State Tax News & Views: Relief in California & Legislative Sessions Underway.

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.

California Wildfire Relief

Governor Newsom extends state property tax deadlines for LA firestorm communities until April 2026 - Governor Gavin Newsom:

The Governor’s executive order:

- Suspends until April 10, 2026, certain state tax laws that impose penalties, costs, and interest for late payments of property taxes due in calendar year 2025.
- Suspends certain additional state tax laws requiring the filing of various property tax statements.
- Applies to properties in ZIP codes 90019, 90041, 90049, 90066, 90265, 90272, 90290, 90402, 91001, 91040, 91104, 91106, 91107, 93535, or 93536.

The executive order.

Melissa Menter, an Eide Bailly SALT expert, adds:

In response to the devastating wildfires in LA County, Governor Gavin Newsom issued an executive order extending the deadline to file and pay certain property taxes, and suspending the imposition of certain penalties and interest for failure to file or pay property taxes. Taxpayers can also apply to the LA County Assessor’s Office within 12 months of the date the property was damaged or destroyed to request that property taxes be reduced to reflect the changed value. This will be welcome relief to taxpayers who have just suffered tremendous losses.

IRS Defers 2024 Deadlines for Taxpayers Affected by Los Angeles Wildfires - Adam Sweet, Eide Bailly:

The Internal Revenue Service has provided tax deadline relief for businesses and individuals affected by wildfires in parts of California. These taxpayers now have until October 15, 2025, to file federal business and individual tax returns and make payments otherwise due before then.

California has also granted deadline relief. California tax authorities have announced deadline relief mirroring the federal relief. Other states normally honor federal disaster extensions, but you should check with individual state tax authorities to be sure.

Centralized Partnership Audits

24 States Ready for IRS Centralized Partnership Audits - Amy Hamilton, Tax Notes ($):

Twenty-four states enter 2025 prepared to accommodate the IRS’s centralized partnership audit regime, which eliminated amended returns and thus the trigger for standard revenue agent report (RAR) statutes. That is according to legislative tracking data compiled by the Council On State Taxation. Another 24 states could still need legislation.

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Drafted in anticipation of the BBA audits, the MTC’s updated model enables states to require the reporting of federal partnership administrative adjustment requests and final IRS audit adjustments. It also authorizes states to assess at the partnership level, offer a partnership-pays election for state purposes, and enact broader RAR provisions like a uniform final determination date.

SALT Cap

Why salty blue-state House Republicans are vital to saving Trump’s tax cuts - Jim Geraghty - The Washington Post:

To get the Trump tax cuts extended, House Speaker Mike Johnson (R-Louisiana) is going to need Lawler and the six other Republicans from New York, the nine from California, the three from New Jersey and just about everyone else in his party. Which means the SALT deduction cap is almost certainly going to increase in future tax years; the Committee for a Responsible Federal Budget calculates that doubling the SALT cap for married couples would reduce tax revenue by $170 billion over the next 10 years; increasing the SALT cap to $100,000 for single filers and $200,000 for joint filers, as Lawler desires, would reduce revenue by an additional $920 billion over 10 years.

The $10,000 SALT Cap Is Likely Dead. What Will the New Cap Be? - Richard Rubin, The Wall Street Journal:

Rep. Nicole Malliotakis (R., N.Y.) argues that the new cap should be indexed to inflation, unlike the current fixed cap that has pinched harder over the past eight years as state taxes and incomes have climbed. Congress also could set an income limit for the deduction to prevent the highest earners from benefiting. It could double the deduction for married couples; the $10,000 currently applies regardless of filing status.

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Another way to limit the fiscal impact would be for lawmakers to restrict the property-tax portion of the deduction to primary residences, said Malliotakis, one of two New York Republicans on the Ways and Means Committee.

Trump Wants Higher SALT Cap, House Republican Says - Asha Glover, Law 360 Tax Authority ($):

Trump understands the impact of the high taxes imposed on New Yorkers and wants a higher SALT deduction cap, House Ways and Means Committee member Nicole Malliotakis, R-N.Y., said during an interview on New York local news channel PIX11. Malliotakis and other House lawmakers from New York, New Jersey and California met with Trump at Mar-a-Lago on Saturday.

State-By-State Roundup

California

Newsom Backs More Film Credit Funds, SALT Cap Workaround - Paul Jones, Tax Notes ($):

California Gov. Gavin Newsom (D) is calling on lawmakers to increase the state’s movie industry incentives, extend the SALT cap workaround, and adopt single-sales-factor apportionment for financial institutions.

