Top state and local tax stories of 2023


In developing our end-of-year summary of the top state and local tax (SALT) news of 2023, we typically try to look for a common theme running through the developments. The last couple of years revolved around the pandemic and the attempt to get back to a new normal. One could argue that the theme of 2023 …. was about arguing. Division seemed to rule the year, and extended throughout all branches of state government, as reflected in controversial legislation, guidance provided by state tax authorities that at times appeared aggressive to taxpayers, and of course, lots of contentious litigation. Given the theme, it’s not overly surprising that one of the most high-profile judicial disputes resolved this year concerned a taxpayer that ultimately agreed with a state department of revenue only to be opposed by that state’s own attorney general.


As usual practice in December, our Grant Thornton SALT team in the Washington National Tax Office reflected on and then ranked the 10 most important SALT stories of 2023 in order of perceived importance. Following due consideration, we believed that the significant tax reforms undertaken by New Jersey and Minnesota constituted the most important story of the year, but in this year of relative division, we would not be surprised if others begged to differ. It should be noted that Minnesota tax reform would not have happened but for a chaotic and divisive legislative session in which one state senator made all the difference.


As far as other events on our list, the vein of division is readily apparent. States’ reactions to the frequent changes in how federal taxable income is calculated reflect the fact that the aims intended to be achieved by federal and state tax policy are often very discordant. Apportionment disputes that usually (but not always, as noted above) pit taxpayers against the state tax authorities are, by definition, about the division of a company’s revenue among the states. The disparate methods by which states are trying to balance their budgets show their competing priorities, with some states trying to de-emphasize the income tax for all, with others enhancing it in a progressive manner, or in some cases, imposing specially tailored taxes on an extremely small number of businesses or individuals.


While we recognize that division taken to its extreme can strain relationships between the branches of state government, the states themselves, the federal and state governmental system, and taxpayers and state tax authorities, the SALT issues coming to the fore in 2023 in response to this division are some of the most intellectually interesting ones we have seen in some time. And at least some of the outcomes that we have seen this year in the state legislatures and courts, which would not have happened without some level of division, ultimately will be considered by taxpayers as very positive from a policy perspective. With that background in mind, let’s move forward, together, to our list of the top SALT stories for 2023.




1. New Jersey and Minnesota enact major tax reform legislation


While many states adopted significant tax provisions designed to address both federal changes and state-specific aims, New Jersey and Minnesota’s efforts stood out in 2023. On July 3, 2023, New Jersey enacted extensive state tax reform legislation intended to be revenue-neutral to the state, the centerpiece of which includes major changes in the Corporation Business Tax (CBT) for privilege periods ending on and after July 31, 2023.1 The adoption of a bright-line economic nexus standard for CBT purposes, in line with standards adopted by the states for remote sellers for sales tax purposes, is notable.2 The legislation also alters the taxation of foreign income by treating global intangible low-taxed income (GILTI) as dividend income and subjecting 100% of foreign derived intangible income (FDII) to CBT.3 New Jersey is changing from the Joyce to the Finnigan apportionment methodology for combined groups.4 Also, certain captive real estate investment trusts (REITs), regulated investment companies (RICs), and investment companies (ICs) are included in combined groups and taxed in the same manner as C corporations.5 The legislation also makes changes to combined group composition and the treatment of income excluded from federal taxable income by tax treaties.6 Furthermore, the legislation makes changes to the treatment of net operating losses (NOLs), including adoption of the current federal 80% limitation.7 The ordering of the NOL and prior NOL conversion carryover (PNOLCC) subtraction is changed and the remaining balance of the deductions of the combined group members may be pooled together.8 Finally, the historic related-party addback statute is repealed.9


While the legislation primarily concerns CBT, one noteworthy provision addresses Gross Income Tax (GIT) sourcing. For taxable years beginning after 2022, a taxpayer subject to GIT which conducts business within and outside New Jersey is required to source its income using CBT sourcing provisions to the extent that income from New Jersey sources cannot be readily or accurately ascertained.10

The sweeping legislation enacted by New Jersey this year will affect most corporations doing business in the state.


The sweeping legislation enacted by New Jersey this year will affect most corporations doing business in the state. Accordingly, taxpayers should carefully evaluate the legislation and the extensive related Technical Bulletins that have been issued by the New Jersey Division of Taxation. For example, the adoption of the bright-line economic nexus standard for CBT purposes may result in additional entities being subject to tax, even though they may not be physically present in the state. Out-of-state businesses should review their level of economic presence in New Jersey to determine whether they have a CBT obligation under the new standards. Also, the change to a Finnigan method for apportioning the income of combined unitary groups may increase the amount of income that is subject to tax. Combined groups should reconsider their apportionment methodology. The inclusion of certain captive entities in combined groups may substantially increase the tax liability of certain taxpayers that have carefully structured their businesses around historic New Jersey tax provisions allowing for more widespread separate reporting along with preferential tax rates for investment companies.


The New Jersey legislation also contains potentially favorable provisions that should be considered by taxpayers. The changes to the tax treatment of GILTI should benefit many taxpayers by increasing the exclusion of this income.11 The characterization of GILTI as a dividend means it will not be included in the numerator of the sales factor. Also, the amendments to the treatment of NOLs and PNOLCCs in which these tax attributes can be pooled by combined group members will increase the ability to use these attributes to offset income. The treatment of NOLs and PNOLCCs is complex and should be thoroughly considered, particularly in a combined reporting context. The statutory changes for combined groups concerning filing methods, apportionment, group composition, and the treatment of income subject to treaty protection should be examined to determine whether it would be advantageous for a combined group to prospectively change its filing method on the 2023 return.12


On May 24, 2023, Minnesota enacted omnibus tax legislation that was decidedly not revenue neutral, as it contained several new and increased taxes on businesses and individuals.13 For taxable years beginning after Dec. 31, 2022, taxpayers are required to include GILTI as dividend income for corporate franchise tax purposes.14 Minnesota did not tax GILTI prior to amendment. Also, the dividends received deduction (DRD) is reduced from (i) 80% to 50% if the recipient owns 20% or more of the stock; and (ii) 70% to 40% if the recipient owns less than 20% of the stock.15 Because GILTI is included as dividend income, taxpayers may apply the DRD against GILTI. Furthermore, the corporation NOL deduction limitation is reduced from 80% to 70%.16 For taxable years beginning in 2024 and thereafter, the legislation imposes a 10% tax on the net investment income of individuals, trusts, and estates that exceeds $1 million.17


The amendments make the DRD and NOL deduction less favorable than those provided by nearly all states that impose income taxes. Minnesota will tax GILTI for tax years beginning on or after Jan. 1, 2023, without any inclusion of foreign sales in the sales factor denominator.18 Compared to most states, Minnesota taxes GILTI at a much higher rate. Also, there are no provisions allowing a subtraction of FDII under IRC Sec. 250. These changes may substantially increase the Minnesota corporate income tax liability of taxpayers with foreign income. The effect of the taxation of GILTI is compounded by the fact that Minnesota has a high corporate income tax rate of 9.8%.




