State and local taxes impact almost every taxpayer, and developments in any one jurisdiction can be frequent and sometimes confusing. ln this newsletter edition, we will briefly summarize selected state and local tax (SALT) developments in several states which may be important to you.
Alabama
Alabama Doubles Tax Tribunal Assessment Appeal Time: On May 16, 2025, Governor Kay Ivey signed H.B. 505, which doubled the amount of time taxpayers have to appeal assessments to the state tax tribunal or a circuit court. Previously, taxpayers had 30 days to appeal a final assessment entered by the Alabama Department of Revenue to the Alabama Tax Tribunal, an independent agency created to hear appeals of tax and other matters administered by the Department. Following the signing of H.B. 505, taxpayers now have 60 days to appeal final assessments. The provision takes effect on October 1, 2025. More information can be found here.
District of Columbia
New Regulation Requires Electronic Submission of Federal Returns for High-Income Taxpayers: In OTR Tax Notice 2025-01, the D.C. Office of Tax and Revenue announced a new regulation requiring taxpayers exceeding certain income thresholds to submit an electronic copy of their federal income tax return with the filing of their District of Columbia tax returns. This requirement applies to returns filed in the 2026 filing season. Taxpayers subject to this regulation are individuals with gross income of more than $500,000 ($1 million for joint filing status); corporations, unincorporated businesses, or partnerships with worldwide gross income exceeding $2.5 million for the taxable year and at least $50,000 apportioned to the District; and fiduciaries of estates or trusts with gross income exceeding $1 million for the taxable year.
Florida
Anticipated Repeal of Sales Tax Imposed on Rentals: Pursuant to actions taken by the Florida House of Representatives and the Florida Senate on June 16, 2025, House Bill 7031 was passed by the Legislature. Section 37 of House Bill 7031 states that, effective October 1, 2025, Section 212.031, Florida Statutes, is repealed. That particular Section 212.031, as noted by the Florida Department of Revenue in its Tax Information Publication dated April 8, 2024, is a state sales tax imposed on the total rent charged for renting, leasing, letting, or granting a license to use real property (also known as "commercial rentals"). More information can be found here. This legislative initiative, as passed by the Legislature, will be sent to Governor DeSantis, who is expected to sign the initiative into law.
Georgia
Rulings to Computer Software and Prewritten Computer Software: The Georgia Department of Revenue (Department) recently issued Letter Ruling SUT-2024-02 addressing certain questions relative to the application of Georgia sales and use tax to a transaction involving prewritten computer software. The two questions presented by the taxpayer are as follows: (1) Is the sale of prewritten computer software sold to a customer in Georgia subject to Georgia sales and use tax? and (2) Does the multiple point of use (MPU) tax exemption apply to the sale of the taxpayer's software ultimately used outside the state of Georgia?
The Department, in this ruling, reviews Georgia law and then issues decisions based upon the facts set forth in the ruling as follows: (1) The software sold by the taxpayer is prewritten computer software for purposes of Georgia sales and use tax, and since the prewritten computer software is delivered in a tangible medium, it is subject to Georgia sales and use tax; and (2) The sale is sourced to Georgia because the software is shipped to Georgia by the seller and picked up by the customer in Georgia, and since Georgia does not have an MPU tax exemption, the sale of the taxpayer's software is subject to Georgia sales and use tax. These decisions are based solely upon the facts set forth in the ruling and the Department's analysis of the law in regard to such facts. More information can be found here.
Louisiana
Louisiana Department of Revenue Department Expresses Interest in Conducting Remote Seller Audits: During a Louisiana Department of Revenue (the Department) meeting, Luke Morris, the Department's assistant secretary of legal affairs and one of the eight commissioners for the Louisiana Sale and Use Tax Commission for Remote Sellers (the Commission), acknowledged the need for a significant audit team to ensure remote seller compliance. Morris suggested that the Department can assume those responsibilities if the Commission agrees to delegate its audit authority, as permitted by state law, and more effectively enforce sales tax compliance. This need arises as out-of-state businesses continue to increase Louisiana's remote sales tax base. The suggestion followed comments from the Commission's executive director, Renee Roberie, who expressed the need for a substantially greater audit investment, whether through new hires or outside contractors. While Roberie did not comment on Morris' suggestion, she urged further discussion, including parish input. Revenue secretary and commissioner Richard Nelson highlighted that March collections of sales tax revenue rose roughly 25 percent year-over-year, likely driven in part by newly taxable digital products.
Since commencing operations in 2020, the Commission has collected nearly $2.5 billion from almost 12,000 businesses and could collect about $1 billion this year, compared to about $330 million during its first year.
Maryland
New Law Imposes 3 Percent Sales Tax on Select Digital and Technology Services: Effective July 1, 2025, Maryland imposes a 3 percent sales and use tax rate on services, including: (1) computing infrastructure providers, data processing, web hosting, and related services; (2) web search portals, libraries, archives, and other information services; and (3) computer systems design and related services.
