Key Takeaways
- Arizona vote on grocery sales taxes.
- California SALT workaround changes.
- Idaho enacts tax cut.
- Iowa unemployment tax changes advance.
- Social Security will stay taxable in Utah.
- Other legislative season news.
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.
Congressional Policymakers Should Tread Carefully When Weighing New Corporate SALT Deduction Limits - Jared Walczak and Garrett Watson, Tax Policy Blog:
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The revenue and economic effects of limiting C-SALT deductions are just one aspect of the story. Some of congressional Republicans’ interest in C-SALT deduction is likely spurred by analogy to the personal SALT deduction, which provides the largest tax benefit for high earners in high-tax jurisdictions. The apparent analogy lends itself to the belief that capping corporate SALT will, like the personal SALT cap, reduce distortive tax benefits and enhance state competition.
Unfortunately, the analogy is wrong. It misunderstands corporate income taxation in at least two ways. First, it misunderstands the nature of the corporate income tax, which is imposed on net income (profits). And second, it neglects the role of factor apportionment, which undermines the connection between taxpayer location decisions and state tax liability.
Top NY Tax Official Calls IRS Staff Cuts 'Deeply Frustrating' - Danielle Muoio Dunn, Bloomberg ($):
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Disruptions at the IRS in calculations and compliance processes could also filter down to states , because their personal and corporate income tax systems rely heavily on the federal government.
Groceries around the country remain expensive. That’s why more states want to stop taxing them - Andrew DeMillo, Associated Press. "The number of states imposing sales taxes on groceries has shrunk over the years, and the number may decrease further in the coming months as lawmakers hear complaints about high prices for eggs and other household staples."
The Surprising Regressivity of Grocery Tax Exemptions - Jared Walczak, Tax Foundation. "The poorest decile of households experiences 9 percent more sales tax liability with a grocery tax exemption than they would if groceries were taxed and the general rate were reduced commensurately."
Property Taxes by State and County, 2025 - Andrey Yushkov, Tax Foundation:
Some states with high property taxes, like New Hampshire and Texas, rely heavily on them in lieu of other major tax categories. This often involves greater devolution of authority to local governments, which are responsible for more government services than they are in states with greater reliance on state-level revenues like income or sales taxes.
State-By-State Roundup
Arizona
Ariz. House OKs Ballot Measure To End Local Grocery Taxes - Sanjay Talwani, Law360 Tax Authority ($). "The House passed H.C.R. 2021 by a vote of 37-21 on Tuesday, sending it to the state Senate. If the resolution is approved by both legislative chambers, Arizona residents would vote in November 2026 whether to amend the state constitution to bar local jurisdictions from imposing sales taxes on food items for home consumption."
Arizona Updates Income Tax Conformity With Federal Code - Zak Kostro, Law360 Tax Authority ($). H.B. 2688, which [Governor] Hobbs, a Democrat, signed Friday, conforms Arizona's income tax calculation to the IRC as amended and in effect on Jan. 1, 2025, including provisions that took effect in 2024 but excluding changes to the federal law enacted after Jan. 1, 2025, according to the bill text. The preexisting law conformed the state's tax statutes to the IRC as amended and in effect as of Jan. 1, 2024, according to the bill.
California
Newsom Administration Floats Bill to Extend SALT Cap Workaround - Paul Jones, Tax Notes ($):
Beginning in tax year 2026, the proposal would also allow electing entities to make a late prepayment, but with a reduction in the personal income tax credit received by passthrough owners via the workaround. The reduction would be equal to 12.5 percent of an owner’s pro-rata share of the amount of required prepayment that was not made on time, according to the fact sheet provided to Tax Notes by the department.
Related: IRS Blesses Entity Tax SALT Cap Workaround
Doubling California Film Tax Credits Gets Early Lawmaker Support - Laura Mahoney, Bloomberg ($). "California lawmakers appear willing to put aside skepticism about economic benefits of the state’s film and television tax credits and to expand the program, mainly to stanch the flow of productions to places with more generous tax breaks."
OTA Finds Nonresident Code Writer Has California-Sourced Income - Andrea Muse, Tax Notes ($):
Though Markowski reported the income on his 2017 federal tax return for his Schedule C business as a sole proprietor, he did not file a 2017 California return. After Markowski failed to respond to the FTB's request for a tax return, the board issued a notice of proposed assessment based on the income reported on his Form 1099-MISC.
Colorado
Colo. Finance Panel OKs Employee Ownership Tax Break - Sanjay Talwani, Law360 Tax Authority ($):
The bill would also let a worker-owned cooperative deduct up to $1 million of its federal taxable income from its state taxable income and create a "qualified support entity credit" for entities that assist businesses in conversions to employee ownership.
Link: H.B. 1021
Florida
DeSantis Calls for Ending Florida's Local Property Taxes - Matthew Pertz, Tax Notes ($). "A study from the nonpartisan Florida Policy Institute found that property taxes fund approximately 27.86 of local government spending, lower than the national average of 29.3 percent."
Idaho
Idaho Income Tax Reduction Bill Clears Legislature - Emily Hollingsworth, Tax Notes ($).
Lastly, it would allow taxpayers to deduct capital gains or losses from the sale of gold bars and coins (precious metal bullion and monetized bullion, respectively).
