Key Takeaways
-
Alabama excludes credit card transaction fees from sales and use tax
-
Colorado advances proposal to apply sales tax to downloadable software
-
Mandatory worldwide combined reporting proposal moves forward in California
- Wealthy taxpayers must consider the full picture when relocating
- Tax Tip: Have unfiled state taxes? We can help!
Welcome to this edition of our roundup of state tax developments. The State Tax News and Views is published weekly. Consider the Eide Bailly State & Local Tax team for your state tax planning, compliance and incentive needs.
Recent state tax developments are a good reminder that state tax exposure doesn't always come from big, sweeping changes — it can quietly develop through the details. Across states and courts, questions around taxability, sourcing, and classification continue to reshape compliance obligations for both businesses and individuals. This week’s developments illustrate how small factual distinctions — how a transaction is structured, where work is performed, or how activity is documented — can lead to markedly different outcomes.
Tax Base Adjustments and Structural Shifts
As we talked about in last week’s post, states aren’t always raising rates to increase revenue—they’re often tweaking the tax base itself. This week’s developments pick up right where last week's left off, with states adjusting exemptions, reshaping reporting rules, and taking a fresh look at how far existing taxes should reach. Some of these changes expand what’s taxable, others scale it back or clarify long‑standing gray areas. Either way, they can quietly change the compliance picture for taxpayers before anyone realizes it.
ALABAMA
Alabama to Exempt Credit Card Fees From Sales Tax - Matthew Pertz, Tax Notes ($):
Alabama will exclude credit card transaction fees from sales and use tax calculations.
Under S.B. 221, signed by Gov. Kay Ivey (R) April 16, fees "assessed on purchases made by debit or credit card to offset interchange fees charged to a merchant or seller" will be exempt from sales and use tax beginning September 1. The bill was passed by the Senate 33–0 March 19 and by the House 75–18 April 8.
CALIFORNIA
California Assembly Panel OKs Mandatory Worldwide Reporting Bill - Paul Jones, Tax Notes ($):
A bill to end California's water’s-edge election and mandate worldwide combined reporting for multinational corporations doing business in the state cleared its first committee hurdle.
A.B. 1790 was approved on a 4-2 vote April 27 by the Assembly Revenue and Taxation Committee.
COLORADO
Colo. Panel OKs Nix Of Downloadable Software Tax Break - Sanjay Talwani, Law 360 ($):
Colorado would eliminate its sales tax exemption for downloadable software, matching the treatment of software purchased at stores, under legislation advanced by a state Senate panel.
MISSOURI
Missouri to Ask Voters to Swap Income Tax for More Sales Tax - Matthew Pertz, Tax Notes ($):
Voters in Missouri will decide whether to allow Springfield lawmakers to end the income tax and expand sales taxes.
[...]
The substitute bill would also give the legislature five years to expand the list of goods and services that are subject to sales and use tax, such that any expansion generates roughly the same amount of revenue as was lost from the reduction of the income tax. The bill specifically says the sales tax base expansion would not count as “revenue growth” under the Hancock Amendment, which prevents tax growth without voter approval, and would be exempt from another statewide vote.
Drawing the Taxability Line
Another recurring theme this week is how states continue to draw—and redraw—the line between taxable and non‑taxable transactions. Whether something is treated as a service, tangible property, digital product, or lease can drive very different outcomes, especially when invoices or agreements aren’t perfectly aligned with how states view the activity. These developments are a reminder that how you classify a transaction can matter as much as the transaction itself.
COLORADO
Colorado DOR Clarifies Sales Tax on Auto Repairs, Distinguishes Parts from Labor - Bloomberg Tax ($):
MASSACHUSETTS
Massachusetts Auto Body Shop Takes Sales Tax Hit From Appeals Board - Cameron Browne, Tax Notes ($):
A Massachusetts auto body repair company owes back taxes on transactions involving both parts and services because it failed to separate the charges on those mixed transactions, the state tax appeals board has held.
