Q2 2026 SALT Update: Key Trends Shaping Multistate Tax Planning

In our Q1 SALT update, we highlighted several emerging themes, including digital economy taxation, nexus and sourcing developments, and increased focus on high-income taxpayers. During Q2, those themes moved beyond discussion and into legislation, administrative guidance, and litigation. The trends are familiar, but the stakes are higher as states move from proposing changes to implementing and enforcing them.

1. Nexus, Sourcing, and Apportionment Continue to Shape Multistate Tax Planning

One of the most significant developments during Q2 was the continued focus on sourcing, apportionment, and tax jurisdiction. As businesses increasingly generate revenue through digital platforms, remote operations, and multistate customer bases, states continue to revisit tax rules that were developed long before today's business models existed.

During the quarter, lawmakers and tax agencies considered market-based sourcing proposals, digital advertising taxes, marketplace facilitator compliance issues, and other measures aimed at capturing revenue from online activity. Alaska once again proposed legislation to replace cost-of-performance sourcing with market-based sourcing, which highlights the growing emphasis on taxing income where customers are located rather than where services are performed.

At the same time, Colorado modified its combined reporting rules and continued the broader discussion surrounding worldwide versus water's-edge reporting. While highly technical, these changes demonstrate that states continue to revisit the way multistate income is calculated, sourced, and taxed.

As digital commerce and remote business models continue to evolve, states are increasingly rewriting the rules that determine where income is taxed.

2. States Turn to Millionaire Taxes and Other Targeted Revenue Measures

While broad-based tax increases have remained relatively uncommon, states continue exploring targeted ways to generate revenue.

During Q2, Rhode Island advanced a proposal that would create a new tax bracket for income exceeding $1 million. Similar discussions continued elsewhere, including ongoing debate surrounding wealth-tax and high-income taxpayer proposals in states such as California and New York. At the same time, Washington's new tax on high-income earners moved from proposal to reality, further illustrating states' willingness to target specific taxpayers rather than pursue across-the-board rate increases.

What stands out is not necessarily any individual proposal, but the broader pattern. States facing budget pressures increasingly appear willing to pursue revenue measures aimed at specific taxpayers, industries, or activities rather than imposing broad tax increases on all residents. These policies also raise important questions regarding taxpayer mobility, residency planning, and long-term competitiveness—issues we continue to see discussed by both policymakers and taxpayers.

Whether these measures ultimately survive legal challenges remains to be seen, but the trend itself is clear: states are increasingly looking to specific taxpayers and industries for additional revenue.

3. States Reevaluate Data Center Tax Incentives and Economic Development Programs

Economic development incentives have long been a staple of state tax policy, but Q2 saw a growing discussion around whether those incentives are producing the expected returns. Several states revisited data center incentives and exemptions, while policymakers increasingly questioned the long-term cost of these programs.

As states balance revenue needs with economic development goals, businesses receiving or pursuing incentives should continue monitoring legislative and policy changes that could affect availability of incentives. With AI infrastructure, cloud computing, and data storage driving significant investment nationwide, data center taxation and incentives are likely to remain a key area of focus during the second half of the year. 

For businesses evaluating growth opportunities, incentives remain an important part of the equation. We'll take a deeper dive into this topic in an upcoming post highlighting some of the top state tax credit and incentive programs available to companies considering expansion, relocation, or new investment projects.

4. Multistate Tax Compliance Challenges Continue to Grow

As states continue refining their tax rules, compliance obligations are becoming increasingly complex. Marketplace facilitator rules continue to create collection and reporting challenges, particularly as states apply those requirements to newer business models. Similarly, states are expanding withholding, registration, and reporting requirements tied to credits, incentives, and multistate activity.

The result is that for many businesses, the biggest SALT challenge is no longer determining the tax rate—it is understanding where to register, what to collect, and how to remain compliant across multiple jurisdictions. Like many of the trends discussed above, the stakes are higher as states shift their focus from policy development to implementation and enforcement.

Notable Q2 State Tax Cases Worth Watching

A few decisions from the quarter illustrate how these broader trends are beginning to play out in practice:

• Smithfield Packaged Meats Corp. v. California Franchise Tax Board – A California court allowed a taxpayer to use a special industry apportionment method, raising questions about California's single-sales-factor regime.
• Matter of McDonell Lane Inc. – California's OTA found that an Alaska company's commercial domicile had not shifted to California, highlighting the fact-intensive nature of state tax jurisdiction and commercial domicile determinations.
• Hudson v. U.S. Beef Corp. – The case examines whether remote employee activities can create state tax obligations, adding to the evolving discussion surrounding post-pandemic nexus standards.
• Tyson Chicken Subsidiaries – The Arkansas Supreme Court denied a sales tax exemption for shipping pallets, reinforcing the narrow construction often applied to exemption statutes.

We'll continue monitoring these developments and highlighting the issues that may have the greatest impact on multistate businesses and individual taxpayers during the second half of 2026. Questions about how these developments may affect your business? Contact the Eide Bailly SALT team to discuss nexus, apportionment, residency, incentive, and state tax controversy considerations.