If the transaction was of a type previously subject to Maryland sales and use tax, the higher sales tax applies. Technical Bulletin 56 (June 10, 2025) provides questions and answers for this new tax. For example, question 6 provides the following with respect to SaaS (Software as a Service):
"The definition of a digital product excludes computer software and SaaS purchased or licensed solely for the use in an enterprise computer system, including operating programs or application software for the exclusive use of the enterprise software system, that is housed or maintained by the purchaser or on a cloud server, whether hosted by the purchaser, the software vendor, or a third party. SaaS that is not purchased or licensed solely for use in an enterprise computer system, such as a purchase for use by an individual, is a digital product and is therefore subject to taxation at the 6 percent rate. To the extent that SaaS is a taxable service, its sale for use for commercial purposes in an enterprise computer system is subject to sales and use tax at the 3 percent rate.
Maryland law requires that if a different rate can be applied to a sale or use of a digital product or a taxable service, the higher rate must be applied. To the extent that a sale of SaaS meets the definition of both a digital product and a taxable service when it is sold for use other than in an enterprise computer system, it is taxed at the higher rate. This means that SaaS sold for individual use is taxed at the 6 percent rate, and the same SaaS is taxed at the 3 percent rate when sold for use in an enterprise computer system."
Mississippi
Certain Third-Party Freight Charges Ruled Exempt from Mississippi Use Tax: In an 8–0 use tax decision, the Supreme Court of Mississippi recently affirmed the decision of the Hinds County Chancery Court in favor of the taxpayer, negating a long-standing administrative position and published guidance of the Mississippi Department of Revenue (MDOR). Tennessee Gas Pipeline Company, LLC (Tennessee Gas) purchased certain tangible personal property from a seller for use in Mississippi and paid use tax on the purchase. However, Tennessee Gas did not include the freight charges to a third-party company to ship the goods into Mississippi in its use tax calculation. On audit, MDOR assessed use tax on the freight charges.
Tennessee Gas appealed to the Board of Tax Appeals (BTA), arguing the freight charges were not taxable under Mississippi Code Sections 27-67-3 and -5. The BTA ruled in favor of Tennessee Gas, and MDOR subsequently appealed to the Hinds County Chancery Court, arguing (1) that the BTA misapplied the applicable statutes in determining that freight charges are only subject to use tax when paid directly to the seller of tangible personal property and not when such charges are paid to a third party, and (2) that the BTA incorrectly determined that MDOR's fact sheet regarding the taxability of delivery charges was not an "officially adopted publication" subject to deference under Mississippi Code Section 27-77-5.
The Supreme Court followed the reasoning of the Hinds County Chancellor, ruling that the purchase of shipping services from an independent third party was a "separate, isolated – or closed – purchase of shipping services," rendering the freight charges not subject to use tax, as would likely be the case had the seller participated in both the sale of goods and shipment into Mississippi. Finding the ruling on the first issue to be dispositive, the opinion declined to address MDOR's second argument. In a separately written, specially concurring opinion, Justice Sullivan expanded on the majority analysis, noting that MDOR's administrative regulations and the definition of "delivery charges" under the sales tax statutes expressly address inclusion of delivery fees made by the seller but not a third-party carrier. Accordingly, no statutory authority plainly permits MDOR to tax freight charges paid to an independent third-party carrier. Mississippi Department of Revenue v. Tennessee Gas Pipeline Company, LLC, No. 2023-SA-01079-SCT
New Jersey
New Jersey Finalizes Regulations Narrowing P.L. 86-272 Protections for Online Business Activities: New Jersey released final regulations on income tax nexus (N.J.A.C. 18:7-1.6 et. seq.). These regulations adopt portions of the Multistate Tax Commission's (MTC) guidelines on P.L. 86-272. P.L. 86-272 provides protection to companies engaged in certain sales solicitation activities in interstate commerce. New Jersey will now consider certain internet activities, such as providing post-sale assistance through email or placing cookies on a customer's computer that gather market research for sale to third parties, to exceed the protections of P.L. 86-272. The MTC and the states have been expanding income tax nexus post-Wayfair. Wayfair broadened nexus for sales and use taxes. There will be significant litigation over the scope of income tax nexus in coming years as states broaden the reach of income tax. The U.S. House passed restrictions on states' ability to expand nexus in the context of P.L. 86-272 in the Budget Reconciliation Bill. However, the Senate version does not contain this provision.