The parts used by Lofa Auto Body LLC to repair vehicles were a significant part of its repair contracts and were subject to sales tax, the Massachusetts Appellate Tax Board (ATB) said in its April 7 decision in Lofa Auto Body LLC v. Commissioner of Revenue.
NEW MEXICO
New Mexico Telecom Tower Agreements: Licenses or Leases? - Robert Willens, Tax Notes ($):
Whether a telecommunication tower agreement qualifies as a license or a lease depends on who you ask.
In a March 13 decision and order, hearing officer Chris Romero of the New Mexico Administrative Hearings Office upheld the New Mexico Taxation and Revenue Department’s denial of gross receipts tax refunds in the consolidated tax protests of Spectrasite Communications LLC, ATC Ponderosa K LLC, and American Tower LLC (which the officer’s decision refers to collectively as “taxpayer”) for an agreement among them regarding telecommunication tower equipment.
Sourcing, Location, and Fact-Specific Outcomes
Several of this week’s developments turn almost entirely on facts—where work was performed, how activities were structured, and whether the taxpayer could support their position. These cases don’t rewrite the law, but they do show how aggressively states are applying existing rules and how much documentation and consistency still matter. Not surprisingly, many of these outcomes tie back to broader themes we’ve covered before around residency and sourcing, especially when income or activity crosses state lines. In those situations, results often depend less on bright‑line rules and more on where work happens, where benefits are received, and how clearly those facts can be demonstrated.
Texas Worker Can't Be Taxed As Unitary Biz, Calif. Panel Rules - Maria Koklanaris, Law 360 ($):
A Texas-based radiologist who worked remotely as an independent contractor for a California company was a sole proprietor engaged in a single business activity and cannot be taxed as a unitary business, a state appellate panel said, overruling a trial court ruling.
California OTA Rules Against Dutch Consultant in Income Tax Dispute - Cameron Browne, Tax Notes ($):
A consultant who worked on California construction projects while residing in the Netherlands is responsible for California income taxes, the state Office of Tax Appeals (OTA) held.
In Matter of Suurs, the OTA affirmed a modified income tax assessment against a Dutch consultant after it determined that the income he received from working on California construction projects while in the Netherlands was taxable California-source income. The opinion, dated February 17, was released May 4.
For the Wealthy, Relocation Must Be More Than a Tax Decision - Karin Christenson and Lisa Ligas, Bloomberg Tax ($)
Several wealth tax plans across the US—such as the California Billionaire Tax Act—are shaping how high-net-worth individuals and families plan, move, and structure their wealth. From domicile decisions to cross-border considerations, policy signals are prompting earlier and more complex conversations across advisory teams.
We're seeing more clients navigating complex residency situations as they consider moving to a new state. If you are considering a move, our team handles these situations regularly and can help you think through the tax consequences before you make a decision.
Related: Moving States? Navigating State Residency to Avoid Double Taxation
SEASONED WITH SALT
Tax Tips, Tricks and Opportunities
Identify and Resolve Unexpected State Tax Exposure - Todd Folle, Eide Bailly:
Most businesses aren't actively looking to evade taxes. But tax laws and regulations are different in each state and change frequently. Even well-run businesses can encounter unfiled obligations, penalties, and interest, and the cost can be eye-popping.
We work with clients to review their filing positions in each state, quantify historical exposure, and make sure their filing footprint aligns with business operations. When we identify issues, we design a practical remediation plan.
A common remediation option is a Voluntary Disclosure Agreement (VDA). Most states offer VDA programs, though requirements vary. To qualify, you generally need to come forward before the state contacts you, and you can't have previously filed the tax in question in that state. Key advantages typically include a reduced lookback period (often three to six years) and abatement of late filing and/or late payment penalties. But a VDA isn't always the best answer. We evaluate VDAs alongside alternative strategies, model the cost/benefit, and manage the process from beginning to end so you know exactly where you stand.
If you suspect you have multi-state filing gaps—or want confirmation that your current approach is defensible—let's talk. A targeted assessment now is a lot less expensive than a state notice later.
