Key Takeaways
- SALT deduction cap looms large in TCJA extension debates.
- California wildfire resources.
- Tax cut proposals in multiple states.
- Overtime, tip exemption proposals appear in multiple legislatures.
- Kansas governor opposes corporate tax cut.
- Should Nebraskans wait to file?
- Supreme Court upholds income tax 109 years ago today.
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.
House Republican SALT Split Is on Full Display at Member Day - Doug Sword, Tax Notes ($):
Some pleaded for an increase in the SALT cap, others bashed any changes from the $10,000 deduction threshold as a giveaway to the wealthy and blue-state governments, and one House Republican warned that without a quick compromise on the issue, his party’s “big, beautiful bill” won’t pass.
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“This is a tax break that overwhelmingly benefits the wealthiest households,” said Rep. Keith Self, R-Texas, voicing a common refrain among Republicans for instituting the $10,000 cap beginning in 2018.
State Corporate Income Tax Rates and Brackets, 2025 - Abir Mandal, Tax Foundation:
Among states that impose a corporate income tax, the average top rate is 6.5 percent with a median rate of 6.5 percent.
Four states—Alaska, Illinois, Minnesota, and New Jersey—levy top marginal corporate income tax rates of 9 percent or higher. Maine and California are not far behind.
Tax Foundation interactive graphic.
State-By-State Roundup
California
California Wildfire Tax Relief: Extensions, Assistance, and Resources - Sara Weintraub, Eide Bailly:
Key Relief Measures Include:
- Automatic Extensions: Sales and use tax returns and payments due by January 31, 2025, are automatically extended to April 30, 2025, for Los Angeles County taxpayers with less than $1 million in tax liability on their 2024 Q3 returns.
- Relief from Interest and Penalties: Businesses not covered under the automatic extension or needing additional support can contact CDTFA for further assistance.
- Certain taxes and fees, such as cigarette licensing fees and International Fuel Tax Agreement returns, are excluded from the extension.
Governor Newsom extends state property tax deadlines for LA firestorm communities until April 2026 - California Governor Press Release. "Governor Newsom has suspended penalties and interest on late property tax payments for a year, effectively extending the state property tax deadline, for those living in communities impacted by the Los Angeles firestorms."
Connecticut
Connecticut Governor Says Pending Tax Cut Plan a Boon for AI - Zach Williams, Bloomberg ($). "[Governor] Lamont previously said he would propose a tax cut for businesses next month in his annual budget address to the General Assembly. He hasn’t revealed details, but told Bloomberg Government in an interview on Wednesday that the idea was to focus on helping startups as part of broader efforts to encourage AI adoption among businesses in the state."
Georgia
Georgia Governor Seeks Further Income Tax Rate Cut for 2025 - Matthew Pertz, Tax Notes ($). "Under H.B. 1015, enacted in April 2024, the individual income tax was lowered from 5.39 percent to 5.29 percent beginning January 1, 2024. Kemp is calling on lawmakers to enact the scheduled cut and reduce the rate to 5.19 percent in 2025."
Idaho
Idaho Lawmakers OK Updated Conformity To Federal Tax Law - Zak Kostro, Law360 Tax Authority ($):
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The law provides an exception for IRC Section 85 governing unemployment compensation, which would continue to be applied as in effect Jan. 1, 2020, according to the bill.
Indiana
Indiana Budget Bill Proposes Retirement Deduction, Tax-Free Tips - Emily Hollingsworth, Tax Notes ($):
The budget bill, H.B. 1001, was introduced in the Indiana General Assembly on January 21 by House Ways and Means Committee Chair Jeffrey Thompson (R), Vice Chair Craig Snow (R), and Ranking Minority Member Gregory Porter (D). It reflects the fiscal 2026–2027 biennial budget recommendations from Gov. Mike Braun (R) published January 16, including the governor's recommended tax provisions.
Kansas
Kansas Governor Opposes Broad Corporate Tax Cut - Emily Hollingsworth, Tax Notes ($). "Kansas Gov. Laura Kelly (D) is opposed to zeroing out the state's corporate income tax, calling it "a non-starter" during her State of the State address."
Massachusetts
Mass. Gov. Seeks To Expand Taxation Of Nonresident Gains - Paul Williams, Law360 Tax Authority ($):
Another provision in the budget proposal specifies that the state can tax gains that nonresident corporations realize from sales of interest in pass-through entities even if they weren't engaged in a unitary business.