2. States react to ‘new’ IRC Sec. 174


Changes to Internal Revenue Code (IRC) Sec. 174 research and experimental (R&E) expenditure rules beginning with the 2022 tax year along with state responses to those rules presented added complexity for taxpayers with significant R&E expenditures in 2022 from a state tax compliance perspective. Prior to the enactment of the Tax Cuts and Jobs Act of 2017 (TCJA), taxpayers were allowed the option to currently deduct R&E expenditures or treat such expenditures as deferred expenses to be capitalized and amortized over their useful life. The TCJA amended this Sec. 174 provision with a deferred effective date, such that for amounts paid or incurred in tax years beginning after Dec. 31, 2021, all taxpayers are required to capitalize and amortize R&E expenditures and software development costs over a five-year period for domestic expenses and 15 years for foreign expenses.


Congressional efforts to delay or repeal the new capitalization and amortization requirements under Sec. 174 have all but failed in 2023. The absence of federal legislation addressing Sec. 174 created additional uncertainty for taxpayers in determining whether states conform to the federal changes to Sec. 174. In most cases, states that adopt the IRC on a rolling basis generally conform to the post-2021 R&E expenditure rules in Sec. 174 unless they specifically decoupled from that federal provision. Additionally, many static conformity states – those that adopt the IRC as of a certain date – enacted legislation to advance their conformity dates to the IRC as in effect on Jan. 1, 2022, or later, therefore bringing their own state tax laws into conformity with the “new” federal Sec. 174 provisions.


In contrast, several states enacted legislation in 2023 that specifically decoupled from the federal capitalization and amortization requirements under current Sec. 174. For example, Georgia and Indiana enacted legislation specifically decoupling from the federal changes to Sec. 174 effective retroactively for the 2022 tax year.19 Mississippi enacted similar legislation decoupling from current Sec. 174, but not appliable until tax years beginning on or after Jan. 1, 2023.20 To further complicate matters, as part of its tax reform legislation described above, New Jersey now decouples from current Sec. 174 for tax years beginning on or after Jan. 1, 2022, but only for taxpayers with New Jersey qualified research expenditures (QREs) that actually claimed the New Jersey research and development (R&D) tax credit.21 If no New Jersey R&D credits are claimed by the taxpayer, the state follows the Sec. 174 amortization and capitalization rules, and deductions occur in the same period as they would for federal income tax purposes. Finally, while Kentucky decoupled from amended Sec. 174 for the 2022 tax year based on its existing IRC conformity date, the state enacted legislation to advance its IRC conformity date, thereby bringing the state into conformity with current Sec. 174 beginning with the 2023 tax year.22


For many taxpayers, tracking state conformity to Sec. 174 for the 2022 tax year is an important exercise especially in cases where the federal changes to Sec. 174 were sufficient to require taxpayers to report income rather than a loss, while such effect may have been fully reversed in decoupling states that continued to allow for current expensing of R&E expenditures. Specific state conformity to Sec. 174 has the potential to materially affect state tax provisions by increasing or decreasing amounts to be deducted currently or accounted for as deferred tax assets to be realized in future years. Moreover, state conformity to the Sec. 174 rules may potentially impact state R&D credit calculations in those states with state-specific R&D credits. Finally, the state income tax impact of Sec. 174 changes could also change the calculation of other limited deductions such as the Sec. 163(j) business interest expense deduction. Noting that the federal changes to Sec. 174 and the state responses have created a spate of ancillary effects for impacted taxpayers during the 2022 tax year, taxpayers will need to continue to track potential state decoupling responses to Sec. 174 in 2023 and beyond.




3. Trend of adopting elective pass-through entity taxes continues


The adoption of pass-through entity (PTE) regimes as a workaround to the federal $10,000 SALT deduction limitation adopted under the TCJA continued to gain pace this year, with 37 jurisdictions now offering this option to PTEs and their owners.23 Back in 2018, states began enacting elective PTE tax regimes to work around the SALT deduction cap. Under these regimes, the PTE is permitted to deduct state and local income taxes paid at the entity level for federal income tax purposes, followed by a deduction for the tax on the distributive share of the PTE owners’ income. Depending on the structure of the PTE tax, the owner may claim a corresponding tax credit against their personal income tax liability or an exclusion on the portion of the owner’s pass-through income subject to the entity tax.


Seven states had enacted PTE taxes by November 2020,24 when the IRS announced that state PTE tax regimes would be respected for federal purposes, thus providing a framework for partnerships and S corporations to deduct PTE taxes at the entity level.25 States moved rapidly to adopt their own elective PTE regimes in response, with 15 doing so in 2021.26 The trend continued in 2022, with eight additional jurisdictions adopting PTE tax regimes.27 The effort did not subside in 2023, with seven states acting to adopt such regimes.28 In particular, Nebraska stood out with its creation of a PTE tax regime with retroactive effect to tax years beginning on or after Jan. 1, 2018, joining Colorado in this effort and presenting additional complexity for PTEs looking to make retroactive PTE elections without clear guidance from the IRS on the specific federal implications.29 With 37 jurisdictions having enacted PTE tax regimes to date, only six jurisdictions that impose a personal income tax have yet to enact such regimes.30 While three of those six jurisdictions proposed PTE tax bills in 2023 that failed to pass this year, it will be interesting to see whether such legislation gains traction in 2024.31


States continued to enact important corrective legislation in 2023 to address significant and often unintended technical shortcomings in their PTE tax regimes that became apparent during the first years of their implementation. Notably, as the only state with a mandatory PTE tax in place, Connecticut enacted legislation to make its PTE tax regime elective beginning with the 2024 tax year, in addition to removing the standard base method of calculating the PTE tax base.32 Virginia expanded eligibility for electing PTEs by removing the requirement that a qualifying PTE be 100% owned by natural persons, replacing this requirement with an eligible owner requirement, under which a direct owner of a PTE who is a natural person, estate or trust is eligible for a refundable PTE tax credit.33 Similarly, North Carolina legislation expanded the list of eligible PTEs to include partnerships and S corporation as permissible PTE owners effective beginning with the 2022 tax year.34

While state PTE taxes continue to be a popular workaround to the federal SALT deduction cap that is generally designed to be revenue-neutral for states, the lack of uniformity in these efforts continues to present complexity for multistate PTEs deciding whether to elect into such regimes.


While state PTE taxes continue to be a popular workaround to the federal SALT deduction cap that is generally designed to be revenue-neutral for states, the lack of uniformity in these efforts continues to present complexity for multistate PTEs deciding whether to elect into such regimes. Indeed, no two PTE tax regimes are the same, and so the differing nature of each state PTE tax requires a thorough mechanical and technical analysis. As a result, PTE leaders are faced with making elections that may impact the tax liability of their owners, some of which may benefit more than others depending on the organizational structure of the PTE. The continued adoption of PTE taxes and subsequent corrective legislation in 2023 makes it more important than ever to monitor state administrative guidance as state taxing authorities are often charged with implementing specific rules for each PTE tax. Finally, as the expiration of the SALT deduction cap at the end of 2025 approaches, the looming question is whether Congress will extend or increase the limitation, which may impact the appeal and overall value of making state PTE tax elections.




4. Maryland digital advertising tax remains in effect, with litigation continuing


Back in February 2021, Maryland became the first state to enact a tax on gross proceeds derived from digital advertising services in the state.35 Enacted by the state legislature following an override of a veto by the Maryland governor, the tax is imposed on entities with global gross revenues of at least $1 billion.36 Businesses with annual gross revenues derived from digital advertising services in Maryland of at least $1 million in a calendar year are required to file a tax return. The tax rate ranges from 2.5% to 10% based on the amount of the company’s global gross revenue. The tax was enacted with the intent of targeting large technology companies with digital advertising operations.


