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The SALT Brief

State Tax Changes Taking Effect January 1, 2025, Frazier & Deeter

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State and local tax laws are constantly evolving, creating challenges for businesses trying to stay compliant. The SALT Brief is a regularly updated resource that highlights key legislative changes, regulatory updates and policy shifts across the US.

February 2025 Edition

Georgia

In his State of the State Address delivered January 16, 2025, Georgia Governor Brian Kemp proposed a further cut of 20 basis points to the state’s 5.39% income tax rate, bringing it down to just 5.19% in 2025.

Indiana

The Indiana Department of Revenue ruled that an out-of-state video game company’s sales of monthly online subscriptions, access to in-game items and virtual currency are not subject to sales tax because the items are not considered tangible personal property and do not meet the definition of specified digital products. (Indiana Revenue Ruling No. RST 2024-04, 01/07/2025.)

Michigan

L. 2025, H4906 (P.A. 207), effective 04/17/2025, amends the sales tax exemption for data center equipment by extending the sunset date of the exemption from December 31, 2025 to December 31, 2050. The bill establishes the same sales tax exemption for enterprise data centers, which would generally be data centers that met specific requirements related to capital investment and the creation of new jobs in the state, through December 31, 2050 and establish the same sales tax exemption for an enterprise data center located on a brownfield redevelopment or former electric power plant through December 31, 2065. The bill also allows to data centers on brownfield property or industrial sites once used as a power plant a sales tax exemption of data center equipment sold to either: (1) a qualified entity or its affiliates for assembly, use, or consumption in the operations of an enterprise data center subject to a certificate; or (2) a person engaged in the business of constructing, altering, repairing, or improving real estate for others to the extend the data center equipment was affixed or was made a structural part of an enterprise data center subject to a certificate. The bill provides the Michigan Strategic Fund Board cannot issue any new certificates of exemption after December 31, 2029. This sunset does not affect any existing certificates of exemption in effect on December 31, 2029.

On January 17, 2025, Michigan Governor Gretchen Whitmer signed legislation that amends provisions of the state’s flow-through entity (FTE) tax, including the conditions under which penalties and interest are not assessed and the date on which a taxpayer must elect pay the tax. The bill also amends provisions related to the required disclosures to members of the FTE and allows the Department of Treasury to require an individual to provide reasonable proof in order to claim the credit against the individual or corporate income tax liability for the amount of FTE tax paid. L. 2025, H5022 (P.A. 216), effective 04/02/2025, operative as stated.

Minnesota

The Minnesota Department of Revenue announced the brackets and amounts of the additional minimum tax or fee applicable to taxable corporations (C corporations and S corporations) and partnerships, as indexed for inflation for tax year 2025. The additional minimum tax for 2025 is based on the sum of the entity’s Minnesota property, payroll and sales or receipts amounts as follows: if the total amount of the entity’s Minnesota property, payroll and sales is less than $1,250,000, the minimum fee is zero; if the total is in the $1,250,000 to $2,509,999 bracket, the minimum fee is $260; if the total is in the $2,510,000 to $12,539,999 bracket, the minimum fee is $750; if the total is in the $12,540,000 to $25,069,999 bracket, the minimum fee is $2,510; if the total is in the $25,070,000 to $50,139,999 bracket, the minimum fee is $5,020; and if the total is $50,140,000 or more, the minimum fee is $12,540. (Minimum Fee, Minn. Dept. Rev., 01/15/2025.)

New Hampshire

The New Hampshire Department of Revenue Administration released guidance on the repeal of the 3% interest and dividends tax paid by New Hampshire residents, repealed by L. 2023, H2, effective January 1, 2025. (New Hampshire Technical Information Release No. 2025-001, 01/21/2025)

New Jersey

L. 2025, S1323 (c.2), effective 01/23/2024, makes changes to the New Jersey Aspire Program. These changes include the reduction from 15 years to 10 years the maximum eligibility period for developers of mixed use and commercial redevelopment projects to use a tax credit following credit approval by the New Jersey Economic Development Authority. The law also makes changes to the areas eligible to qualify for Aspire Program benefits including providing tax credit eligibility to the Trenton-Mercer Airport and the area within a one-mile radius of the outermost boundary of the airport’s terminal and qualifying other areas for tax credit eligibility. Additionally, the law increases from 75% of the face value of the tax credit to 85% the minimum price of tax credits purchased by the Department of the Treasury from developers wishing to sell unused portions of their tax credit awards.