North Carolina
Additional Time for Victims of Hurricane Helene to Qualify for Penalty Relief: The North Carolina Department of Revenue (Department) recently issued an important Notice which addresses the additional time within which taxpayers impacted by Hurricane Helene can make certain tax filings and payment deadlines without late action penalties. Following the lead of the Internal Revenue Service, the Department in this Notice states that late action penalties assessed against affected taxpayers for licenses, returns, or payments due on September 25, 2024, through September 25, 2025, will be removed if the license is obtained, the return is filed, or the tax is paid by September 25, 2025. This Notice then addresses who qualifies for the state penalty relief, the types of penalties that are subject to this relief, and certain exceptions to the state penalty relief. The Department also states that interest cannot be waived except when authorized by the North Carolina General Assembly; as a result, this Notice does not modify previous authority to waive interest that accrues on an underpayment of certain taxes from September 25, 2024, through May 1, 2025, for taxpayers residing in certain designated counties. The Notice advises that when an affected taxpayer is assessed a late action penalty in error, that taxpayer should notify the Department of the error using one of the methods listed in the Notice. Additionally, contact information is provided for further assistance to affected taxpayers. More information can be found here.
South Carolina
Sales/Use Tax – Withdrawals for Use: The South Carolina Department of Revenue (Department) recently issued Revenue Ruling 25-3 addressing sales tax implications of a retail business withdrawing items from its inventory for the business's own use. This Ruling supersedes previous advisory opinions and oral directives in conflict with this Ruling. It explains that when tangible property previously purchased at wholesale is withdrawn from the retailer's inventory for the business's own use or consumption, South Carolina law defines this withdrawal as a retail sale subject to the sales tax. The Ruling addresses the tax base used for calculating the sales tax upon such a withdrawal, typically the "gross proceeds of sales," which is defined as "the value proceeding or accruing from the sale, lease, or rental of tangible personal property." In essence, according to the Ruling, the fair market value is the price at which the tangible personal property is offered for sale by the retailer withdrawing the item. The Ruling also addresses various exclusions that could apply, depending on circumstances, to prevent the tax from applying upon such a withdrawal. It further addresses dual businesses – that is, a business that makes both retail sales and withdrawals for use from the same stock of goods that are purchased at wholesale – which must report sales on both retail transactions and withdrawals based on the fair market value of the materials. Additionally, the Ruling addresses special provisions for certain business operations, including leasing businesses; hotels (meals); railroads; and ophthalmologists and optometrists. In conclusion, and unless an enumerated exclusion applies, all withdrawals for use are considered "retail sales" and must be included in the "gross proceeds of sales" when determining the sales tax base. More information can be found here.
Tennessee
Franchise Tax – Publication of Tax Refund Recipients: Pursuant to 2024 Public Chapter No. 950, effective generally for tax years ending on or after January 1, 2024, the method for computing the franchise tax was modified to delete the alternative property value tax base, which was previously found at Tenn. Code Section 67-4-2108, leaving net worth as the sole tax base for most taxpayers going forward. This 2024 legislation also allowed taxpayers using the property value tax base to amend returns for certain prior years and receive a refund if the net worth base resulted in a lower tax. Deletion of the property value tax base was a radical change to Tennessee's tax system, but that was not the only radical provision within this 2024 legislation.
Notwithstanding Tennessee's strong history of taxpayer confidentiality, supported by Tenn. Code Ann. Sections 67-1-1701 et seq. and other provisions of law, this 2024 legislation required the Tennessee Department of Revenue (Department) to publish on its website, during the period from May 31, 2025, through June 30, 2025, the name of each taxpayer issued such a refund by the Department and the applicable refund range for that taxpayer – with the ranges being $750 or less; more than $750 but less than or equal to $10,000; and more than $10,000. That listing of taxpayer names can be found on the Department's main website by clicking on "Franchise Tax Property Measure (Schedule G) Refunds" and then clicking on the link provided. The Department's main website can be found here.
Virginia
Recent Rulings Highlight Sales and Use Tax Risks in Intercompany Transactions and Exemption Certificate Compliance: Two recent Virginia rulings are good reminders of the proverbial "an ounce of prevention is worth a pound of cure." In P.D. 25-46 (April 10, 2025), a business formed a single-member disregarded entity that engaged in an intercompany lease of equipment. While disregarded for income tax purposes, the equipment leasing company is a separate entity for sales and use tax purposes, and an audit found that the taxpayer owed use tax on the leases with its owner. The tax commissioner upheld the audit assessment, finding that transactions between entities, even if affiliated or disregarded for income tax purposes, are nonetheless taxable for sales and use tax purposes.
In P.D.25-41 (April 2, 2025), the taxpayer was an equipment dealer. In the audit, the auditor disallowed an exemption form, ST-11, because the box for materials was checked instead of the box for equipment. The taxpayer then obtained another exemption certificate during the audit, with the equipment box checked. The stricter scrutiny rule applies to exemption certificates not obtained at the time of the transaction but later. When the auditor checked the records of the purchaser, it was not registered for Virginia sales and use tax. The auditor disallowed the exemption certificate, and the Tax Commissioner upheld the audit determination. This issue shows the importance of ensuring that employees receiving exemption certificates conduct a review of the exemption certificate for completeness and accuracy.