The digital advertising tax has been mired in litigation since the date of enactment. Lawsuits were filed in both state and federal court alleging violations of the Internet Tax Freedom Act (ITFA), the Commerce Clause and the Due Process Clause of the U.S. Constitution, and the First Amendment to the U.S. Constitution.37 Comcast and Verizon sought a declaration in a state trial court that the tax was illegal under the ITFA, also alleging Commerce Clause, Due Process and First Amendment violations. In October 2022, the trial court struck down the tax in a bench ruling, declaring that the tax discriminates against companies providing digital advertising services, targets out-of-state companies and interstate commerce by using worldwide gross revenues to calculate the tax, and singles out certain companies for selective taxation in a way that is not content-neutral.38


On direct appeal to the Maryland Supreme Court, the Maryland Comptroller argued that the state trial court lacked jurisdiction to hear the state lawsuit because the plaintiffs had failed to exhaust their administrative remedies before filing the lawsuit in state court. In May 2023, the Maryland Supreme Court issued an order vacating the trial court’s order, concluding that the trial court lacked jurisdiction to hear the case because the plaintiffs failed to exhaust their administrative remedies.39 In an opinion explaining its earlier order restoring the tax, the court explained that the administrative remedy requirement may be satisfied by paying the tax and commencing a refund action that could be considered by the Maryland Tax Court, or appealing a tax assessment to the Tax Court.40 The Maryland Supreme Court did not address the merits of the arguments concerning the validity of the tax. 


In response to the Maryland Supreme Court’s decision dismissing the earlier state lawsuit, Apple Inc. filed an appeal with the Maryland Tax Court in August 2023, arguing that it is due a refund on digital advertising tax paid to Maryland for the 2022 tax year.41 Similar to Comcast and Verizon, Apple argued that the tax is illegal under the ITFA, also alleging Due Process, Commerce, and Supremacy Clause violations. Apple further argued that it had exhausted its administrative remedies by filing a refund claim, which the Comptroller had subsequently denied. In response to the Comptroller’s motion to dismiss the case, the Maryland Tax Court ruled that Apple’s case could proceed, finding that it satisfied the requirements for a valid refund claim. Meanwhile, more than a dozen large technology companies filed similar litigation in the Maryland Tax Court in November protesting similar refund denials of estimated digital advertising tax payments. The litigation before the Maryland Tax Court represents the first attempt to challenge the tax according to the administrative procedure dictated by the Maryland Supreme Court.


At the same time, federal litigation continues. Several business groups sought a declaration and injunction from a Maryland federal district court against enforcement of the tax. In 2022, the federal court dismissed much of the lawsuit, ruling that the federal Tax Injunction Act (TIA) bars a challenge to the tax itself because Maryland state courts provide a speedy remedy to challenge the tax. However, the federal court ruled that the plaintiffs could still challenge the provision that prohibits companies from directly passing the cost of the tax onto customers on the grounds that it violated the First Amendment. In December 2022, the federal district court issued an order dismissing the case on the grounds that the pass-through provision had become moot in light of the state trial court’s decision to invalidate the tax.42 The plaintiffs appealed the dismissal to the U.S. Court of Appeals for the Fourth Circuit.43


As the Maryland state and federal litigation continues to run its course, companies subject to the digital advertising tax must continue making estimated payments given that the tax still stands, and the Maryland Tax Court has yet to fully consider the substantive arguments in support of invalidating the tax. Like Apple and the other similarly situated technology companies with cases currently before the Maryland Tax Court, impacted businesses may consider filing protective refund claims that may proceed pending the outcome of the litigation before the Maryland Tax Court. While this litigation is likely to be drawn out over the coming years, other states that have considered similar digital advertising taxes may continue to watch and wait until a final decision is reached.




5. Apportionment litigation galore


2023 will be remembered from a SALT perspective as a year in which many intriguing apportionment disputes were addressed by state courts and administrative authorities. The high courts in Pennsylvania, Maine, and Michigan all decided significant apportionment cases. Two of the cases concerned the sourcing of service revenue, while the other case involved the tax treatment of income from a business sale and alternative apportionment. Also, there were lower court or administrative decisions in Florida and California considering important apportionment issues.


In Synthes USA HQ, Inc. v. Commonwealth, the Pennsylvania Supreme Court upheld a Pennsylvania Department of Revenue policy sourcing sales of services to the location where the benefit is received under the pre-2014 corporate net income tax (CNIT) sourcing statute.44 The taxpayer sourced sales to Pennsylvania using tradition cost-of-performance (COP) rules. Based on the Pennsylvania Department of Revenue’s interpretation of the sourcing statute, the taxpayer sought a refund by recalculating its sales using benefits-received rules. The Department took the position that sales are sourced using benefits-received rules, but the Pennsylvania Office of Attorney General argued that sales are sourced using traditional COP rules. The Pennsylvania Supreme Court held that the Department’s benefits-received interpretation controlled because the pre-2014 statute was ambiguous.


Although the Synthes decision appears to be limited to interpreting a CNIT sourcing statute that is no longer in effect, the decision continues to be relevant because the court applied administrative deference to Department policy in the absence of clear statutory definitions and interpretive regulations. Beyond the CNIT, the result leaves open the question of whether the Department will seek to apply its benefits-received sourcing interpretation to pass-through entities governed under the state’s personal income tax rules, which still employ a COP analysis. Finally, taxpayers should consider the long-term impacts this ruling may have on calculating their Pennsylvania sales factor and the resulting effect on tax attributes such as NOLs utilized in open tax years and tax credits, particularly out-of-state companies that may be able to increase NOLs during pre-2014 tax years using market-based sourcing. 


In Express Scripts Inc. v. State Tax Assessor, the Maine Supreme Judicial Court held that a taxpayer must source its receipts from providing prescription benefit management (PBM) services to where the individuals fill their prescriptions at retail pharmacies.45 Under Maine law, receipts from the performance of services are sourced to the state where the services are received. The Maine Tax Assessor successfully argued that the individual members receive the services when they fill prescriptions at retail pharmacies. The taxpayer unsuccessfully argued that because it contracts with only its clients (such as health insurers or employers) rather than the individual members, the ultimate recipient of its services is the client, even though it is the member who initiates the claim at the retail pharmacy.46 The court held that the receipts should be sourced to Maine because the claims-processing services were received by members at retail pharmacies in Maine, and the receipts at issue were derived from these services. 


Express Scripts may create opportunities for taxpayers that provide PBM services. For example, a PBM service provider headquartered in a state but has comparatively few individual members filling prescriptions in the state would benefit from this decision. Conversely, a PBM service provider that is not headquartered in a state but has many members filling prescriptions in a state would be required to apportion more income to the state.


The Michigan Supreme Court decided a case concerning the apportionment treatment of income from the sale of a business and alternative apportionment. In Vectren Infrastructure Services Corp. v. Department of Treasury, the court held that for purposes of the former Michigan Business Tax (MBT), the Michigan Department of Treasury properly treated the taxpayer’s gain from a significant asset sale as business income, excludible from the taxpayer’s sales factor.47 According to the court, the apportionment formula, as applied, was constitutional because it did not impermissibly tax income outside the scope of the state’s taxing powers. The Michigan Supreme Court reversed the Michigan Court of Appeals’ judgment that alternative apportionment was necessary because the statutory formula created a grossly disproportionate result when applied to the asset sale. On Nov. 20, 2023, the U.S. Supreme Court denied certiorari to hear this case.


