Key Takeaways
- Illinois, Delaware and Washington DC Decouple from parts of OBBBA
- IL extends PTET Indefinitely, MN PTET expires 12/31/25
- New Hampshire Tax Amnesty
- Electronic Filing in Idaho
Welcome to this edition of our roundup of state tax developments. The State Tax News and Views is published biweekly. Consider the Eide Bailly State & Local Tax team for your state tax planning, compliance and incentive needs.
To Conform or Not To Conform? That is the Question
Illinois Decouples from Federal Tax Breaks to Address Budget Shortfall - Felisha Kernizan, Eide Bailly
Illinois’ decoupling budget fix brings relief for state social services but adds complexity for businesses.
Governor JB Pritzker along with Illinois lawmakers have taken swift action to tackle a looming budget shortfall by passing Senate Bill 1911 (SB 1911), which decouples the state’s tax code from certain corporate tax breaks in the federal “H.R. 1 – One Big Beautiful Bill Act” (“OBBBA”), The governor’s budget office warned of a $267 million deficit after President Trump signed the OBBBA into law, and this new legislation is expected to recover nearly $250 million. The law blocks federal benefits such as accelerated deductions for manufacturers and small business incentives, which critics say could hurt Illinois’ competitiveness. Supporters of the bill argue the move is necessary to protect funding for schools, healthcare, and essential services, noting that similar steps were taken in 2017.
There is no doubt that the bill will add a layer of complexity to Illinois tax forms. Manufacturers will now have to prepare separate depreciation schedules. Decoupling means Illinois returns will require distinct entries for R&D expense and bonus depreciation. In addition, SB 1911 removes the prior sunset date (January 1, 2026) for the PTE tax election, making the election permanent. This means that partnerships and S corporations can continue to elect to pay the entity-level tax for years beyond 2025, and their owners will continue to receive a credit against their Illinois income tax liability for their share of the tax paid at the entity level. This ensures that Illinois businesses can continue to benefit from the SALT cap workaround indefinitely.
The bill cleared the Senate 37-19 and the House 76-33 and took effect immediately. But the debate on the true effects of the bill continues. Business leaders claim the changes will discourage investment and job growth, while Governor Pritzker insists Illinois remains attractive thanks to its infrastructure and workforce. Revenue reports show overall collections are up 2.9 percent compared to last year, but corporate income taxes have dropped 14 percent so far in FY26, highlighting the urgency behind the law. While some see this as a tax increase on manufacturers, others view it as a safeguard against federal cuts that could undermine state programs families rely on.
Governor JB Pritzker along with Illinois lawmakers have taken swift action to tackle a looming budget shortfall by passing Senate Bill 1911 (SB 1911), which decouples the state’s tax code from certain corporate tax breaks in the federal “H.R. 1 – One Big Beautiful Bill Act” (“OBBBA”), The governor’s budget office warned of a $267 million deficit after President Trump signed the OBBBA into law, and this new legislation is expected to recover nearly $250 million. The law blocks federal benefits such as accelerated deductions for manufacturers and small business incentives, which critics say could hurt Illinois’ competitiveness. Supporters of the bill argue the move is necessary to protect funding for schools, healthcare, and essential services, noting that similar steps were taken in 2017.
There is no doubt that the bill will add a layer of complexity to Illinois tax forms. Manufacturers will now have to prepare separate depreciation schedules. Decoupling means Illinois returns will require distinct entries for R&D expense and bonus depreciation. In addition, SB 1911 removes the prior sunset date (January 1, 2026) for the PTE tax election, making the election permanent. This means that partnerships and S corporations can continue to elect to pay the entity-level tax for years beyond 2025, and their owners will continue to receive a credit against their Illinois income tax liability for their share of the tax paid at the entity level. This ensures that Illinois businesses can continue to benefit from the SALT cap workaround indefinitely.