Maine
COST, Maine CPAs Slam Proposed Apportionment Rule - Emily Hollingsworth, Tax Notes ($):
The Council On State Taxation and the Maine Society of CPAs (MECPA) have expressed opposition to Maine Revenue Services’ proposed amendments to its apportionment provisions under Rule 801. Public comment on the proposed amendments ended on January 17.
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The proposed amendment to Rule 801 adds to this definition, according to Heavey [Leonore Heavey, COST senior tax counsel], by including the phrase “where the services are acquired or experienced.” The proposed rule also adds that “services may be received by a person other than the person who contracted for or paid for the services.”
Mississippi
Mississippi House Approves Bill to Phase Out Income Tax - Matthew Pertz, Tax Notes ($). "H.B. 1, introduced by Rep. Trey Lamar (R), cleared the House on an 88–24 vote January 16, with nine Democrats crossing the aisle to approve the bill. The measure would reduce the individual income tax rate from 4 percent to 3 percent on January 1, 2027, and further cut the rate by 0.3 percentage points annually until the tax is eliminated in 2037. Lamar chairs the House Ways and Means Committee."
Nebraska
Experts say waiting to file state taxes could be beneficial as Nebraska Legislature considers bill - John Chapman, WOWT.
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A group of lawmakers want to fix the problem, and this year introduced LB 81, which will give property owners the credit they should have received. That bill could have an effect on when people file their state income taxes this year.
New York
New York’s Hochul Pitches Tax Cuts in $252 Billion Budget - Zach Williams and Danielle Muoio Dunn, Bloomberg ($). "Hochul, during her Jan. 14 State of the State address, proposed cutting taxes for New Yorkers making up to $323,200 per year for joint filers, by reducing rates across five of the state’s nine brackets by 20 basis points over two years. She has also called to increase the state’s child tax credit to as much as $1,000 per child—from a current $330 ceiling—and send one-time, $300 rebate checks to taxpayers making less than $150,000 per year."
Hochul's Proposed Budget Would Extend Temporary Income Tax Increases - Emily Hollingsworth, Tax Notes ($):
The budget proposes to reduce the first five of the state’s nine income tax brackets by 20 basis points (or 0.2 percentage points) each, phased in over two years.
Hochul Pitches Shifts To Partnership Filing Rules, Entity Taxes - Paul Williams, Law360 Tax Authority ($):
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Additionally, the budget plan seeks to move the deadline to elect to be subject to the state's pass-through entity tax and New York City's pass-through entity tax from March 15 to Sept. 15, and adjust estimated tax payments to account for the new deadline.
No Broad-Based Tax Hikes in Rhode Island Governor’s Proposed Budget - Matthew Pertz, Tax Notes ($). "The governor's budget proposal, released January 16, includes two new revenue measures: a 10 percent digital advertising tax on companies that make over $1 billion globally, which would generate an estimated $19.6 million when fully implemented; and a provision giving the Division of Taxation the authority to use data matching to pair bank accounts with delinquent taxpayers and issue levies, which could generate $5.3 million in fiscal 2026."
Texas
Texas Comptroller Announces Wildfire Tax Relief - Kennedy Wahrmund, Tax Notes ($). "Texas Comptroller Glenn Hegar (R) announced January 17 that out-of-state taxpayers who qualify for IRS disaster tax relief as a result of the Southern California wildfires may request a 90-day extension of the due date for some state taxes."
Tax Policy Corner
Bad Ideas From Coast To Coast - David Brunori, Law360 Tax Authority ($):
I note that there is a political appeal to exempting tips. The people who receive tips ― as well as their employers, who must administer trying to tax tips ― like the idea of going tax-free. Horizontal equity is violated when politicians pick winners and losers in the marketplace. That is exactly what the governor is doing.
Tax History Corner
The U.S. Supreme Court upheld the constitutionality of the modern income tax on this date in 1916.
The case resulted when a stockholder of the Union Pacific Railroad sued to block the company from complying with the 1913 income tax law. The 1913 law was enacted after the 16th Amendment to the Constitution took effect, overriding a Supreme Court decision rejecting an earlier income tax.
While the Supreme Court settled this issue 109 years ago, you can find assertions that the income tax is unconstitutional on the internet and across social media. Remember that no matter what a persuasive influencer might tell you, the IRS, every federal court, and the nice folks in the U.S. Marshals Office and the Bureau of Prisons are convinced that the income tax is in fact constitutional and enforceable. That matters.
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