Despite the repeal of the MBT, this case has important implications for taxpayers doing business in Michigan, given the fact that the state’s current corporate income tax regime relies on a tax base calculation and apportionment rules similar to those under the previous MBT regime. Out-of-state businesses should carefully evaluate the possible Michigan corporate income tax consequences of selling assets that are not normally held for sale to customers, or for the sale of a business unit. This decision also reflects the court’s belief that there is a high burden of proving that alternative apportionment is necessary, even where alternative apportionment seems to be warranted.


Besides the state high court decisions discussed above, two lower court or administrative rulings considered interesting apportionment issues. In Billmatrix Corp. v. Department of Revenue, a Florida circuit court granted a group of related taxpayers’ motion for summary judgment, and held that state law required the use of the COP method to source the taxpayers’ service revenue.48 Because the plain language of the Florida apportionment regulation provides for the use of COP sourcing,49 the circuit court rejected the Florida Department of Revenue’s application of market-based sourcing (MBS).50 This decision is consistent with the same court’s Target Enterprise, Inc. v. Department of Revenue decision in 2022,51 but the court in Billmatrix provides a deeper analysis of the underlying regulation to support a COP methodology.   


Over the past several years, there has been significant uncertainty in Florida concerning whether to source receipts from services using a COP or MBS methodology. While the Department has promulgated a regulation providing for COP sourcing, the Department has issued multiple Technical Assistance Advisements (TAAs) which interpret this regulation to apply MBS principles.52 Service providers that incur a greater proportion of their costs to perform their services outside Florida, but that have a significant market presence in Florida, may want to determine whether this case provides sufficient support for COP sourcing. At the same time, there will be instances in which MBS will be a more favorable approach than applying COP, particularly for businesses that have substantial physical presence in Florida in comparison to other states, but do not have a comparable Florida customer base.


In August 2023, the California Office of Tax Appeals (OTA), in Southern Minnesota Beet Sugar Cooperative, released a decision holding that deductible income received from a unitary group member must be included in the sales factor calculation.53 The OTA declined to follow a longstanding position of the California Franchise Tax Board (FTB) articulated in Legal Ruling 2006-01 that certain deductible items that do not factor into taxable net income should be excluded from the sales factor.54


The holding in Southern Minnesota Beet Sugar may create an opportunity for taxpayers to include in the sales factor calculation certain deductible items from the measure of taxable net income. In relevant part, Legal Ruling 2006-01 provided a fact pattern in which a water’s-edge group that receives a dividend from an excluded foreign affiliate that is subject to a 75% DRD should not reflect this income in the apportionment formula because it was excluded from the measure of tax. The OTA’s refusal to give deference to the FTB’s position may encourage certain water’s-edge filers that had followed the ruling to file amended returns. A water’s-edge filer that received dividends from an excluded foreign affiliate that was subject to a 75% DRD may want to file an amended return seeking to depart from the ruling and include the full dividend received in the sales factor denominator.




6. State budget dichotomy causing tax rate fluctuations

2023 marked a year in which there was growing inconsistency between the states’ fiscal conditions and their budget projections.


2023 marked a year in which there was growing inconsistency between the states’ fiscal conditions and their budget projections. Some states experienced budget surpluses in 2023 and were able to increase the balance of their rainy-day funds and provide tax refunds. As a result of their strong fiscal positions, several states were able to reduce their income tax rates. In contrast, other states are projecting budget shortfalls and were forced to extend their higher income tax rates.  


The trend of reducing income tax rates in some states has gained traction since 2021. For example, during 2021 and 2022, Arkansas enacted legislation reducing its top corporate income tax rate. Arkansas enacted legislation in April 2023 that reduced corporate and individual income tax rates for the 2023 tax year and beyond.55 In September 2023, Arkansas enacted additional legislation to further reduce the corporate and individual income tax rates beginning with the 2024 tax year.56 Pursuant to contingent corporate income tax rate reduction legislation enacted in 2022,57 Iowa announced the state’s top rate will drop from 8.4% to 7.1% for tax years beginning on or after Jan. 1, 2024.58 Nebraska continued its recent trend of reducing corporate income tax rates by enacting legislation in 2023 that further reduces the rate for tax years beginning on or after Jan. 1, 2024.59 On Oct. 3, 2023, North Carolina enacted budget legislation that accelerates formerly planned lower individual income tax rates to earlier years and retains the possibility of further rate reductions based on state revenue goals.60 Also, despite lingering discussions in the state legislature, it appears that New Jersey will not extend its 2.5% corporate surtax on income over $1 million beyond Dec. 31, 2023.61 Utah reduced its corporate income tax rate from 4.85% to 4.6% for tax years beginning on or after Jan. 1, 2023.62


In contrast, some states are facing budget shortfalls and were not able to provide income tax rate relief.  California experienced large budget surpluses during the past few years, but its tax collections are now declining while state spending is exceeding revenue.63 New York previously was enjoying financial stability, but the state announced a projected budget gap totaling over $36 billion through the 2026-27 fiscal year.64 During 2023, New York enacted budget legislation extending its increased corporate income tax rate of 7.25% for any taxpayer with New York State apportioned income for the tax year of more than $5 million.65 The increased rate was extended through the 2026 tax year and applies to all income subject to tax if the $5 million apportioned income base is exceeded. Also, the 0.1875% tax rate on the capital base is extended for three years through the 2026 tax year.66 Connecticut extended its 10% corporation business tax surcharge for three additional years through the 2025 tax year.67


Taxpayers should consider planning opportunities that are available when corporate income tax rates are fluctuating. For example, the income tax rate reductions provide an opportunity to consider accelerating deductions to tax years in which a higher tax rate applies, and deferring deductions to tax years in which a lower tax rate takes effect. Taxpayers also may consider the timing of revenue and expense recognition, capitalization and cost recovery, and inventory accounting. Finally, taxpayers may need to remeasure their deferred tax assets and liabilities to the extent the underlying temporary differences are expected to reverse in future tax years.  




7. States expand indirect tax base to non-traditional transactions

The imposition of retail delivery fees as a way to charge for the use of roads where (states) continue to see decreases in gasoline tax revenue with the rise of electronic vehicle usage is starting to become more popular.


In recent years, states have explored expanding their sales tax bases to include additional taxable services along with digital goods, products, and services, in some cases in tandem with income tax rate reductions. 2023 saw additional efforts by states to increase the scope of the indirect tax by targeting industries heavily dependent on transportation. Specifically, the imposition of retail delivery fees as a way to charge for the use of roads where they continue to see decreases in gasoline tax revenue with the rise of electronic vehicle usage is starting to become more popular. In 2021, Colorado became the first state to enact legislation imposing a state-level retail delivery fee on certain motor vehicle deliveries to a Colorado location with at least one item of tangible personal property subject to state sales tax.68


In 2023, two states followed in Colorado’s footsteps with the enactment of similar retail delivery fees or transaction services taxes. As part of omnibus tax legislation enacted in May 2023, Minnesota enacted a 50-cent delivery fee on tangible property subject to tax and on clothing, when delivered to a person in Minnesota as part of a retail sale exceeding $100.69 Effective July 1, 2024, the fee is imposed on the retailer but may be passed onto the consumer. Small businesses earning less than $1 million in revenue in the previous calendar year are exempt from collecting the fee. Revenue from the fee will be used specifically for the purpose of repairing roads.


