Key Takeaways
- Listing the 2025 state tax changes.
- Iowa among states looking at revenue drops.
- States looking at standards for coming into sales tax compliance.
- Federal taxes on state tax credits?
- Updates from California, Colorado, Illinois, Louisiana, New Jersey, New York, Utah, Virginia, and Washington.
- Tea Party anniversary.
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.
State Tax Changes Taking Effect January 1, 2025 - Tax Foundation. "Recent years have seen a wave of significant tax reforms, and the changes scheduled for 2025 show that these efforts have not let up. The evidence of the past four years indicates that many states understand and value the importance of creating and maintaining a stable, pro-growth, and competitive tax code."
The post covers 2025 changes in the Eide Bailly states of Minnesota, Montana, Nebraska, Nevada, Ohio, Texas, Utah, and Washington.
State Tax Revenue Stable In 2024, But Warning Signs Abound - Michael Nunes, Law360 Tax Authority ($):
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Josh Goodman, a senior officer at Pew Charitable Trusts who covers state fiscal health, said he is keeping an eye on particular states in the upcoming year. Iowa, he said, is already signaling that revenue will decline in fiscal year 2025 and 2026 due to tax cuts instituted during the pandemic.
Come in from the Cold
Streamlined to Pursue Lookback Proposal, Delivery Company Guidance - Emily Hollingsworth, Tax Notes ($):
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The proposed program would limit the lookback period to no more than 24 months for remote sellers and would take effect once the rules are promulgated. The proposed program would last for only one year unless the SSTGB decides to extend it. If the voluntary disclosure program does sunset, the amnesty would also remain repealed.
Voluntary disclosure programs enable taxpayers who have not been filing in a state to come into compliance without being exposed to taxes going back indefinitely. If you don't file a return for a year, states generally can assess taxes you owe for the year forever.
Tax Pact Group Fleshes Out Voluntary Disclosure Plan -Michael Nunes, Law360 Tax Authority ($). "Craig Johnson, the board's executive director, said the proposed disclosure program is needed to bring more remote sellers into compliance after the U.S. Supreme Court's decision in South Dakota v. Wayfair in 2018, which allowed states to require out-of-state businesses to collect and remit sales tax in states where they don't have a physical presence."
Taxing state credit refunds
State Energy Credits Are Part of Gross Income, IRS Says - Mary Katherine Browne, Tax Notes ($):
In the November 26 memorandum (AM 2024-004), the IRS Office of Chief Counsel determined that carbon offset credits awarded by the California Air Resources Board to an offset project must be reported as part of the taxpayer’s gross income.
The California Air Resources Board established a cap-and-trade program under the California Global Warming Solutions Act of 2006, the memorandum explains. Entities subject to the law’s emissions cap can receive an offset credit for qualifying projects that reduce or sequester greenhouse gases in accordance with six compliance offset protocols. Once issued, the credits may be sold, traded, or transferred by the taxpayer.
The memorandum notes the wide scope of taxable income:
Among other precedent, the memorandum cites a case involving refundable tax credits - a common feature of pass-through entity tax SALT deduction cap workarounds:
Don't sleep on the taxability of state tax refunds resulting from state tax credit programs, including pass-through entity taxes.
State-By-State Roundup
California
San Francisco's Proposition M Triples Tax on Many Companies - David Pop, Naftali Dembitzer, Hugh Weley Goodwin, James Smith, DLA Piper via Tax Notes ($). "While supported by some in the business community, the impact of Proposition M on many large taxpayers will be significant and detrimental, because top tax rates will more than triple (from 1.008 percent to 3.716 percent) for the gross receipts tax and more than double for the homelessness gross receipts tax (from 0.69 percent to 1.65 percent). San Francisco also adjusted the apportionment to more heavily weigh the sales factor for most industries, as opposed to a more even split between the sales factor and payroll factor. Finally, the threshold for the application of the homelessness gross receipts tax has also been cut in half (from $50 million to $25 million), thereby extending the tax to reach more businesses in San Francisco."
'Imperfect Women,' 'Bad Monkey' Win California TV Tax Credits - Laura Mahoney, Bloomberg ($). "A new television series called “Imperfect Women,” with executive producers and stars Elisabeth Moss and Kerry Washington, is among the winners in the latest round of $108.6 million in film and television tax credit awards the California Film Commission announced Wednesday.
Colorado
Colorado DOR Answers Questions on Partnership Tax Adjustment Rule - Emily Hollingsworth, Tax Notes ($). "The model statute is intended to grant passthrough entities and state revenue departments more time and flexibility to address changes made in federal centralized partnership audit procedures by the federal Bipartisan Budget Act of 2015."
Illinois
Chicago Budget Includes Tax Increases, but Avoids Property Tax Hike - Emily Hollingsworth, Tax Notes ($).