New York

The New York Department of Taxation and Finance announced that the thresholds at which a corporation and unitary group are deemed to be deriving receipts from activity in New York State and in the Metropolitan Commuter Transportation District (MCTD) for imposing the Article 9-A franchise tax and the MTA surcharge will remain at $1,283,000 for the periods January 1, 2025, through December 31, 2025. The receipts thresholds to be used in determining if members of a unitary group that meet the ownership requirements under Tax Law section 210-C are deriving receipts from activity within New York State and in the MCTD remains at $12,000. (Deriving Receipts for Article 9-A Tax and MTA Surcharge, Dept. of Tax. and Fin., 12/12/2024.)

Pennsylvania

Under Pennsylvania law, a business with property or inventory in Pennsylvania is subject to Pennsylvania taxes. This requirement applies to online retailers with inventory stored at a distribution or fulfillment center located in Pennsylvania. Income and applicable sales taxes should be reported and remitted to the Department of Revenue. The Department of Revenue is offering a Voluntary Compliance Program for any business that has inventory or stores property in Pennsylvania but is not registered to collect and pay Pennsylvania taxes. This program offers a limited lookback period and penalty relief when the business becomes compliant. Taxpayers that choose to participate in this program will not be liable for taxes owed prior to January 1, 2019. Taxpayers who participate in the program also will be given penalty relief for any non-compliance for past due tax returns that were not filed and taxes that were not paid.

Pennsylvania Treasurer Stacy Garrity announced the launch of the new online Tax Appeal Portal to streamline Pennsylvania’s tax appeal process. Taxpayers and tax practitioners filing appeals with the Pennsylvania Department of Revenue (DOR) through the Board of Finance and Revenue (BF&R) can now find all applicable forms in one online location. Among other features, this online portal allows users to: file a petition; upload supporting documents; request a hearing continuance; request a compromise directly with the DOR; and request a mediated settlement conference (for appeals filed on or after January 27, 2025). (Treasurer Stacy Garrity Launches New Portal to Simplify Pennsylvania Tax Appeals, Pa. Treasury, 01/24/2025.)

Tennessee

The Tennessee Department of Revenue updated the franchise and excise tax manual: (1) with respect to new Schedule I (Disregarded Entities) which must be included when a disregarded entity is included as part of the taxpayer’s return; (2) relating to new Schedule I which must be completed by financial institutions and captive REITS filing Form FAE 174 to report the combined group members included in the tax return (including disregarded entities); (3) clarifying that the acquisition of an existing affiliated group by a non-affiliate terminates the existing group’s CNW election (unless the acquiring entity has its own CNW election in effect at the time of the acquisition); (4) to confirm the Department’s position on sourcing sales of tangible personal property to intermediaries such as distributors or wholesalers; and (5) the franchise tax proration calculation when a unitary group member enters or exists a financial institution unitary group during the tax year. (Tax Manual Updates, Tenn. Dept. of Rev., 12/01/2024; Franchise and Excise Tax Manual, Tenn. Dept. of Rev., 12/01/2024.)

The Tennessee Department of Revenue modified its sales and use tax manual with the following updates: (1) charges by a taxidermist for taxidermy activity are exempt from the sales and use tax; (2) the term software used in the operation of a date center is inclusive and encompasses a number of business functions such as accounting, human resources and customer information; (3) sales tax should be charged to TennCare for covered products under the TennCare Diaper Benefit; and (4) sales of electricity at electric vehicle charging stations are subject to sales and use taxes. (Tax Manual Updates, Tenn. Dept. of Rev., 12/01/2024; Sales and Use Tax Manual, Tenn. Dept. of Rev., 12/01/2024.)