Rather than charging fees for deliveries, North Carolina enacted legislation in October 2023 imposing an excise tax on gross receipts derived from for-hire ground transportation services if the passenger boards the vehicle in North Carolina, regardless of whether the service is completed.70 Effective July 1, 2025, the tax is imposed at a rate of 1.5% for an exclusive-ride service and 1% for a shared-ride service. Although imposed on the for-hire service provider, the tax is intended to be passed onto the purchase of the for-hire ground transport service. The tax will be collected and administered in the same manner as the state sales and use tax.


Given the difficulties and complexities associated with the implementation of Colorado’s retail delivery fee, these new delivery fees and transportation services taxes are likely to cause compliance difficulties for impacted taxpayers that will soon be responsible for the collection of such taxes and fees. For example, retailers delivering to Minnesota customers will be required to update their sales tax function and invoicing software to account for the retail delivery fee, assuming they are required to collect the fee. Similarly, transportation service providers including rideshare apps and taxi services operating in North Carolina will be required to implement the necessary systems to collect the tax. Such taxes and fees are likely to add to the difficulties associated with an already complex sales tax compliance function for multistate retailers and service providers.




8. State consideration of MTC statement on P.L. 86-272


In August 2021, the Multistate Tax Commission (MTC) made state and local tax headlines when it revised guidance interpreting longstanding federal protections against state income tax to reflect the modern economy and internet business activities.71 Notably, the MTC approved an updated statement on Public Law 86-272 (P.L. 86-262), the 1959 federal law that limits the state taxation of income from sales of tangible personal property if the taxpayer’s only business activities in the state are the solicitation of orders that are approved and shipped from outside the state.72


In particular, the revised statement includes a new subsection to specify what constitutes protected or unprotected activities under the federal law, specifically addressing activities conducted using the internet. Generally, when a business interacts with a customer via the business’s website or app, it is engaged in “business activity” within the customer’s state that exceeds P.L. 86-272 protection. In contrast, if the website merely presents static text or photos, there is no engagement or facilitation within the customer’s state. The statement provides a listing of 11 different activities conducted by internet businesses and explains whether they are protected or unprotected for P.L. 86-272 purposes. Importantly, states are not bound by the MTC’s revised statement and are responsible for individually adopting its model rules.


Several states took additional action to adopt the MTC’s revised statement in some form during 2023. For example, the New Jersey Division of Taxation recently released updated nexus guidance that added 12 modern business activities that, in the Division’s view, exceed P.L. 86-272 protection, along with a list of 13 additional protected activities.73 The Division’s treatment of internet activities is consistent with the MTC’s revised guidance but does not specifically reference the MTC guidance. Additionally, the New York State Department of Taxation and Finance updated its proposed corporate income tax reform regulations that address the application of P.L. 86-272 to internet-based activities largely based on the MTC statement.74 Finally, the Minnesota Department of Revenue in April 2023 issued a draft revenue notice that would adopt and apply the current MTC guidance on the scope of internet business activities performed by out-of-state sellers protected and not protected by P.L. 86-272.75


Meanwhile, litigation challenging state authority to adopt the MTC rules continues in California. In August 2022, the American Catalog Mailers Association (ACMA) filed a lawsuit in California superior court arguing that that the California FTB’s adoption of the MTC guidelines was invalid because it was done without the formal notice and comment procedures required under the state’s Administrative Procedure Act.76 Although the trial court recently denied the ACMA’s motion for summary judgment on the basis the ACMA failed to show that the FTB guidance narrowed the application of P.L. 86-272 on its face, the litigation will proceed to the discovery and trial phase, meaning that the court will consider the scope of the FTB guidance with a developed factual record.77


The MTC statement continues to be a source of controversy as taxpayers and practitioners alike question the MTC’s authority to interpret a federal law that could subject businesses to additional income tax filing obligations by engaging in certain internet activities in a state without having any physical presence there. In many cases, taxpayers should be aware of states taking more aggressive P.L. 86-272 positions on audit even where they have not formally adopted the MTC statement. As other states look to adopt the MTC guidance, whether formally or informally, many will be closely watching the California litigation to determine the extent to which states may limit the scope of P.L. 86-272 protections in the case of internet activities.




9. Washington Supreme Court upholds individual capital gains tax


In 2021, the state of Washington enacted legislation imposing a 7% tax on the Washington-allocated long-term capital gains (LTCG) of individuals over $250,000 resulting from the sale of certain capital assets.78 The tax was enacted to supplement the state’s revenue due to its lack of a traditional income tax. While the LTCG tax did not become effective until the 2022 tax year, legal challenges to the tax were filed prior to its enactment. A law firm preemptively filed a lawsuit in a Washington superior court on behalf of several taxpayers, alleging the tax is a property tax on income, in violation of the uniformity and levy limitations on property taxes in the Washington Constitution.79 The superior court granted the plaintiffs’ motion for summary judgment and held that the LTCG tax violates the Washington Constitution as a property tax on income.80


On March 24, 2023, the Washington Supreme Court reversed the superior court and held that the LTCG tax constitutes a valid excise tax levied on the sale or exchange of capital assets that does not violate Washington state constitutional provisions, or the Dormant Commerce Clause of the U.S. Constitution.81 The court applied the key principles developed in several property and excise tax cases to conclude that the LTCG tax “falls squarely on the excise side of the line because it taxes transactions involving capital assets—not the assets themselves or the income they generate.” Also, the court explained that the LTCG tax is “wholly unlike” the broad-based net income taxes that the court struck down in a prior case. As a result of this decision, LTCG tax filings and payments for the 2022 tax year proceeded on schedule, though the Washington Supreme Court decision is currently being appealed by the taxpayers affected by the LTCG tax to the U.S. Supreme Court.


Unless the U.S. Supreme Court takes the case and overrules the Washington Supreme Court, however, taxpayers must comply with the LTCG tax. As discussed above, individuals who recognize more than $250,000 in Washington-allocated LTCG during a tax year may be subject to the LTCG tax. Allocation rules depend on whether the individual is a Washington resident and whether the underlying assets resulting in the LTCG are tangible or intangible assets.82 Although the LTCG tax is not imposed on PTEs, the LTCG tax may apply to individual owners of PTEs that sold tangible or intangible assets creating Washington-allocated LTCG.83 Accordingly, PTEs that have engaged in transactions resulting in more than $250,000 in Washington-allocated capital gains in a tax year may need to provide information to affected individual owners for them to determine whether they are subject to the LTCG tax.   




10. Colorado Supreme Court considers property revaluation due to pandemic


The COVID-19 pandemic had a dramatic effect on the real property tax values of commercial property in many instances. Retailers closed locations and the property became “dark” or inactive. Substantially increased vacancy levels in office buildings due to employers reducing their office space also lowered property values. As a result, taxpayers have contended that for purposes of the real property tax, property should be revalued to reflect these changes.  


