. The law clarifies procedures for taxpayers to protest tax assessments or denials of certain tax credits and appeal decisions from the Oklahoma Tax Commission. It also sets timeframes for protests, hearings, and appeals to become final. [H.B. 1279, enacted 05/03/25]

Texas

Texas Voters To Decide On Prohibiting Tax On Capital Gains - Zac Kostro, Law360 ($):

Texas voters will decide if the state should create a constitutional amendment barring taxes on individuals' realized or unrealized capital gains under a resolution approved by state lawmakers.

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S.J.R. 18 proposes a constitutional amendment prohibiting the imposition of a tax on the realized or unrealized capital gains of an individual, family, trust or estate, according to a fiscal note. The prohibition would apply to a tax on the sale or transfer of a capital asset that is payable by an individual, family trust or estate selling or transferring the asset, according to the note.

Washington

Tesla-Targeted Washington Tax Bill Draws Climate Impact Rebuke - Laura Mahoney, Bloomberg ($):

Washington state lawmakers are targeting Tesla with a bill that would tax its participation in a vehicle emissions trading program—a plan critics say would harm the environment more than it would punish the Elon Musk-led car company.

The bill on Gov. Bob Ferguson’s desk (S.B. 2077) would apply a tax for the first time to credits automakers earn for selling zero-emissions vehicles as the state phases out gas-powered vehicles. Washington, like California, has a market-based program allowing companies that sell more than enough vehicles to meet their ZEV goals to earn credits that they can sell to other companies that don’t.

apple bite

Tax Bites: Tips, Tricks and Opportunities in SALT

Elizabeth Gray, Senior Manager, Eide Bailly:

When purchasing new-to-you assets for your business, there are many tax related considerations. Will this be purchased or leased? Do I have to depreciate over time or am I eligible to expense the item to have an immediate tax benefit from the purchase? Does the use or function of the asset qualify for an exemption from sales tax?

An often-overlooked part of your Asset acquisition strategy is the requirement in many states to pay a tax on your business assets. 37 states have a ‘Business Personal Property Tax’ that assesses tax on these assets annually. The states use your Fixed Assets as a starting point for your reporting. Reach out to your SALT team to develop a policy and strategy to ensure that you are meeting your reporting requirements without overpaying your liabilities.

State Tax News & Views: Who Can Utilize the SALT PTE Election? Do You Owe CA Minimum Franchise Tax? And More

Melissa Menter

Colette Sutton