State Tax News & Views: Deduction Caps, Mobile Workforces.

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.

Republican SALT Caucus in House Mulls Specifics on Raising Cap - Cady Stanton, Tax Notes ($):

House Republicans’ slim majority puts the SALT Caucus’s members in a prime spot to negotiate a cap raise in the party’s reconciliation bill — a reality that both House and Senate Republican leadership have acknowledged. The group also has President Trump in its corner after he included changes to the SALT cap among his campaign trail promises in 2024.

But reports of an early proposal to raise the cap to $25,000 received a chilly reception from the high-tax-state SALT proponents.

Rep. Michael Lawler, R-N.Y., called the idea “woefully insufficient,” and Republican SALT caucus co-chairs Andrew R. Garbarino of New York and Young Kim of California said in a statement that the proposal “does not get close to bringing relief to families unfairly burdened by the current cap.”

States Eye Income Tax Phaseouts to Draw, Keep Residents - David Hood, Bloomberg ($):

With their recent tax changes, Kentucky and Mississippi join a small trend of states looking to eliminate the individual income levy. Missouri Gov. Mike Kehoe (R) began the year asking lawmakers to work with him to phase out his state’s individual income tax. The Oklahoma Senate on Thursday passed legislation (HB 1539) that would reduce that state’s income tax by one-quarter of a percentage point every year revenue increases by at least $300 million.

Mobile Workforces

Senators Announce Tax Relief Bill for Mobile Workers - Tax Notes ($). "The Mobile Workforce State Income Tax Simplification Act would require employees to work at least 30 days in a state before they are subject to taxation, which would 'cut red tape and protect workers across the United States,' Senate Finance Committee members Catherine Cortez Masto, D-Nev., and John Thune, R-S.D., said in an April 10 release."

AICPA Support of S. 1443, the Mobile Workforce State Income Tax Simplification Act of 2025 - AICPA. From a letter to the sponsors from the AICPA:

The bill provides uniformity for nonresident state and local income tax withholding and a reasonable de minimis exception from the assessment of state and local income tax in a jurisdiction in which an employee does not reside. Having a uniform national standard for nonresident state and local income taxation, withholding, and filing requirements will simplify and enhance compliance with all the different state and local tax laws and reduce unnecessary administrative burdens on businesses and their employees. The bill provides relief, which is long overdue, from the current web of inconsistent state and local income tax and withholding rules that impact employers and employees.

Nonresident Income Tax Filing Laws by State, 2025 - Katherine Loughead, Tax Foundation. "As of January 1, 2025, 24 states have no meaningful nonresident individual income tax filing threshold, meaning most nonresidents are required to file an individual income tax return if they spend even a single day working in the state."

State-By-State Roundup

Alabama

Ala. House Panel OKs Remote Worker Tax Exemption - Jaqueline McCool, Law360 Tax Authority. "H.B. 379, passed unanimously by the committee, will now go to the entire House for a vote. The bill would change the state's rules imposing income tax on nonresident remote workers, exempting workers from Alabama income tax withholding if they work 30 days or less in the state, perform their work duties in more than one state, and are not a professional athlete or speaker."

Arkansas

Ark. Lawmakers OK Income Tax Break For Biz Moves To State - Zak Kostro, Law360 Tax Authority ($). "The bill would allow businesses that relocate a corporate headquarters to Arkansas to receive an income tax credit of up to 50% of their payroll for new full-time permanent employees, according to the bill's text and a fiscal impact statement."

Ark. Creates Tax Credit For Sustainable Aviation Fuel Makers - Zak Kostro, Law360 Tax Authority ($). "H.B. 1303, which the Republican governor approved Thursday, provides an income tax credit for such manufacturers equal to 30% of the cost of eligible production and processing equipment bought for use in the state, according to the bill text and a fiscal impact statement."