The Tennessee Department of Revenue issued a ruling holding that drop shipments must be sourced to where they were shipped. This was the case even though the products being drop shipped to the ultimate customers were first sent to a third-party facility where they were held prior to shipment to the ultimate customers. Since the third-party facility never obtained title or an interest in the products, the shipments to the third-party facility were not reported as sales. It was only when the goods were shipped to the customer of the purchasers that sales to the purchasers were recorded and those sales must be sourced to where the goods were shipped. (Tennessee Revenue Ruling No. 24-12, 12/19/2024.)

The Tennessee Department of Revenue ruled that various services provided by a firm are not subject to sales and use tax. The services are provided to companies to assist and allow a customer’s employees to be recognized and rewarded for performing well, reaching employment milestones and/or exhibiting behaviors that demonstrate company values. Specifically, the Department ruled that: (1) services associated with the creation of customer specific employee recognition solutions which include consulting, startup and website design drafting fees were not taxable services because the true object of the transaction was administration of the employee recognition program; (2) transaction fees charged by the taxpayer when certificates are awarded are not a taxable service; (3) gift cards sold by the taxpayer for reward points are not taxable; and (4) merchandise provided to the customer’s employees is taxable. (Tennessee Letter Ruling No. 24-10, 11/26/2024.)

Virginia

The Virginia Department of Taxation ruled that leases of heating, ventilation, and air conditioning (HVAC) systems to residential customers from a taxpayer’s commonly controlled company are taxable since the agreement between the parties specifies that the HVAC units are tangible personal property. In reaching its conclusion, the Department noted that a Virginia Supreme Court case that provides three general tests in determining if an item of tangible personal property should be considered as a fixture stipulates that such tests are only used “in the absence of any specific agreement between the parties as to the character of a chattel upon the freehold.” Additionally, if a residential customer exercises the option to purchase the HVAC unit during or after the lease, that is a separate transaction subject to tax based on the purchase price. Further, the taxpayer was a consuming contractor in transactions involving furnishing and installing the HVAC units, and must either pay tax on the purchases or accrue and remit consumer use tax on the untaxed purchases. (Virginia Public Document Ruling No. 24-110, 11/14/2024.)

Washington

The Washington Department of Revenue issued guidance with respect to gains from investments in light of the state supreme court’s decision in Antio, LLC, et al. v. Wash. Dept. Rev. , Wash. S. Ct., Dkt. No. 102223-9, 10/24/2024 . In Antio, the court held that the business and occupations deduction for gains derived from incidental investments is limited to income that is earned through investments that are incidental to the main purpose of the taxpayer’s business. Taxpayers have the burden of proving that an investment activity is not the main business activity if the income from the activity exceeds the safe harbor. The deduction for amounts derived from incidental investments is not available to a banking business, lending business, or security business. In determining whether investment activity is incidental, a taxpayer’s facts and circumstances at and prior to the time of filing is relevant. The deduction does not generally apply to amounts received from loans, the extension of credit, revolving credit arrangements, installment sales, and similar interest income. (Investments, Wash. Dept. Rev., 01/14/2025.)

January 2025 Edition

Arkansas

The Arkansas Supreme Court has affirmed the circuit court’s grant of summary judgment to a corporate taxpayer, resulting in a substantial income tax refund. The taxpayer’s business was selling retail motor-fuel products and convenience-store items. To fund a spin-off of the taxpayer, the taxpayer’s new parent made a $650 million distribution to the existing parent using the proceeds from borrowed funds received from the taxpayer. The taxpayer then paid the interest expense on these borrowed funds. The taxpayer had allocated 100% of these interest expenses to Arkansas, its domicile state, and requested a refund. Because existing Arkansas law adopted the standard UDITPA definition of “business income” and “nonbusiness income” (Ark. Code Ann. 26-51-701), the court focused on the nature of the taxpayer’s business when determining whether activity is “business income” under the traditional transactional and functional tests. The court decided that the spin-off transactions and activity were not made in the regular course of the taxpayer’s business and the spin-off was not the acquisition, management, and disposition of property that constituted integral parts of the taxpayer’s regular business. (Hudson v. Murphy Oil USA, Inc., Ark. S. Ct., Dkt. No. CV-24-8, 12/12/2024.)

