Key Takeaways
- SALT Tip: Key considerations for tiered PTEs electing PTET
- Hawaii, Maryland, and others propose social media and digital advertising taxes
- Cities and states target wealthy taxpayers
- States continue to conform and decouple from OBBBA provisions
-
Wisc. Supreme Court passes on P.L. 86-272 case
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.
A growing tug of war is defining the current state and local tax landscape, as lawmakers across the country pull in different directions to reshape how—and from whom—revenue is raised. As anticipated in one of our previous posts on issues to watch, more states are advancing proposals to tax social media and digital advertising revenues, while also reviving millionaire and high‑earner taxes as part of broader efforts to modernize tax systems and address budget pressures.
This push and pull reflects deeper tensions playing out across states: balancing revenue needs against tax competitiveness, responding to federal tax changes, and deciding how aggressively to chart an independent course. While some jurisdictions are leaning into targeted taxes on digital activity and wealth, others are focused on capitalizing on recent changes to the SALT deduction or debating whether to conform to—or decouple from—federal law. Together, these competing approaches highlight a fragmented and dynamic tax landscape, where digital taxes, wealth‑based taxes, and SALT planning are colliding as states test the boundaries of modern tax policy.
How States Are Targeting Social Media Revenues for Public Benefit
As states look for new revenue sources that better reflect today’s digital economy, lawmakers are increasingly debating digital advertising taxes and social media taxes as both revenue tools and accountability measures. While the exact number of active bills fluctuates by legislative session, multiple states—including Utah, California, Minnesota, Hawaii, Maryland, Nebraska, and Washington—have recently introduced or debated measures that would tax social media or targeted digital advertising revenues and dedicate the proceeds to local priorities such as youth mental health services, child welfare programs, and community infrastructure. Supporters argue these policies redirect a portion of Big Tech profits back into communities affected by social media’s societal impacts, while opponents warn of legal and economic challenges.
HAWAII
Hawaii Explores New Approach to Taxing Digital Advertising - Colette Sutton, Eide Bailly:
See related: Cost Letter Re. Opposition to H.B. 1458
MARYLAND
Md. Tax On Big Social Media Cos. Pitched To House Tax Panel - Michael Nunes, Law 360 ($):
MICHIGAN
Whitmer Calls For Digital Ad Tax In Mich. Budget Proposal - Jaqueline McCool, Law 360 ($):
[...]
The call for a digital advertising tax comes as several states have proposed similar revenue-raising measures, despite the nation's first digital advertising tax being challenged in Maryland
NEBRASKA
Nebraska Lawmaker Proposes Excise Tax on Social Media Companies - Emily Hollingsworth, Tax Notes ($):
L.B. 1025, introduced by Sen. Carolyn Bosn (R), describes the tax as an excise tax on the collection of consumer data from Nebraska residents. The bill was referred to the Revenue Committee January 15.
More Money, More (Tax) Problems?
Cities and states across the country are increasingly looking to tax their wealthiest residents as a way to generate new revenue without raising taxes on middle‑ and lower‑income households. Recent proposals range from high‑earner income surtaxes and capital‑gains taxes to so‑called “millionaire taxes,” with jurisdictions such as Massachusetts, Washington, Minnesota, and New York City using or considering these approaches to fund public priorities like education, transportation, childcare, and other core services. Supporters argue the measures promote tax fairness and fiscal stability, while critics raise concerns about economic competitiveness and taxpayer mobility.
CALIFORNIA
San Francisco Business Tax Initiative Fight Heats Up - Paul Jones, Tax Notes ($):
On one hand, community groups, elected officials, and labor unions argue that the city is facing a nearly $1 billion two-year projected deficit and an increase in the city’s overpaid executive tax on businesses is a fair way to secure that funding. But the San Francisco Chamber of Commerce argues that the progressive coalition’s proposals would harm the city’s business environment and undermine a 2024 ballot measure that broadly reformed the city's business tax regime, including by substantially cutting the overpaid executive tax’s rates.
COLORADO
Colo. High-Earner Tax Ballot Plans Appealed To Justices - Sanjay Talwani, Law 360 ($):
Opponents of proposed ballot measures to replace Colorado's flat tax with a graduated system that includes higher rates for high earners called on the state's top court to block the measures, arguing that they violate the single-subject requirement for ballot initiatives.
Plaintiffs in various combinations filed a total of 23 petitions Wednesday and Thursday in the Colorado Supreme Court seeking review of the titles for initiatives 189 through 196 as affirmed in a hearing Feb. 4 by the state Title Board. The filings urged the court to consider whether the measures contain separate and distinct subjects in violation of the constitutional single-subject requirement, among other issues
NEW YORK CITY
NYC Mayor Calls For Tax On Wealthy During Budget Hearing- Michael Nunes, Law 360 ($):
During testimony at the joint legislative budget hearing, the newly sworn-in Democratic mayor urged lawmakers to increase taxes on large corporations in the state and raise personal taxes on the wealthiest residents in the city by 2%. The mayor said he was "heartened" by Gov. Kathy Hochul's budget, which included increased childcare spending and extending the state's surcharge on large corporations.
