States Split on Federal Tax Law Conformity: Indiana Considering Special Legislative Session

Indiana Gov. Mike Braun said he will call back lawmakers for a special legislative session to consider aligning the state’s tax code with the GOP’s federal tax law enacted in July. The Republican governor will sign a proclamation Monday calling for the General Assembly to convene next Monday, Nov. 3, to conform Indiana’s tax code with “new federal tax provisions to ensure stability and certainty for taxpayers and tax preparers for 2026 filings.”

Massachusetts’s [sic] income tax code doesn’t conform with recent changes to the federal tax code, including the temporary increase to the state and local tax deduction and deductions on overtime pay and tips. This is according to a working draft technical information release (TIR), dated October 21, from the state Department of Revenue. In a chart in the draft guidance, the DOR outlined 52 provisions of the One Big Beautiful Bill Act (P.L. 119-21) that affect federal gross income or federal deductions. The chart includes the Massachusetts income and corporate excise tax codes' conformity with those federal provisions.

Maine Revenue Services (MRS) issued guidance regarding the state’s conformity with recent federal tax law changes for tax year 2025. Following the Governor’s directive, the 2025 Maine tax forms and instructions will conform to certain federal provisions, such as qualified disaster losses, qualified farm property, and the business interest deduction, while decoupling from others like the increased standard deduction and accelerated depreciation for qualified production property. The guidance provides details on the specific provisions Maine will conform to or decouple from and their estimated revenue impact, with additional guidance to be issued for tax years beginning after 2025.

Packaging materials and machinery used by a company’s distribution centers don't sufficiently transform products to qualify for Indiana sales and use tax exemptions, the state revenue department has determined. In Revenue Ruling No. 2025-04-RST, published in Indiana’s October 15 state register, the Department of Revenue answered whether a company’s purchases of nonreturnable packaging materials like boxes and bubble wrap, and purchases of equipment and machinery used for packaging, would be exempt from Indiana’s 7 percent sales and use tax.

The subscription fees charged by two management service companies are subject to sales tax, according to the New York Tax Appeals Tribunal. In a September 18 consolidated decision in Matter of FacilitySource LLC and Matter of FacilitySource Northeast Services LLC, the tax appeals tribunal upheld an administrative law judge’s holding that FacilitySource LLC (Facility Source) and FacilitySource Northeast Services LLC (FSNE) were liable for New York sales tax on facilities management fees that include nontaxable services and taxable prewritten software. 

The Multistate Tax Commission’s partnerships project has developed a set of recommendations that provide a framework for sourcing income in complex partnerships, and it is now ready to start drafting model state rules. During the project’s October 22 meeting, members agreed by consensus to the recommendations, which will be included in a nearly complete stand-alone white paper on sourcing in complex structures and the use of blended apportionment. Key aspects of the recommended state sourcing approach include:
- focusing not on domicile but on activities at the partnership level;
- applying blended apportionment when there is a sufficient unitary relationship between the apportionable income of the partnership and that of the partner; and
- using an absolute value of distributive share to determine the share of partnership factors to include in the partner’s apportionment factor when blending.

A Multistate Tax Commission proposal to update a decades-old sourcing regulation for airlines to account for business practices that didn't exist when the rule was adopted could unnecessarily complicate how airlines calculate their tax liabilities, an industry representative said Friday.[...]A draft regulation from the MTC's Model Sourcing Regulations Work Group that seeks to address credit card miles and tickets that airlines sell for different carriers' planes risks muddling how airlines apportion their income for state tax purposes, said Jon Almeras, managing director of taxes at Airlines for America.[...]The proposed rule would generally treat receipts from sales of points or miles as transportation revenue for tax purposes, except for when the miles or points are redeemed for services unrelated to air travel. The rule would also typically consider receipts from tickets sold by an airline for a trip on a different airline, through what are known as code-sharing agreements, to be income of the airline that sold the tickets unless it was acting as an agent for the operating airline.

As states look to modernize and increase transparency in their tax systems, both practitioners and tax administrators are noting states' struggles to keep their tax manuals updated at a sufficient pace.[. . .]“We don't just have the manuals, we have all these different sources of guidance on our website, so it's a ripple effect. We have one legislative change, and then we have to go find 15 different places on our website, three different types of documents . . . that it’s impacted,” Mayo said October 27 at the Paul J. Hartman State and Local Tax Forum in Nashville, Tennessee.

The Indiana Department of Revenue (DOR) has released a document detailing the state’s tax incentives designed to promote investments in research and development (R&D) activities. Taxpayers may be eligible for a tax credit against their Indiana income tax liability, which is calculated based on a percentage of qualified R&D expenses, as defined by the Internal Revenue Code. For expenses incurred after Dec. 31, 2009, an alternative calculation method is available. Additionally, there is a 100 percent sales tax exemption for the purchase of qualified R&D equipment and property.

The Iowa Department of Revenue (DOR) is proposing a rulemaking to implement the provision of the statute allowing financial institutions subject to the franchise tax that have investment subsidiaries to elect to file combined Iowa franchise tax returns with those subsidiaries. A public hearing is scheduled for Nov. 4. Comments on the proposed rules are due on the same day.

Massachusetts is considering legislation that would make it the first state to adopt new taxation of international income since Congress adopted a new system—one largely incompatible with state taxation—under the One Big Beautiful Bill Act (OBBBA). States that already brought in what used to be called global intangible low-taxed income (GILTI) should be looking to decouple. Massachusetts, by contrast, is looking to join their ranks.[...]With the change from GILTI to NCTI, instead of taxing only supernormal returns, NCTI brings in all international income of a US parent corporation’s foreign subsidiaries, but with a new system of foreign tax credits that effectively only taxes the share that did not face substantial taxes abroad. This is meant to help distinguish between genuine activity abroad and simply transferring profits to low-tax countries. The federal change is not without its shortcomings, but NCTI still aligns with GILTI’s purpose of safeguarding US revenue from profit shifting to low-tax countries. States, however, do not offer foreign tax credits, so conforming to NCTI simply subjects a state-apportioned share of all foreign income to the state’s corporate income tax, no matter how much tax was paid on it in other countries. This undermines the federal intent of the provisions and represents unsound tax policy.

The Mississippi Department of Revenue (DOR) published a revised booklet on the state business incentive tax credit. The booklet covers topics on various tax incentives, exemptions, credits, and rebates.