Georgia

The Georgia Department of Revenue (DOR) Nov. 25 issued a letter ruling on the application of sales and use tax to transactions involving prewritten computer software. The DOR ruled that the sale of prewritten computer software, delivered in a tangible medium (USB Keys) and picked up by a customer in Georgia, is subject to Georgia sales and use tax. The DOR also clarified that Georgia does not have a Multiple Point of Use (MPU) tax exemption, thus the sale of the software-loaded USB Keys is taxable, even if the software is ultimately used outside of Georgia. [Ga. Dep’t of Revenue, Letter Ruling SUT-2024-02, 11/25/24]

The Georgia Department of Revenue (DOR) Dec. 13 proposed a rule on digital products, goods and codes. The proposal addresses the sales and use taxation of specified digital products, other digital goods and digital codes. A remote public hearing will be held on Dec. 19 at 10:00 am. Comments on the proposed rule are due by Dec. 19. [Ga. Dep’t of Revenue, Reg. Section 560-12-2-.118, 12/13/24]

The Georgia Department of Revenue (DOR) issued information on the income tax changes. The information includes: 1) the state’s tax law conformity to federal changes in the Internal Revenue Code (IRC) for tax years 2021 to 2024; and 2) the adoption of House Bills and Senate Bills, their effective dates, and how they conform to the IRC. [Ga. Dep’t of Revenue, Income Tax Federal Tax Changes, 12/01/24]

Illinois

The Illinois Department of Revenue has issued a compliance alert to increase participant compliance in the Department’s direct pay permit program (DPP). Many participants are not in compliance with the record-keeping, filing, and payment requirements for purchases made under DPP. The Department will issue a notice of direct pay annual review to taxpayers reminding them of reporting obligations, and effective January 1, 2025, participants must complete an annual review of all transactions for the previous calendar year and submit confirmation of the review, no later than March 31, of the following calendar year. If the taxpayer was in business for less than 12 months during the calendar year, or part of the calendar year is under an active audit, the annual review must be conducted for the short-year period not under audit. Participants are responsible for filing Form ST-1-X (Amended Sales and Use Tax and E911 Surcharge Return) for any filing period where a transaction was incorrectly taxed. Failure to comply may result in a $6,000 penalty for the transactional review reporting period. (CA 2025-01, Ill. Dept. of Rev., 12/10/2024.)

The Illinois Department of Revenue has issued an informational bulletin to all persons who, in the ordinary course of business, lease or rent tangible personal property. Effective January 1, 2025, they are considered retailers subject to Illinois’ sales and use tax laws, in accordance with the Retailers’ Occupation Tax Act, and must register with the Department and pay tax on their lease or rental receipts. Leases of tangible personal property are considered sales at retail, and those who lease or rent property from Illinois businesses have tax itemized on receipts. Beginning January 1, 2025, taxpayers may use Form CRT-61 (Certificate for Resale) to claim an exemption on purchases of merchandise that will be leased or rented if the lease or rental of that item is subject to retailers’ occupation tax. Although tax does not apply to receipts prior to January 1, 2025, any amounts received on and after that date are subject to tax, including amounts received on contracts in place prior to January 1, 2025. The change does not impact leases or rentals of items that must be titled or registered with the state, such as motor vehicles. (Illinois Dept. of Rev. Info. Bulletin No. FY 2025-15, 12/01/2024.) 

City of Chicago

Chicago officially raised the personal property lease tax (sales tax) tax rate from 9% to 11% effective 1/1/25. This impacts sellers of software-as-a-service to customers in Chicago.

Maine

Maine Revenue Services has issued a notice discussing a recent law change affecting taxpayers engaged in the business of leasing or renting tangible personal property and/or electronically-transferred products. Beginning January 1, 2025, state sales tax is imposed on each periodic lease or rental payment paid by the lessee. For leases in effect, entered into, or renewed on or after January 1, 2025, lessors are required to charge and collect Maine sales tax from the lessee on each lease or rental payment. The notice also covers the sale price of payments; purchases for resale; prewritten computer software; automobiles, trucks, and vans; exemptions; and limited refund provisions. (Notice to Lessors of Tangible Personal Property: Maine Shifting to “Lease Stream” Sales Taxation Effective January 1, 2025, Maine Revenue Services, 12/01/2024.) 