Colorado

Colo. Lawmakers OK Higher Maximum Local Lodging Tax Rate - Sanjay Talwani, Law360 Tax Authority ($). "The state House of Representatives concurred Friday with state Senate amendments to H.B. 1247 and passed the bill by a 41-21 vote, sending it to Democratic Gov. Jared Polis. If enacted, the top allowable rate for county lodging taxes, subject to approval from local voters, would increase from 2% to 6%."

Georgia

Georgia Cuts Income Tax Rates, Offers Rebates - Maria Koklanaris, Law360 Tax Authority ($):

Georgia's income tax rate for both individuals and corporations will fall and individuals also will get an income tax rebate under a pair of bills signed Tuesday by Gov. Brian Kemp.

Kemp, a Republican, signed H.B. 111, which reduces the state income tax rate from 5.39% to 5.19% and makes the lowered rate retroactive to Jan. 1. The rate cut is a continuation of a planned, staged lowering of Georgia's income tax rate. It is to be lowered by a tenth of a percentage point each year until it falls to 4.99%.

Indiana

Indiana Governor Signs Property Tax Relief Bill - Emily Hollingsworth, Tax Notes ($):

Gov. Mike Braun (R) announced he had signed S.B. 1 into law on April 15.

...

S.B. 1 sets the percentage cap used to determine the maximum levy growth quotient, which determines a “civil taxing unit's maximum permissible ad valorem property tax levy for an ensuing calendar year,” at 4 percent for calendar year 2026.

The bill phases out the state’s homestead standard deduction by 2031 and replaces it with increases in the homestead supplemental deduction, which would reach a maximum of 66.7 percent of the homestead’s assessed value by 2031.

Braun signs income tax reduction bill. Why it might be hard for Hoosiers to see impact - Brittany Carloni, Indianapolis Star. "Indiana’s individual income tax rate will already decrease over the next five years until it reaches 2.9% in 2027. Senate Enrolled Act 451 would lower it further starting in 2030."

Kansas

Kansas Legislature Overrides Veto of Tax Cut Bill - Emily Hollingsworth, Tax Notes ($):

In a 30–10 vote on April 10, the Senate approved a motion to override Kelly's veto of S.B. 269. Shortly after, the House voted 87 to 37 to do the same.

S.B. 269 allows rates for the income tax, corporate surtax, and privilege tax (a tax on financial institutions) to be reduced to the nearest 0.01 percent per year if revenues in the general fund exceed those from fiscal 2024 and if monies in the rainy day fund equal or exceed 15 percent of the general fund's tax revenues from the previous year. The state's director of the budget will annually determine Kansas's tax revenue collections and whether they exceed the trigger threshold, beginning August 15.

Kansas Lawmakers Overturn Veto on Unborn Child Tax Exemption - Emily Hollingsworth, Tax Notes ($). "H.B. 2062 allows parents of unborn children to qualify for a $2,320 personal exemption beginning in tax year 2025."

Missouri

Mo. House OKs Earnings Tax Break In Opportunity Zones - Paul Williams, Law360 Tax Authority ($). "The bill, H.B. 499, would offer exemptions from the cities' 1% earnings tax for salaries, wages, commissions and net profits earned for work conducted inside opportunity zones."

Minnesota

Minn. Panel Advances New Markets Tax Credit Plan - Sanjay Talwani, Law360 Tax Authority ($):

Minnesota would establish a new markets tax credit program similar to the federal credit for investments in qualified community development entities under legislation advanced by a state House of Representatives panel.

The House Taxes Committee on Thursday laid over H.F. 2360 as amended for consideration in an omnibus tax bill. If enacted, the measure would establish a state tax credit that builds on the federal new markets tax credit program.

Nebraska

Nebraska auditor details ‘staggering’ impact of corporate tax incentives on state budget options - Cindy Gonzalez, Nebraska Examiner:

Jumping into the discourse over Nebraska’s budget shortfall, State Auditor Mike Foley sent a letter to state senators Monday alerting them of the financial weight of previously-passed business tax incentive laws.

In a 20-page letter, he wrote that over the next four fiscal years, Nebraska companies stand poised to call in more than $1.5 billion in corporate tax incentives, an expense he said would significantly impact the availability of state general funds.