Newsom's fiscal 2026 budget also proposes to partially exclude military retirement benefits from state income tax and broadly exempt wildfire settlements from taxation for the next four years. The plan, released January 10, proposes $228.9 billion in general fund spending and $322.3 billion in total spending.

Calif. Revenues Through Dec. Up $8B Over Forecast - Michael Nunes, Law 360 Tax Authority ($). "State Controller Malia M. Cohen, in a memo published Thursday, said that so far this fiscal year the state collected $89.48 billion in revenue, outpacing estimates that $81.04 billion would be brought in. Higher-than-expected collection of the state's corporation tax and personal income tax drove up total revenues."

Idaho

Idaho House OKs Updated Conformity To Federal Tax Code - Zak Kostro, Law 360 Tax Authority ($):

H.B. 3 was referred to the Senate Local Government and Taxation Committee on Wednesday after having cleared the House by a 56-14 vote Tuesday, according to the state Legislature's website.

The bill would update references to the IRC in Idaho's income tax code to mean the federal law as amended and in effect on Jan. 1, 2025, according to the bill text and a fiscal note statement. Under the state's current law, references to the IRC mean the federal code as amended and in effect on Jan. 1, 2024, according to the bill.

Iowa

Iowa Plans Efficiency Dept. To Fund Property Tax Cuts - Jaqueline McCool, Law 360 Tax Authority ($). "Iowa will create a statewide Department of Government Efficiency to find potential savings in order to fund property tax relief, Gov. Kim Reynolds announced, mirroring plans by President-elect Donald Trump for a similar body at the federal level."

Illinois

Gov. Pritzker and Illinois Department of Revenue (IDOR) Announce Participation in IRS Direct File Service - Office of Govrenor JB Pritzker:

Governor JB Pritzker and the Illinois Department of Revenue (IDOR) today announced that Illinois will participate in the IRS Direct File service, which begins on January 27, 2025.

After filing federal taxes, the program also connects taxpayers to Illinois' free state income tax filing system, MyTax Illinois, where they can file and complete their Illinois state returns.

Maryland

Moore launches sales job on his budget and politically dicey tax hikes - Erin Cox, The Washington Post:

Against that politically perilous backdrop, first-term Gov. Wes Moore (D) is putting the capital he’s amassed over the past two years into what could be an uncomfortable sales pitch: Higher taxes on the wealthy are necessary to help revive a stagnant economy and chart a path out of Maryland’s $3 billion budget deficit..

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The bulk of the proposed tax revenue — $819 million — would come from levying higher income taxes on the wealthy, but Moore has also pitched doubling the tax rate on sports betting, boosting the tax rate on casinos’ table games from 20 to 25 percent and bumping up the tax rate of recreational cannabis sales from 9 to 15 percent. The plan also closes a corporate tax loophole and lowers the corporate tax rate, which together would bring in more state revenue than it loses, he said.

20250117 SALT post

Maryland Gov. Moore includes income tax increases for wealthy residents to help address $3B deficit - Brian White, AP News:

The Democratic governor’s proposal would create a new 6.25% tax rate for people who make more than $500,000 and a 6.5% rate for taxpayers who make more than $1 million.

Under the plan, which requires approval by state lawmakers, Moore said nearly two-thirds of state residents would receive a tax cut, with relief targeted to low- and middle-income Marylanders, and 82% will either receive a tax cut or see no change.

Mississippi

Mississippi House set to vote this week on income tax elimination-gas tax increase plan - Taylor Vance, AP News/Mississippi Today:

A House committee passed a major tax cut plan on Tuesday evening that would eventually abolish the state income tax, reduce taxes on groceries, increase local sales taxes and provide more money for road work.

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The legislation would reduce the income tax rate from 4% to 3% next year. Then, it would reduce the rate by .3% each additional year until the tax is eliminated in 10 years. The plan also trims the 7% sales tax on groceries to 2.5% over time. Under current law, Mississippi’s 7% sales tax is split between the state and municipalities where the tax is collected. To shore up the loss, the legislation would end the state’s 18.5% sales tax diversion to municipalities, meaning the full sales tax collected will go to the state budget.

Michigan

Michigan Bill Creates Corporate Income Tax Credit for R&D Expenses - Tax Analysts, Tax Notes ($):

Michigan H.B. 5100, as signed into law January 13, establishes an income tax credit for authorized businesses that incur qualifying research and development expenses, not to exceed $2 million annually for businesses with 250 or more employees, or $250,000 annually for businesses with fewer than 250 employees.

An additional 5 percent credit is allowed for R&D expenditures incurred in collaboration with a research university, not to exceed $200,000 annually.