Michigan

The Michigan Department of Treasury has issued a release updating the description of the procedures and standards governing the alternative apportionment relief provisions in parts 1 and 2 of Michigan’s Income Tax Act and in the Michigan Business Tax Act in response to the Michigan Supreme Court’s opinion in Vectren Infrastructure Services Corp. v. Department of Treasury , 999 NW2d 748, 512 Mich 594 (2023). (Michigan Revenue Administrative Bulletin No. 2024-24, 12/17/2024, replacing Michigan Revenue Administrative Bulletin No. 2018-28, 12/19/2018)

New York

L. 2024, S885 (c. 672), effective 04/21/2025, expands the definition of a hotel for sales tax purposes to include short term rental units. A short term rental unit is a short-term residential rental unit that is “an entire dwelling unit, or a room, group of rooms, other living or sleeping space, or any other space within a dwelling, made available for rent by guests for less than thirty consecutive days, where the unit is offered for tourist or transient use by the short-term rental host of the residential unit.” The law also specifies the persons who are required to collect the tax, in addition to adding provisions on remitting and collecting the tax, and registration requirements.                                                                     

Oregon

The U.S. Supreme Court has denied a request to review an Oregon Supreme Court decision which held that an out-of-state tobacco manufacturer removed itself from the safe harbor of P.L. 86-272 when its representatives went beyond soliciting orders in Oregon on behalf of wholesalers by taking prebook orders. The question presented to the court was whether P.L. 86-272 immunity applied for a company when it engages in otherwise protected activities in Oregon to solicit requests for orders from retailers if it also sends successfully solicited retailer requests for orders to wholesalers (i.e., the company’s customers) for wholesalers to accept and process, and, if ultimately fulfilled, to be fulfilled by the wholesaler from the wholesaler’s own inventory of product that it previously purchased from the company (i.e., the wholesaler makes the sale to the retailer). (Santa Fe Natural Tobacco Co. v. Dept. of Rev., Or. S. Ct., Dkt. No. SC S069820, 06/20/2024, cert. denied, U.S. S. Ct., Dkt. No. 24-551, 12/16/2024.)

South Carolina

The South Carolina Department of Revenue has issued a revenue ruling to explain the tax credits for rehabilitating certified historic structures qualifying for the federal credit and historic residential structures located in South Carolina. S.C. Code Ann. § 12-6-3535(A) provides a nonrefundable tax credit of 10% against state income taxes and license fees, for taxpayers who qualify for the federal income tax credit for making qualified rehabilitation expenditures for a certified historic structure located in South Carolina. Taxpayers can elect to take a 25% South Carolina credit instead of 10%, but the 25% credit is limited to $1 million for each certified historic structure. S.C. Code Ann. § 12-6-3535(B) provides a nonrefundable income tax credit for taxpayers who are not eligible for the federal credit. The credit is for 25% of the rehabilitation expenses for a certified historic residential structure located in South Carolina. The ruling discusses eligible properties, the application fees, certification of additional work and provides answers to the most frequently asked questions. (South Carolina Revenue Ruling No. 24-6, 12/16/2024.)

Tennessee

The Tennessee Department of Revenue has issued a letter ruling that states that a successor taxable entity in an IRC § 368(a)(1)(F) reorganization assumes the tax attributes of its predecessor taxable entity including items such as net operating losses (NOLs) and tax credits. While, NOLs and tax credits, may generally only be claimed by the taxable entity that incurred the losses or generated the credits, there is an exception if the predecessor taxable entity merges into a taxable entity with no activity, assets or liabilities prior to the merger. (Tennessee Letter Ruling No. 24-09, 11/05/2024.)

The Tennessee Department of Revenue has updated its taxability matrix to reflect the Streamlined Sales and Use Tax Agreement as amended through October 8, 2024. The matrix indicates that a remote seller who is registered to collect sales tax in Tennessee has an obligation to remit consumer’s use tax on its own property such as catalogs and samples delivered into Tennessee. (Tennessee Taxability Matrix, Tax Administration Practices, 12/30/2024.)

Contributors

Brian Strahle, Partner and National Practice Leader, State & Local Tax

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