State and local tax (SALT) developments remained active throughout the first quarter of 2026. From new taxes and administrative guidance to updates impacting sourcing, software taxation, and compliance requirements, jurisdictions across the country continued to refine their tax frameworks.
This update highlights notable SALT developments from the first quarter, with a focus on items most relevant for compliance considerations and planning efforts.
Northeast
Pennsylvania
- R&E Addback and Amortization Required: Pennsylvania requires addbacks of federal research and experimental (R&E) expense deductions, with recovery through amortization over time, impacting state taxable income calculations.
Rhode Island
- Vendor-hosted Software Broadly Taxed: Rhode Island determined that subscriptions to online databases constitute taxable vendor-hosted prewritten software when platform functionality is central to the offering.
Southeast
District of Columbia
- Federal Conformity Uncertainty Continues: Congressional action and subsequent legal interpretation created ongoing uncertainty regarding the District’s conformity to recent federal tax changes, impacting compliance and reporting considerations.
Florida
- Service Revenue Sourcing Clarified: A Florida court held that service revenue should be sourced based on where the taxpayer’s income-producing activities occur, reinforcing a cost-of-performance approach.
Georgia
- IRC Conformity Updated and Temporary Tax Relief Enacted: Georgia updated its conformity date to January 1, 2026, while continuing to decouple from certain federal provisions. The state also enacted a temporary motor fuel tax suspension and a one-time individual tax refund.
Kentucky
- AI-enabled Software Remains Taxable: Kentucky clarified that software incorporating artificial intelligence (AI) features remains taxable prewritten software unless fully custom-developed.
North Carolina
- Related-party Transfers Not Treated as Sales: North Carolina confirmed that transfers of goods between related entities without consideration do not constitute taxable sales.
South Carolina
- Admissions Tax Timing Clarified: South Carolina issued guidance confirming that admissions tax on advance ticket sales is due when the event occurs, not when payment is received.
Central
Illinois
- Chicago Introduces New Taxes and Increases Lease Tax: Chicago implemented a Social Media Amusement Tax and increased the Personal Property Lease Transaction Tax rate from 11% to 15%, effective January 1, 2026.
Indiana
- Composite Return Penalty Relief: Indiana eliminated the $500 penalty for failure to include certain nonresident owners without Indiana-source income in composite returns.
- Tax Amnesty Program Announced: Indiana will offer a tax amnesty program from July 15 through September 15, 2026, allowing eligible taxpayers to resolve liabilities with waived penalties and interest.
Michigan
- Digital Tax Proposals Introduced: Michigan proposed a digital advertising tax as part of broader efforts to expand taxation of the digital economy.
Minnesota
- Foreign Entity Income Inclusion Clarified: Minnesota clarified that foreign corporations may be subject to state taxation even without federal effectively connected income, requiring inclusion of broader income in state calculations.
Ohio
- Commercial Activity Tax Sourcing Reinforced: Ohio confirmed that receipts are sourced to the location where goods are received, even if later shipped out of state, while allowing use of post-delivery data to support refund claims.
Wisconsin
- Marketplace and Service Taxability Expanded: Wisconsin held that marketplace facilitators are responsible for collecting sales tax and that certain data-driven services constitute taxable inspection services.
West
California
- Appliance Program Transactions Deemed Taxable: California determined that appliance exchange programs constitute taxable retail sales to end users.
- Battery-embedded Product Fee Implemented: California began imposing a 1.5% fee on certain products with embedded batteries, with compliance and reporting requirements for manufacturers and retailers.
- Digital Assets Added to Unclaimed Property Law: California enacted new rules governing escheatment of digital financial assets, including a three-year dormancy period and remittance requirements in native form.
Utah
- Digital Advertising and Streaming Tax Expansion: Utah enacted legislation imposing a targeted advertising tax (effective 2027) and expanding sales tax to include streaming services, digital content and SaaS.
- Income Tax Rate Reduction and Digital Asset Rules: Utah reduced income tax rates and enacted new unclaimed property rules for digital assets.
Your Guide Forward
The first quarter of 2026 introduced a range of SALT developments affecting compliance, sourcing, and taxability across jurisdictions. Staying informed on these changes is critical for effective planning and risk management.
For tailored guidance and support navigating these developments, consult your tax advisor or a qualified Cherry Bekaert SALT professional today.
Explore past Quarterly SALT Updates for additional developments and insights.