On May 30, 2023, the Colorado Supreme Court decided four cases holding that the pandemic and the various health orders issued during the 2020 property tax year were not “unusual conditions” that required the revaluation of commercial property prior to the standard assessment date.84 In two of the cases, MJB Motels LLC v. County of Jefferson Board of Equalization85 and Hunter Douglas Inc. v. City and County of Broomfield Board of Equalization,86 the court determined that the pandemic was not an unusual condition. In the other two cases, Larimer County Board of Equalization v. 1303 Frontage Holdings LLC87 and Educhildren LLC v. County of Douglas Board of Equalization,88 the court also addressed the timing of the revaluation during the property tax assessment cycle.


Colorado law generally requires that property valuations be conducted once every two years. In the cases at issue, 2019 was the assessment year and 2020 was the second, or intervening, year in the property tax cycle. Assessors are instructed to revalue property before the next assessment date under certain limited circumstances, including where “unusual conditions in or related to any real property . . . would result in an increase or decrease in actual value.”89 The unusual conditions are expressly limited to certain events that include, in relevant part, “any new regulations restricting or increasing the use of the land” or “any detrimental acts of nature.”90 In MJB Motels, the taxpayers argued that the COVID-19 pandemic was a detrimental act of nature and the public health orders issued in response to the pandemic constituted new regulations restricting the use of the land.91


The Colorado Supreme Court held that the pandemic was not an unusual condition requiring a revaluation of the property. The court considered the “acts of nature” provision and determined that the unusual condition must be both an “act of nature” and “in or related to any real property.” According to the court, the pandemic was not an act of nature such as earthquakes, floods, or tornadoes. Also, the pandemic was not “in or related to any real property” because even though COVID-19 may have infected people who were on the property, it did not infect the property itself. Furthermore, the court determined that the public health orders were not regulations restricting the use of the land because they regulated the operation of commercial activity on the land rather than the use of the land itself. Finally, the court explained that its conclusion that the pandemic did not constitute an unusual condition was consistent with cases holding that changed economic conditions did not constitute unusual conditions for purposes of the statute.


Taxpayers should note that these cases concern the valuation of property in the interim period prior to the standard assessment date. Despite these decisions, taxpayers in Colorado presumably still could argue that their property should be revalued on the standard assessment date. Also, the property tax valuation standards differ among states. Property owners still should consider seeking revaluations due to the pandemic when properties are assessed.