WASHINGTON
Washington Senate Advances Millionaire's Income Tax Bill - Paul Jones, Tax Notes ($):
The controversial bill (S.B. 6346) proposes a 9.9 percent tax on individual income, and couples’ combined income, over $1 million beginning in 2028.
Additional State and Local Tax Developments to Watch
MTC Group Unveils Draft For Partnership Tax Sourcing - Maria Koklanaris, Law 360 ($):
The group released an updated version of its white paper, titled "State Tax Sourcing of Partnership Income Under the Pass-Through Tax System & the Blended Apportionment Method." In blended apportionment, the apportionment factors of a partnership or limited liability company are merged with those of a corporate partner that may own part of the partnership.
CALIFORNIA
California Bill Aims at Taxing More Corporate Foreign Income -Casey Murray, Bloomberg Tax ($):
Companies would lose the ability to choose how their foreign income is apportioned in California under a bill introduced in the state legislature Tuesday.
The bill (A.B. 1790) would eliminate the a corporate income tax filing option known as the water’s edge election, which concerns how foreign income is apportioned to California. The election allows multinational companies to exclude income from foreign subsidiaries from their taxable income in the state.
DISTRICT OF COLUMBIA
D.C.’s Fiscal Autonomy is at Stake, District’s Conformity Decisions Should Stand - Kamolika Das, Institute on Taxation and Economic Policy:
On February 12, the Senate voted to overturn existing D.C. law (49-47) that decoupled the DC tax code from certain costly tax cuts in OBBBA. The bill, which will cost D.C. over $650 million over five years, will now head to President Trump for his signature.
[...]
This move comes after D.C. chose to decouple from certain OBBBA provisions, which together are expected to save the District roughly $658 million in local tax revenue over five years – savings that were going to go toward expanding D.C.’s Child Tax Credit and Earned Income Tax Credit, while also helping stabilize D.C.’s overall budget. These policy decisions, made by elected D.C. Council members, determined how tax cuts would flow to District residents and whether very wealthy residents would have their D.C. taxes cut along with their federal tax cuts.
IDAHO
Idaho Conforms To Fed. Tax Changes, With Some Exceptions- Zak Kostro, Law 360 ($):
[...]
The measure conforms to changes under the federal budget legislation enacted in July with exceptions for bonus depreciation, which Idaho has historically not conformed to, and for research and experimental expenditures incurred from 2022 through 2024 that are already being amortized, the statement said.
NEW YORK
The Impossibility of Proving a Change in Domicile Out of New York -William Hays Weissman, Tax Notes ($):
In the Matter of Hoff, the New York Tax Appeals Tribunal found that intent to change domicile can be a gradual fade, so much so that it may take years to establish, if ever. While disguised as the taxpayers’ failure to meet their burden of proof, what New York really established is that one can never really know whether they have left the state until New York allows them to do so.
See related: Moving States? Navigating State Residency to Avoid Double Taxation
OREGON
Oregon Might Decouple From Bonus Depreciation, QSBS Provisions - Paul Jones, Tax Notes ($):
The state Senate’s Committee on Finance and Revenue on February 9 voted to advance conformity legislation that would decouple from the federal bonus depreciation, which was permanently restored to 100 percent by the OBBBA (P.L. 119-21), and the qualified small business stock (QSBS) exemption, which was expanded by the federal law. The measure would also increase the state’s earned income tax credit and establish a new tax credit program for businesses based on job creation.
WISCONSIN
Wis. Justices Pass On Review Of Travel Co.'s PL 86-272 Claim - Paul Williams, Law 360 ($):
[...]
ASAP Cruises had argued in its review petition that P.L. 86-272's protections applied because it sold software as a service, or SaaS, to its customers, and that Wisconsin's tax laws treat SaaS as tangible personal property.
SEASONED WITH SALT
Tax Tips, Tricks and Opportunities
Tiered PTET Elections are Tricky, Tedious, and Taxing - Todd Folle, Eide Bailly
The One Big Beautiful Bill Act has changed the analysis for pass-through entity owners considering a pass-through entity tax (PTET) election. The SALT deduction cap increased to $40,000 beginning in 2026, subject to various requirements and limitations. Consequently, fewer taxpayers are now constrained by the cap and may no longer benefit from making a PTET election. However, this change does not eliminate the need for careful PTET analysis – particularly for entities with complex ownership structures.
We have been advising clients with complex, tiered pass-through structures, where an operating pass-through entity is owned by other pass through entities. These tiered structures may involve multiple tiers and multiple states, making the analysis significantly more complex. While PTET elections for individual owners are already nuanced, mixed ownership structures require additional coordination across the ownership group.
Key considerations include whether an upper-tier entity can participate in the PTET regime and receive credits in each state. Some states permit PTET elections at the lower tier but impose complex or unclear credit pass-through mechanisms. Further, some states treat a PTET election as satisfying the state’s filing requirement, which may create undesirable tax results compared to standard filing approaches.
We encourage entities contemplating a PTET election to reach out to Eide Bailly’s SALT team for help navigating these complex rules.
Make a habit of sustained success.