The budget ordinance will also increase the city’s tax on checkout bags from 7 cents to 10 cents; increase the license fee for wholesale food establishments from $660 to $1,320; raise the amusement tax on electronically delivered video streaming or online gaming from 9 percent to 10.25 percent; and increase from 9 percent to 11 percent the tax imposed on the leasing or rental price of personal property.
Illinois DOR: Sales Taxes Will Apply to Leased Products in 2025 - Emily Hollingsworth, Tax Notes ($). "Beginning January 1, 2025, businesses that rent or lease tangible personal property will be required to register as retailers with the DOR and will no longer be required to pay the state’s 6.25 percent sales and use tax on the purchase of the property. Instead, the tax will be imposed on the taxpayers that rent the property, according to December 12 guidance."
Massive Sales Tax Fraud Sends Chicago Pizza Baron to Prison - Michael Bologna, Bloomberg ($):
Cirrincione was president of Suparossa Restaurant Group, a chain of family-operated Italian restaurants with roots going back at least 40 years and multiple locations in Chicago and its suburbs.
Louisiana
Louisiana Tax Reform Package Reduces Income Tax, Increases Sales Tax - Matthew Pertz, Tax Notes ($):
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The package includes H.B. 10, which combined two central initiatives: an increase in the statewide sales tax from 4.45 percent to 5 percent and an overhaul of the individual income tax that eliminates the progressive brackets in favor of a single 3 percent rate with a $12,500 standard deduction.
It also includes H.B. 8, which adds digital media and software to the sales tax base, and H.B. 2, which replaces the tiered corporate income tax with a flat 5.5 percent rate.
Louisiana Incentives, Tax Reform Lure $10 Billion Meta Data Center - Matthew Pertz, Tax Notes ($). "Meta's planned facility will be receiving a tax break under the program created by H.B. 827, signed into law in June. The new program provides sales tax rebates for data center projects worth at least $200 million. The Louisiana Department of Economic Development is in charge of administering the rebates, which last 20 years and can be extended for another 10."
Related: Eide Bailly State and Local Tax Credits & Incentives Services
A total of $3 billion in rebates would be distributed to roughly 8.6 million New Yorkers who have recently filed tax returns. Surplus revenue from increased sales tax collections in recent years would be used to offset the cost of the program, according to the release.
No Deduction for DISC Payments, New York Court Affirms - Andrea Muse, Tax Notes ($). "The New York Supreme Court, Appellate Division, held December 5 in Matter of Skidmore, Owings & Merrill LLP v. New York City Tax Appeals Tribunal that the firm could not deduct commission payments made to the DISC — whose only shareholders were the active partners of the firm — under the city’s administrative code, even though the payments are deductible for federal income tax purposes."
Utah
Utah Governor Seeks Full Exemption for Social Security Benefits - Paul Jones, Tax Notes ($). "According to a release by the governor's office, the full exemption for Social Security benefits would provide tax relief for 150,000 senior residents as they face the effects of inflation. It also noted that 42 other states don’t tax Social Security benefits."
Virginia
Virginia Governor Calls for Tax-Free Tips, Market-Based Sourcing - Kennedy Wahrmund, Tax Notes ($):
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The governor also proposed raising the threshold for estimated income tax payments and conforming the interest on overpayments and underpayments to federal law, according to the budget summary.
Inslee, a Democrat, proposed the wealth tax Tuesday to help cover a multibillion-dollar budget shortfall in the state. His office said the tax would fall on about 3,400 people and raise more than $10 billion over a four-year period. Revenue would start coming in during fiscal year 2027, his office said.
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In addition to the wealth tax, Inslee proposed a 20% increase to the state's business and occupation tax, which is a gross receipts tax, for businesses making more than $1 million a year that are in the category known as "service and other activities."
As most readers know, Louisiana has enacted significant changes in tax law. These changes, passed during a November special legislative session, represent the best tax policy developments of 2024. Under H.B. 2, the state will replace its tiered corporate income tax rate with a flat 5.5%. I think repealing the tax would be better. Lowering corporate tax burdens is the next best thing.
More significant, under H.B. 3, the state will repeal the corporate franchise tax. The franchise tax is a dastardly thing; it punishes those who invest in the state. Only 14 states still impose it. The nation will be better off when the number is zero.
Corporate-welfare tax provisions go back a long way.
Tax breaks for one company are tax penalties on its competitors.
History.org takes up the story:
That night, a large group of men—many reportedly members of the Sons of Liberty— disguised themselves in Native American garb, boarded the docked ships and threw 342 chests of tea into the water.
Said participant George Hewes, “We then were ordered by our commander to open the hatches and take out all the chests of tea and throw them overboard, and we immediately proceeded to execute his orders, first cutting and splitting the chests with our tomahawks, so as thoroughly to expose them to the effects of the water.”
There are always unintended consequences for targeted tax favors. Even today it's much easier to find a Starbucks than a tea parlor in the old colonies.
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