State Tax Trends: New Policies, Old Risks, and Everything in Between

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 developments have a little something for everyone - attempts to influence behavior through tax policy, expanding the base of taxation to meet budget demands, and general state trends. At the same time, some of this week's articles serve as a reminder that exposure isn't always driven by new legislation - routine areas, if left unchecked, can create equally meaningful financial impact.

Taxing “Vice” — Where Policy Meets Behavior

States have frequently used tax policy to influence behavior––gently guiding taxpayers away from some behaviors or legitimizing others. This week's developments highlight how lawmakers in several states continue to use tax policy to influence behavior in "vice" industries. Whether it’s nicotine products or emerging wagering platforms, the question isn’t just what gets taxed—but how quickly states move to capture these evolving activities.

OKLAHOMA

Oklahoma House Overrides Veto of Gambling Tax Deduction Bill - Emily Hollingsworth, Tax Notes ($):

Oklahoma legislation to allow an income tax deduction for gambling and wagering losses is one step closer to becoming law after the House overrode the governor's veto of the measure.

Calling it “bad policy,” Gov. Kevin Stitt (R) rejected H.B. 4432 May 1, but the House swiftly overturned the veto May 6 on a 68–15 vote. The bill needs a corresponding veto override in the Senate before it can become law.

OKLAHOMA, LOUISIANA

Louisiana and Oklahoma Propose a More Principled Tax on Moist Snuff Tobacco - Adam Hoffer, Jacob Macumber-Rosin, Tax Foundation:

An amended bill in Louisiana, HB 782, would change the tax rate on moist snuff tobacco (MST) from 20 percent of the wholesale price to 59 cents per ounce. Similarly, a new bill in Oklahoma, HB 3983, would convert the state’s 60 percent wholesale tax to a specific weight-based tax of $1.72 per ounce.

Simple, direct taxes work best for non-cigarette tobacco products. A weight-based tax for MST ensures neutral taxation across products and is less volatile because revenue doesn’t fluctuate with market prices.

PENNSYLVANIA

Pennsylvania Bill Would Tax, Regulate Prediction Markets - Matthew Pertz, Tax Notes ($):

Weeks after Kentucky created the first-ever state-level tax on prediction markets, Pennsylvania is also looking to tax and regulate contract markets like Polymarket and Kalshi.

Pennsylvania Rep. Danilo Burgos (D) introduced H.B. 2497 May 8. The bill would assess a 20 percent state-level tax and a 2 percent local share assessment on the gross revenues of prediction market platforms, lower than the state’s sports gambling rate of 34 percent. The measure would also impose an initial licensing fee of $1 million on operators; the licensing renewal fee would cost the same amount.

TEXAS

Texas High Court Finds Oral Nicotine Product Subject to Tobacco Tax - Cameron Browne, Tax Notes ($):

A company’s oral nicotine products meet the definition of a tobacco substitute and are thus subject to Texas tobacco taxes, the Texas Supreme Court has held.

Revenue Pressure and Tradeoffs: When Raising Taxes Isn't So Simple

Sometimes states can't raise taxes directly, so they turn to less obvious revenue sources. But recent developments also highlight just how difficult it can be to implement changes in this area, even when lawmakers signal the need for reform. In some cases, proposed changes stall before gaining traction, while in others, voters push back on measures that would alter or reduce existing tax structures. Not surprisingly, proposals tend to move more easily when the tax burden falls somewhere else.

LOUISIANA

La. Voters Reject Allowing Parishes To Eliminate Inventory Tax - Paul Williams, Law360 ($):

Louisiana voters rejected a constitutional amendment that would have allowed parishes to reduce or eliminate their property taxes on business inventory.

NEW YORK

Mamdani Halts Proposed New York City Property Tax Hike - Emily Hollingsworth, Tax Notes ($):

New York City Mayor Zohran Mamdani (D) has abandoned his controversial proposals to raise property taxes or use reserves to close the city's deficit after securing $4 billion in new funding from the state.