Iowa
Iowa Senate advances bill that would cut $1 billion in unemployment taxes for businesses - Stephen Gruber-Miller, Des Moines Register. "The measure — which [Governor] Reynolds called on lawmakers to pass in her Condition of the State address in January — would cut in half the amount of wages on which businesses pay unemployment taxes, as well as lower the maximum unemployment tax rate from 7% to 5.4% and reduce the number of tax tables."
Maryland
Maryland Governor Urges Tax Cuts, Code Reform - Kennedy Wahrmund, Tax Notes ($).
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For example, the two new rates for the highest-earning joint filers would be 6.25 percent on income between $600,000 and $1.2 million, and 6.5 percent on income above $1.2 million. At present the top rate for joint filers is 5.75 percent on income above $300,000.
Michigan
Michigan Takings Suit Can Proceed, Federal Court Rules - Christopher Jardine, Tax Notes ($):
But the court also denied the former homeowners’ motion for class certification, citing inefficiencies with the mini trials required to ascertain class membership.
Nebraska
Neb. Expands Confidentiality Rules For Sales Tax Records - Zak Kostro, Law360 Tax Authority ($). "Republican Gov. Jim Pillen signed L.B. 208 on Tuesday, which expands a preexisting statute that made it a misdemeanor for the state tax commissioner or other state tax officials to disclose the business affairs, operations or other information obtained through an official investigation of a retailer's records and activities. The original law barred disclosure by any official or employee of the tax commissioner, the state treasurer or the state Department of Administrative Services, and L.B. 208 applies the bar to "any other person," according to the bill."
North Carolina
NC House committee approves gambling loss income tax deduction - Lynn Bonner, NC Newsline. "The bill’s sponsors said allowing gamblers to deduct their losses, capped at winnings, will align state policy with federal tax law."
Related: Paying Taxes on Gambling Winnings in Another State
Utah
No elimination of Utah’s social security tax, says state budget chair - ABC4.com. "'There will be a tax cut on Social Security, but it will not be an elimination of the social security tax,' Sen. Jerry Stevenson (R- Layton), who chairs the powerful Executive Appropriations Committee (EAC), told reporters Monday."
Washington
Seattle Voters OK New Payroll Tax on High Compensation - Paul Jones, Tax Notes ($). "Proposition 1A was placed on the ballot via signature gathering as Initiative Petition No. 137. It imposes a 5 percent tax on annual compensation over $1 million paid to any Seattle employee, effective for the tax year beginning January 1, 2025. The tax is paid by the employer and is in addition to the JumpStart payroll tax approved by the city's leaders in 2020."
Wyoming
Wyo. Extends Manufacturing Sales And Use Tax Exemptions - Zak Kostro, Law360 Tax Authority ($). "H.B. 11, which Republican Gov. Mark Gordon signed Monday, extends the exemptions' sunset date from Dec. 31, 2027, to Dec. 31, 2042, according to the bill text and a summary of the measure. The law provides an exemption from sales tax and use tax for the sale or lease of machinery that is to be used in Wyoming directly and predominantly in the manufacturing of tangible personal property, according to the bill and summary."
Wyo. Expands Sales Tax Break For Power Used In Transport - Zak Kostro, Law360 Tax Authority ($). "H.B. 311, which Republican Gov. Mark Gordon signed Tuesday, expands a provision of the preexisting statute that provides the exemption for sales of power or fuel to a person transporting tangible personal property by railroad or pipeline, according to the measure's text."
Tax Policy Corner
Help the Middle Class by Easing the Mobile Workforce's Tax Rules - Andrew Leahey, Bloomberg ($):
To be truly effective, the MTC model needs three modifications: an expansion of the default safe harbor threshold to 30 days, an income-based sliding scale, and an end to exclusions for high-income taxpayers.
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The MTC wants to create one clear standard for when a state can levy a tax on nonresidents. Those who work in a state for 20 days or fewer wouldn’t owe state income tax, and employers wouldn’t be required to withhold state taxes for these short-term forays. This would eliminate the administratively onerous requirement of mobile workers needing to file multiple state tax returns for brief work trips.
With the rise of the gig economy and the increase in workforce mobility, rules that trigger taxability for as little as a single day within a state create a burden on employers, contractors, and employees alike. A federal bill that would enact a 30-day safe harbor has been proposed annually; it has been stifled annually by New York interests.
Tax History Corner
March 1 marked the 111th anniversary of the first filing deadline for the modern income tax. The Date was moved to March 15 in 1918. That deadline held for about 36 years, when it was moved to April 15 for 1954 filings in the newly-enacted Internal Revenue Code of 1954.
The original 1954 Code came in at 372 pages. A recent standard edition of the current IRC is two volumes and 4,968 pages. The 1954 Code knew no qualified dividend income, no Sec. 199 dividends, and no unrecaptured Sec. 1250 income, etc. K-1s were few and far between. In other words, tax filing was much simpler.
Yet we still have an April 15 deadline, 70 years later. Taxpayers still have to file a magic piece of paper, or the online equivalent, to avoid late filing penalties for filing in October, when they might have all of their 1099s and K-1s. Tradition, I suppose.
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