The auditor’s letter focuses on the Nebraska Advantage Act, adopted in 2005, and a newer version called the ImagiNe Nebraska Act of 2020.

New Mexico

New Mexico Governor Vetoes Tax Bill, Tells Lawmakers to Try Again - Paul Jones, Tax Notes ($):

New Mexico’s governor has vetoed legislation that would have replaced the state's working families tax credit with an expanded earned income tax credit, urging lawmakers to pass an improved bill next session.

H.B. 14, the state’s tax omnibus bill, would also have created a $250-a-month refundable tax credit for foster parents and guardians, increased the state’s liquor taxes by 20 percent, and provided a tax break for healthcare practitioners to encourage doctors to maintain their practices in the state.

Tennessee

Tenn. Delays State Tax Filing Deadlines After Storms - Michael Nunes, Law360 Tax Authority ($). "The department, in a notice published Monday, said that consistent with the Internal Revenue Service's decision to extend its deadline for federal returns to Nov. 3, it would grant extensions on a case-by-case basis. Extensions are open to taxpayers who have been impacted by tornadoes and flooding that began April 2."

Washington

Washington Democrats Drop Wealth Tax Amid Governor's Opposition - Paul Jones, Tax Notes ($). "The decision came after Ferguson said he wouldn’t approve a budget relying on a wealth tax to fund critical levels of spending, reiterating previous misgivings he has voiced about the proposal."

Tax Policy Corner

No Tax on Tips and Overtime Proposals Gain Steam Across States, but Remain a Bad Idea - Abir Mandal, Tax Policy Blog:

Despite its populist allure, exempting tips, overtime, and bonuses from taxation is a flawed idea that undermines economic fairness, distorts labor markets, and jeopardizes tax revenues. First, it introduces severe horizontal inequity in the tax code. Two workers earning the same annual income could face vastly different tax burdens simply because of the nature of their livelihoods.

Consider two taxpayers earning $30,000 annually in a state with a flat 5 percent income tax: Tracy, a secretary, and Bob, a waiter. Tracy earns all income as wages, while Bob earns $20,000 in wages and $10,000 in tips. Under current law, both claim the $14,600 standard deduction and owe $770 in state income tax. If the state passes a “no tax on tips” law, Tracy’s tax liability remains $770, but Bob’s tips become exempt, reducing his taxable income to $5,400 and his tax to $270—a 65 percent cut.

Student NIL Tax Breaks Would Put Splashy Recruits Above Fairness - Andrew Leahey, Bloomberg. "Many student-athletes are pulling in six- or seven-figure incomes before they’ve even declared a major. Meanwhile, the students working 20-hour weeks as resident assistants, librarians, or dining hall employees continue to pay tax on every modest paycheck."

Tax History Corner

The Tax Deadline hasn't always been April 15. When the modern income tax was first enacted in 1913, returns for 1913 were due on March 1 of the next year. The due date became March 15 for returns filed for 1918. The first April 15 deadline was April 15, 1955, for 1954 1040s. This change was part of the enactment of the Internal Revenue Code of 1954, the grandfather of our current tax code.

The tax law allows automatic extensions to October, but they require filing an extension. Failing to file the extension can turn a 1/2% per month underpayment penalty into a 5% per month late filing penalty.

The tax law is much more complicated and difficult than it was 70 years ago. Many more taxpayers receive K-1s, which can be provided as late as September 15. Preparing those is harder, given the complex partnership taxation and accounting method rules that apply now. The rules on dividends have become byzantine, leading to routine issues of corrected 1099s during the tax season.

Individual returns in Germany are due July 31, or December 31 if prepared professionally. French returns are due in May or June, depending on region. A later due date in the U.S. wouldn't make us a weird outlier. I'm not sure why filing a magic piece of paper should be needed to move the due date back to October.

We go to tax war with the due dates we have, not the ones we might wish to have. But I wish the due date was more realistic.

State Tax News & Views: Deduction Caps, Mobile Workforces.

We're Here to Help

Joe B. Kristan, CPA