1 N.J. Ch. 96 (A.B. 5323), Laws 2023. For further discussion, see GT SALT Alert: “New Jersey makes many changes to corporation business tax.” As discussed below, the legislation also decouples from IRC Sec. 174 in certain circumstances for privilege periods beginning on or after Jan. 1, 2022. The New Jersey Division of Taxation has released extensive guidance for this legislation. For a discussion of some of this guidance, see GT SALT Alert: “New Jersey guidance addresses nexus, combined reporting, GILTI.”
2 A corporation deriving receipts from sources within New Jersey is deemed to have substantial nexus and is subject to CBT if it meets either criteria during its fiscal or calendar year: (i) derives receipts from sources within New Jersey over $100,000; or (ii) has 200 or more separate transactions delivered to customers in the state. N.J. A.B. 5323, § 6; Technical Bulletin TB-108, New Jersey Division of Taxation, Sept. 5, 2023. As discussed below, the nexus guidance also addresses the application of P.L. 86-272 protection to transactions conducted over the internet.
3 The statute adopting the federal provision allowing a 50% deduction for GILTI and a 37.5% deduction for FDII is repealed. N.J. A.B. 5323, § 14, repealing N.J. Rev. Stat. § 54:10A-4.15. Because a statute is amended to specify that GILTI is considered a dividend for CBT purposes, GILTI will now be treated in the same manner as other dividend income. N.J. Rev. Stat. § 54:10A-4(k)(5)(G); Technical Bulletin TB-110, New Jersey Division of Taxation, Sept. 12, 2023.
4 N.J. Rev. Stat. § 54:10A-4.7.a, e; Technical Bulletin TB-109, New Jersey Division of Taxation, Sept. 5, 2023. The Joyce rule only requires the inclusion of New Jersey receipts from group members with CBT nexus in the numerator of the apportionment factor, while the Finnigan rule includes the New Jersey receipts of all group members in the numerator of the apportionment factor.   
5 N.J. Rev. Stat. § 54:10A-4(hh), (ii), (jj); Technical Bulletin TB-113, New Jersey Division of Taxation, Nov. 1, 2023.
6 N.J. Rev. Stat. §§ 54:10A-4(k)(18), (kk); 54:10A-4.6.b(2); Technical Bulletin TB-109, New Jersey Division of Taxation, Sept. 5, 2023.
7 N.J. Rev. Stat. § 54:10A-4(w); Technical Bulletin TB-94(R), New Jersey Division of Taxation, revised Oct. 11, 2023.
8 N.J. Rev. Stat. §§ 54:10A-4(k)(4), (5), (u)(2)(B); 54:10A-4.6.g(1); Technical Bulletin TB-111, New Jersey Division of Taxation, Oct. 11, 2023; Technical Bulletin TB-95(R), New Jersey Division of Taxation, revised Oct. 11, 2023.
9 N.J. Rev. Stat. § 54:10A-4(k)(2)(I); A.B. 5323, § 14, repealing N.J. Rev. Stat. § 54:10A-4.4.
10 A.B. 5323, § 13. The income is sourced under N.J. Rev. Stat. §§ 54:10A-6–54:10A-10. Technical Bulletin TB-112, New Jersey Division of Taxation, Oct. 11, 2023.
11 This sharply contrasts with the change to the tax treatment of GILTI enacted by Minnesota as discussed below.
12 Combined groups generally are locked into the same filing method for five subsequent tax years, but the Division is providing a one-time opportunity to make this change in light of the significant statutory amendments.
13 Minn. Ch. 64 (H.F. 1938), Laws. 2023. For further information, see GT SALT Alert: “Minnesota taxes GILTI and net investment income, increases sales tax.”
14 Minn. Stat. § 290.21, subd. 10.
15 Minn. Stat. § 290.21, subd. 4(a), (b).
16 Minn. Stat. § 290.095, subd. 2(c). The Minnesota Department of Revenue issued guidance on the effective date of the change in the NOL limitation. As enacted, the change is effective for tax years beginning after Dec. 31, 2022.  However, there have been indications that the effective date was a drafting error. The effective date for the 70% NOL limitation might change to tax years beginning after Dec. 31, 2023. The legislature provided the Minnesota Commissioner of Revenue with a letter of intent to change the effective date. Corporate Net Operating Loss Deduction, Minnesota Department of Revenue, July 24, 2023.
17 Minn. Stat. § 290.033.
18 Note that Minnesota excludes dividends from the sales factor. Minn. Stat. § 290.191, subd. 5(a)(2).
19 Ga. Act 236 (S.B. 56), Laws 2023; Ind. P.L. 194 (S.B. 419), Laws 2023. For further discussion, see GT SALT Alert: “Georgia allows immediate deduction of R&E expenditures;” and GT SALT Summary: “Indiana advances IRC conformity, decouples from federal R&E expenditure provisions.”
20 Miss. H.B. 1733, Laws 2023. For further discussion, see GT SALT Summary: “Mississippi allows research expensing, amends elective PTE tax.”
21 N.J. Ch. 96 (A.B. 5323), Laws 2023, amending § N.J. Rev. Stat. 54:10A-4(k)(11). For further discussion, see GT SALT Alert: “New Jersey makes many changes to corporation business tax.
22 Ky. H.B. 360, Laws 2023. For further discussion, see GT SALT Summary: “Kentucky advances IRC conformity, amends sales tax on services, enacts elective PTE tax.”
23 The TCJA capped the individual SALT deduction at $10,000 for individuals and most married couples for the 2018-2025 tax years. IRC § 164(b)(6)(B).
24 Connecticut, Louisiana, Maryland, New Jersey, Oklahoma, Rhode Island, and Wisconsin had enacted PTE-level taxes through 2020.
25 Notice 2020-75, Forthcoming Regulations Regarding the Deductibility of Payments by Partnerships and S Corporations for Certain State and Local Income Taxes, Internal Revenue Service Nov. 9, 2020.
26 Alabama, Arizona, Arkansas, California, Colorado, Georgia, Idaho, Illinois, Massachusetts, Michigan, Minnesota, New York, North Carolina, Oregon, and South Carolina enacted PTE taxes during 2021.
27 Kansas, Missouri, Mississippi, New Mexico, Ohio, Utah, Virginia, and New York City joined the list of jurisdictions to enact PTE taxes in 2022.
28 Hawaii, Indiana, Iowa, Kentucky, Montana, Nebraska, and West Virginia were among the states that adopted PTE taxes in 2023. For further discussion of the Kentucky and West Virginia PTE tax regimes, see GT SALT Summary: “Kentucky advances IRC conformity, amends sales tax on services, enacts elective PTE tax;” and GT SALT Summary: “West Virginia enacts PTE tax, subtraction for net deferred tax liability.
29 Neb. L.B. 754, Laws 2023.
30 Only Delaware, Maine, North Dakota, Pennsylvania, Vermont, and the District of Columbia have yet to enact PTE tax legislation as of this date.
31 Maine, Pennsylvania, and Vermont introduced PTE tax legislation during their most recent legislative sessions.
32 Conn. H.B. 6941, Laws 2023. Beginning in 2024, all PTEs are required to use the alternative base method to calculate PTE tax liability. For further discussion of this legislation, see GT SALT Summary: “Connecticut extends corporate surcharge, makes PTE tax optional.
33 Va. H.B. 1456 / S.B. 1476, Laws 2023. For further discussion, see GT SALT Summary: “Virginia adopts significant corporate / PTE tax legislation.
34 N.C. S.B. 174, Laws 2023. For further discussion, see GT SALT Summary: “North Carolina updates IRC conformity, expands PTE tax election.
35 Md. Ch. 37 (H.B. 732), Laws 2021.
36 Md. Code Ann., Tax-Gen. § 7.5-303.
37 U.S. Chamber of Commerce v. Franchot, U.S. District Court for the District of Maryland, Northern Division, No. 1:21-cv-00410, filed Feb. 18, 2021; Comcast of California/Maryland/Pennsylvania/Virginia/West Virginia, LLC v. Maryland Comptroller of the Treasury, Circuit Court for Anne Arundel County, Md. No. C-02-CV-21-000509, filed April 15, 2021.
38 Comcast of California/Maryland/Pennsylvania/Virginia/West Virginia, LLC v. Maryland Comptroller of the Treasury, Circuit Court for Anne Arundel County, Md., No. C-02-CV-21-000509, order issued Oct. 20, 2022.
39 Comptroller of Maryland v. Comcast of California/Maryland/Pennsylvania/Virginia/West Virginia, LLC, Maryland Supreme Court, No. 32, order issued May 9, 2023. For further discussion, see GT SALT Alert: “Maryland tax on digital-ad services still in effect.
40 Comptroller of Maryland v. Comcast of California/Maryland/Pennsylvania/Virginia/West Virginia, LLC, Maryland Supreme Court, No. 32, July 12, 2023.
41 Apple Inc. v. Comptroller of Maryland, No. 23 DA-00-0456, Maryland Tax Court, filed Aug. 23, 2023.
42 U.S. District Court for the District of Maryland, North Division, No. 21-cv-00410, order issued Dec. 2, 2022.
43 U.S. Chamber of Commerce v. Lierman, U.S. Court of Appeals for the Fourth Circuit, No. 22-2275, filed Dec. 15, 2022.
44 289 A.3d 846 (Penn. 2023). For a discussion of this case, see GT SALT Alert: “Pennsylvania affirms benefits-received sourcing method.”
45 Maine Supreme Judicial Court, Dkt. No. BCD-22-331, Nov. 7, 2023.
46 According to the taxpayer, the services are received at the commercial and administrative headquarters of the client, not the retail pharmacy.
47 Michigan Supreme Court. Dkt. No. 163742, July 31, 2023, cert. denied, U.S. S. Ct., Dkt. No. 23-443, Nov. 20, 2023. For a discussion of this case, see GT SALT Alert: “Michigan excludes business sales from apportionment factor.”