Not all revenue pressures show up through proposed legislation or ballot measures. In some cases, they’re already embedded in existing tax structures—particularly in areas where taxes can be layered in less visible ways.

Renting a Car? Half Your Bill May Be Taxes and Fees - Adam Hoffer, Jacob Macumber-Rosin, Tax Foundation:

Rental cars are some of the most heavily taxed transactions in the United States. Last year, we estimated the median state rental car tax was more than 11 percent. Customers in Minnesota, Colorado, and New York were charged an average tax of more than 20 percent for a standard rental car transaction. In many cities, rental car transactions are taxed even more heavily because municipal taxes stack on top of the rates charged by states.

Broader State Tax Developments to Watch

At the same time, more traditional SALT issues continue to evolve, particularly around conformity, taxing the digital economy and rate changes. These developments may feel more familiar, but they have direct implications for multistate taxpayers.

ARKANSAS

Arkansas Cuts Income Tax Rates for the Fourth Time in Four Years - Maria Koklanaris, Tax Foundation:

During a recent special session called by Gov. Sarah Huckabee Sanders (R), Arkansas policymakers cut the state’s top individual and corporate income tax rates, continuing Arkansas’s years-long tax reform streak and making the Razorback State one of five states to cut income taxes so far in 2026.

[...]

Sanders has signaled these cuts are part of a long-term goal, and that she would like to eventually phase out the state’s individual income tax, acknowledging that such a policy would strengthen Arkansas’s economic competitiveness.

CALIFORNIA

Newsom's Budget Change Targets Credits, SaaS, LLC Tax - Maria Koklanaris, Law360 ($):

California would make permanent its business tax credit limit, apply the sales tax to digital prewritten software and cut in half the $800 minimum tax for limited liability companies under a revised budget announced Thursday by Democratic Gov. Gavin Newsom.

COLORADO

Colorado Lawmakers OK Bill To Narrow Software Tax Break - Sanjay Talwani, Law360 ($):

Colorado would narrow its sales tax exemption for downloadable software, allowing the break only for software customized for the user or governed by a negotiated license agreement, under legislation passed by lawmakers.

[...]

Under the bill, supporters said, Colorado would align its sales tax treatment of downloadable software with its treatment of software purchased in a store.

As Eide Bailly's Chris Martin notes in discussing Minnesota's recent legislation, even when changes are expected, the timing and scope can create real uncertainty for taxpayers:

It wasn’t clear until literally the last few hours of session that the Minnesota Legislature would pass a tax bill, but they did it. Extending PTET for two more years was a major win along with other conformity measures, which, even if not all beneficial, will make filing tax returns easier. The bill is expected to be signed by the Governor and will likely generate some procedural filing questions, especially around 174 conformity, with the Department of Revenue on how exactly taxpayers should comply with the changes.

MINNESOTA

Minn. Lawmakers OK Federal Conformity, Property Tax Relief - Sanjay Talwani, Law360 ($):

Minnesota would conform with several changes to the federal tax code and extend its workaround of the cap on corporate deductions for state and local taxes under an omnibus tax package approved by lawmakers and heading to Gov. Tim Walz.

[...]

If the bill is enacted, Minnesota will conform to many tax provisions in the federal budget bill enacted last year, raising corporate tax revenue overall.

SEASONED WITH SALT

Tax Tips, Tricks and Opportunities

It's Business Personal Property Assessment Season! - Sarah Weintraub, Eide Bailly:

It’s business personal property tax assessment season—a limited window to ensure assessed values align with fair market reality before appeal deadlines close. Assessment notices can often go unnoticed, yet they may carry a meaningful financial impact if not carefully reviewed.

Appeals are frequently warranted in common situations, such as staff turnover impacting reporting accuracy, a “same as last year” (S.A.L.Y.) approach overlooking changes, or “ghost assets” remaining on the books after disposal. These routine issues can significantly inflate assessed values, making a timely and thoughtful review well worth the effort to determine whether an appeal is appropriate.