Nebraska

Neb. Gov. Vows To Keep Tackling Property Tax 'Crisis' - Michael Nunes, Law 360 Tax Authority ($):

Nebraska's governor pledged to put another $200 million into a property tax relief fund as part of this year's budget, saying Wednesday his administration would try to build on reforms passed during last year's special session.

In his State of the State Address, Republican Gov. Jim Pillen said while some changes made to the state's property tax code last year helped rein in the state's "spiraling property tax crisis," more had to be done in the new legislative session. The governor also voiced his support for eliminating the state's inheritance tax.

North Dakota

North Dakota’s new governor eyes ‘path to zero’ property tax on people’s homes. Can it be done? - Jack Dura, AP News:

North Dakota could become the first state to eventually end property taxes on people’s homes under a proposal from the state’s new governor that combines conservative fiscal policy with the state’s enormous oil wealth.

The plan by Republican Gov. Kelly Armstrong would start with $483 million from the state’s general fund and a portion of earnings from the state’s $11.5 billion oil tax savings with the ultimate goal of wiping out primary residential property taxes in years to come.

New York

Hochul Proposes Sweeping Income Tax Cuts - Emily Hollingsworth, Tax Notes ($):

Cutting the rates of five of New York’s nine income tax brackets is among Democratic Gov. Kathy Hochul’s tax-related priorities for the upcoming budget year. Hochul’s State of the State address on January 14 also highlighted proposals to create a tax credit program for semiconductor industries, increase the state’s child tax credit, and provide more than $3 billion in income tax rebates (which she called inflation refunds) to increase affordability in the state.

South Carolina

South Carolina Governor Calls for Accelerated Income Tax Cut - Kennedy Wahrmund, Tax Notes ($):

South Carolina Gov. Henry McMaster (R) is proposing to accelerate a cut to the top individual income tax rate and increase benefits for the state’s first responders as part of his fiscal 2026 budget. McMaster's budget proposal, released January 13, would lower the top marginal income tax rate from 6.2 percent to 6 percent for tax year 2025, earlier than scheduled under 2022's S. 1087. The move would allow individual taxpayers a total of $193.5 million in additional savings, according to the plan.

Wisconsin

Wisconsin DOR Revises Guidance on Credits for Taxes Paid to Other States - Tax Analysts, Tax Notes ($):

The Wisconsin Department of Revenue revised guidance for individuals, estates, trusts, and entities electing to be taxed at the entity level that wish to claim credits for taxes paid to other states on their tax returns; the DOR removed separate references to limited liability companies and their members in the guidance since such entities receive the same tax treatment as partnerships or S corporations.

Tax Policy Corner

Nebraska Property Tax Relief After LB 34 - Abir Mandal and Jared Walczak, Tax Foundation:

Legislative Bill (LB) 34, adopted in special session in 2024, has teeth in ways that previous bills did not—but in several important respects, it misses the mark, too lenient in some areas and too stringent in others. Some years, its mechanisms might improperly tie the hands of local officials. Other years, it may allow significant property tax increases of the sort that homeowners believed it was designed to prevent.

Property taxes, when well-designed, have an important role to play in municipal taxation. This publication briefly makes the case for the property tax, embattled as it is in Nebraska, then surveys both LB 34 and the pre-LB 34 structure of state property tax relief, before offering recommendations for recalibrating to ensure that Nebraskans benefit from real, predictable property tax relief—without the state sacrificing economic growth or further distorting property markets.

Congestion Pricing Revived in Manhattan, But Will Its Lower Price Work? - Lullian Hunter, Tax Policy Center:

Will a 40 percent lower congestion price generate enough funding? Probably, but it’s less than an ideal scenario. A 2022 environmental assessment of the policy, conducted by the Federal Highway Administration, considered a $9 base toll (equivalent to $9.77 today), with higher off-peak tolls (Scenario A) and projected it could generate sufficient annual revenues to secure $15 billion in bonds. But this should be taken with some caution. The assessment assumed higher overnight and off-peak tolls than the policy in effect, and did not consider all the rebates commuters might receive. The Hochul administration maintains that the $9 base rate—40 percent of the originally planned $15 base rate—will generate sufficient annual revenues.

Tax History Center

Did you know?

History of Taxes, Tax Foundation:

Tariffs have been dated to the 3000s BCE on trade of metal and wool between the ancient city of Kanesh in Anatolia (modern-day Turkey) and Assyria (in modern-day Iraq). The Roman Empire also levied tariffs, both on goods traded within the empire and imported from outside. Foreign goods were taxed at five to 25 times the rate of internal trades. Throughout history, tariffs have been levied to control the trade of certain goods like wool, leather, butter, cheese, and more.

State Tax News & Views: Relief in California & Legislative Sessions Underway.

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