48 Circuit Court of the 2nd Judicial Circuit, Leon County, Fla., No. 2020-CA-000435, March 1, 2023. For a discussion of this decision, see GT SALT Alert: “Florida court rules on service sourcing matter.” On July 11, 2023, the circuit court granted in part the Department's motion to dismiss on procedural grounds. The Department raised the matter of subject matter jurisdiction more than three years after the case was filed.  Because most of the taxpayers did not meet the jurisdictional requirement by failing to pay the challenged tax in advance, the case was dismissed for these taxpayers. However, the case was not dismissed for the taxpayer that had overpaid the tax. Because this case was dismissed on procedural grounds, the underlying substantive discussion relating to the proper method of apportionment is unlikely to be disturbed.
49 Fla. Admin. Code Ann. r. 12C-1.0155(2)(l).
50 Furthermore, the circuit court held that the Department’s inconsistent application of its COP regulation violated the Florida Taxpayer’s Bill of Rights.
51 Circuit Court of the 2nd Judicial Circuit, Leon County, Fla., No. 2021-CA-002158, Nov. 28, 2022. For further discussion of this decision, see GT SALT Alert: “Florida trial court approves use of cost-of-performance sourcing.” 
52 For example, see Technical Assistance Advisement, No. 21C1-010, Florida Department of Revenue, March 5, 2021 (released Feb. 2022); Technical Assistance Advisement, No. 21C1-005, Florida Department of Revenue, July 2, 2021 (released Jan. 2022); Technical Assistance Advisement, No. 20C1-001, Florida Department of Revenue, Jan. 13, 2020.
53 California Office of Tax Appeals, No. 19034447, March 17, 2023 (released Aug. 2023). For information on this case, see GT SALT Summary: “California OTA holds deductible income must be included in sales factor.”
54 California Franchise Tax Board, April 28, 2006.
55 Ark. Act 532 (S.B. 549), Laws 2023, amending Ark. Code Ann. §§ 26-51-201(a)(2); 26-51-205(a)(4)(E), (b)(4)(E). This legislation reduced the top corporate income tax rate imposed on both domestic and foreign corporations from 5.3% to 5.1%, and reduced the top income tax rate for individuals, trusts, and estates from 4.9% to 4.7%. For further information, see GT SALT Summary: “Arkansas reduces income tax rates, phases out throwback rule.”
56 Ark. Act 6 (S.B. 8), Laws 2023, First Extra. Session, adding Ark. Code Ann. §§ 26-51-201(a)(3); 26-51-205(a)(5), (b)(5). For tax years beginning on or after Jan. 1, 2024, the top corporate income tax rate for both domestic and foreign corporations is reduced from to 5.1% to 4.8%. The top income tax rate for individuals, trusts, and estates is reduced from 4.7% to 4.4%.
57 Iowa H.F. 2317, Laws 2022.
58 Order 2023-02, Iowa Department of Revenue, Sept. 22, 2023. This rate reduction was not projected to happen until after the 2027 tax year. For further discussion of this tax rate reduction, see GT SALT Summary: “Iowa corporate income rate further reduced for 2024 tax year.”
59 Neb. L.B. 754, Laws 2023. amending Neb. Rev. Stat. § 77-2734.02. The rate gradually is reduced until it reaches 3.99% for the tax years beginning on or after Jan. 1, 2027. For tax years beginning on or after Jan. 1, 2025, the tax rate on the first $100,000 of taxable income is eliminated and one rate will apply to all taxable corporate income.
60 N.C. S.L. 2023-134 (H.B. 259), Laws 2023, amending N.C. Gen. Stat. § 105-153.7(a), adding N.C. Gen. Stat. § 105-153.7(a1). For further discussion, see GT SALT Alert: “North Carolina reduces income tax, taxes transportation services.”
61 N.J. Rev. Stat. § 54:10A-5.41.
62 Utah H.B. 54, Laws 2023, amending Utah Code Ann. §§ 59-7-104; 59-7-201.
63 Adam Beam, California’s new budget covers $32 billion deficit while extending tax credits for film industry, AP News, June 27, 2023.
64 Report on the State Fiscal Year 2023-24 Enacted Budget Financial Plan, New York State Comptroller, July 2023.
65 N.Y. A.B. 3009/S.B. 4009, Laws 2023, amending N.Y. Tax Law § 210.1(a). For a discussion of this legislation, see GT SALT Summary: “New York budget legislation extends higher corporate franchise tax rate.”
66 N.Y. A.B. 3009/S.B. 4009, Laws 2023, amending N.Y. Tax Law § 210.1(b).
67 Conn. H.B. 6941, Laws 2023. For further information on this legislation, see GT SALT Summary: “Connecticut extends corporate surcharge, makes PTE tax optional.”
68 Colo. S.B. 21-260, Laws 2021.
69 Minn. H.F. 2887, Laws 2023. For further discussion of the retail delivery fee, see GT SALT Alert: “Minnesota taxes GILTI and net investment income, increases sales tax.
70 N.C. S.L. 2023-134 (H.B. 259), Laws 2023. For further discussion of the transportation services tax, see GT SALT Alert: “North Carolina reduces income tax, taxes transportation services.
71 Statement of Information Concerning Practices of Multistate Tax Commission and Signatory States Under Public Law 86-272, Multistate Tax Commission, revised Aug. 4, 2021.
72 Pub. L. No. 86-272, 15 U.S.C. §§ 381-384.
73 Technical Bulletin TB-108, New Jersey Division of Taxation, Sept. 5, 2023. For further discussion, see GT SALT Alert: “New Jersey guidance addresses nexus, combined reporting, GILTI.
74 N.Y. Comp. Codes R. & Regs. tit. 20, § 1-2.10 (draft). In a regulatory impact statement accompanying the proposed regulations, the Department made note of its authority to “promulgate regulations that narrowly interpret the Public Law 86-272 protections” and that it should be left to the courts to decide whether the Department’s interpretation is correct.
75 Draft Revenue Notice #23-XX: Corporate Franchise Taxes – Nexus – Internet Activities and Public Law 86-272, Minn. Department of Revenue, circulated for comment on Apr. 25, 2023. For further discussion of the Minnesota draft guidance, see GT SALT Summary: “Minnesota considering adoption of MTC’s guidance on P.L. 86-272.
76 American Catalog Retailers Association v. Franchise Tax Board, California Superior Court, San Francisco County, No. CGC-22-601363, filed Aug. 19, 2022.
77 For further discussion of the case, see GT SALT Summary: “California court denies summary judgment in P.L. 86-272 challenge.
78 Wash. Ch. 196 (S.B. 5096), Laws 2021, codified as Wash. Rev. Code §§ 82.87.010–82.87.150. The individual’s “Washington capital gains” subject to the LTCG tax is an individual’s “adjusted capital gain” (i.e., federal net LTCG with specified adjustments). Wash. Rev. Code §§ 82.87.020(1), (13); 82.87.060. Capital losses cannot be carried forward or back, and the tax does not apply to short-term capital gains. Wash. Rev. Code § 82.87.040. For further information on this tax, see GT SALT Alert: “Washington enacts individual capital gains tax.”
79 The plaintiffs also argued that the LTCG tax violates the Privileges and Immunities Clause of the Washington Constitution and the Dormant Commerce Clause of the U.S. Constitution.
80 Quinn/Clayton v. Washington, Washington Superior Court for Douglas County, Nos. 21-2-0075-09 and 21-2-00087-09, March 1, 2022. In light of this ruling, the superior court did not address the additional state and federal constitutional challenges. Following this decision, the Washington Department of Revenue was granted a stay to provide an opportunity to administer and implement the tax for the 2022 tax year in case the Washington Supreme Court reversed the superior court’s decision regarding the constitutionality of the LTCG tax. As a result, the Department launched an online registration and filing system for the LTCG tax that went live in February 2023. The superior court’s decision is discussed in GT SALT Alert: “Washington capital gains tax ruled unconstitutional.”
81 Quinn v. Department of Revenue, 526 P.3d 1 (Wash. 2023). For further discussion of the Washington Supreme Court’s decision, see GT SALT Alert: “Ruling upholds Washington individual capital gains tax.”
82 For Washington residents, LTCG are allocated to Washington and are includible in the LTCG tax base when intangible property is sold or exchanged, and the individual owner is domiciled in Washington at the time the sale or exchange occurred. For all individuals, LTCG are allocated to Washington when tangible personal property is either: (a) located in Washington at the time of sale; or (b) not located in Washington at the time of sale, but (i) the property was located in the state at any time during the taxable year in which the sale or exchange occurred or the immediately preceding taxable year, (ii) the owner was a Washington resident at the time the sale or exchange occurred, and (iii) the owner is not subject to the payment of an income or excise tax legally imposed on the LTCG or losses by another taxing jurisdiction. Wash. Rev. Code § 82.87.100(a), (b). For guidance on determining “domicile,” see GT SALT Summary “Washington provides guidance on domicile for capital gains tax purposes.”
83 Wash. Rev. Code § 82.87.040(4)(b).
84 For a discussion of these cases, see GT SALT Summary: “Colorado Supreme Court holds pandemic did not require property revaluation.”
85 531 P.3d 1000 (Colo. 2023).
86 531 P.3d 996 (Colo. 2023).
87 531 P.3d 1012 (Colo. 2023).
88 531 P.3d 986 (Colo. 2023).
89 Colo. Rev. Stat. § 39-1-104(11)(b)(I).
90 Id.
91 The taxpayers provided property valuation estimates for the 2020 tax year that generally were 50% less than the assessor’s valuations.




Tax professional standards statement

This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “§,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.


More SALT alerts