The bill cleared the Senate 37-19 and the House 76-33 and took effect immediately. But the debate on the true effects of the bill continues. Business leaders claim the changes will discourage investment and job growth, while Governor Pritzker insists Illinois remains attractive thanks to its infrastructure and workforce. Revenue reports show overall collections are up 2.9 percent compared to last year, but corporate income taxes have dropped 14 percent so far in FY26, highlighting the urgency behind the law. While some see this as a tax increase on manufacturers, others view it as a safeguard against federal cuts that could undermine state programs families rely on.
Delaware Decouples From Several OBBBA Deductions - Matthew Pertz, Tax Notes ($)
Delaware has decoupled from several new IRC provisions in the One Big Beautiful Bill Act after state officials warned that the provisions would have blown a nine-figure hole in their budget.
After a single-day special session held November 19, Gov. Matt Meyer (D) signed H.B. 255 and reinstated a slower timetable for certain business deductions.
[...]
The bill reverts Delaware to the amortization schedules in place before the OBBBA (P.L. 119-21) for research and development expenses, qualified production equipment, and bonus depreciation for business equipment.
After a single-day special session held November 19, Gov. Matt Meyer (D) signed H.B. 255 and reinstated a slower timetable for certain business deductions.
[...]
The bill reverts Delaware to the amortization schedules in place before the OBBBA (P.L. 119-21) for research and development expenses, qualified production equipment, and bonus depreciation for business equipment.
DC Enacts Emergency Decoupling Law Without Bowser's Signature - Daniel Moore, Bloomberg ($)
Washington, DC, will decouple from 13 tax code changes in the GOP federal tax law under emergency legislation that takes effect Wednesday.
[...]
The bill (B26-0457) unanimously approved last month by DC City Council, prohibits taxpayers from deducting overtime and tips on their returns for the city. It also severs the city from the federal tax law’s benefits for businesses, including a special depreciation allowance for qualified property and full write-offs for domestic research and experimental expenditures.
[...]
The bill (B26-0457) unanimously approved last month by DC City Council, prohibits taxpayers from deducting overtime and tips on their returns for the city. It also severs the city from the federal tax law’s benefits for businesses, including a special depreciation allowance for qualified property and full write-offs for domestic research and experimental expenditures.
State and Local Taxes: Developments and Musings
Minnesota SALT Workaround to Expire at Year's End - Emily Hollingsworth, Tax Notes ($):
In updated guidance issued November 21, the DOR said that the elective entity-level tax will no longer be available for tax years after December 31.
The PTE tax allows partnerships and S corporations to elect to pay tax at the entity level (calculated by multiplying the entity’s taxable income by 9.85 percent) and passthrough owners, partners, and shareholders can claim a refundable tax credit equal to their share of the taxes paid.
The guidance clarifies that if the qualifying PTE has a tax year that begins before January 1, 2026, qualifying owners can "claim the PTE tax credit in their relevant tax year. This may include their 2026 income tax return."
Is Further Guidance on SALT Cap Workarounds a Pipe Dream? - Kristen A. Parillo, Tax Notes ($):
Whether Treasury and the IRS will issue proposed regulations on passthrough entity tax (PTET) workarounds to the individual cap on state and local tax deductions — as announced in a 2020 notice — remains a mystery.
Many taxpayers and advisers welcomed Notice 2020-75, 2020-49 IRB 1453, which essentially endorsed PTET workarounds. But when proposed regs failed to materialize in the ensuing years, some observers speculated that the government was waiting out the clock in hopes that the SALT cap would simply expire as scheduled at the end of 2025.
Now that the cap has been made permanent by the One Big Beautiful Bill Act (P.L. 119-21), with proposals to limit the use of PTET workarounds stripped from the final bill, tax professionals are wondering if Treasury and the IRS will finally draft new PTET guidance — and if so, whether they would follow the position taken in Notice 2020-75 or adopt a different approach.
Many taxpayers and advisers welcomed Notice 2020-75, 2020-49 IRB 1453, which essentially endorsed PTET workarounds. But when proposed regs failed to materialize in the ensuing years, some observers speculated that the government was waiting out the clock in hopes that the SALT cap would simply expire as scheduled at the end of 2025.
Now that the cap has been made permanent by the One Big Beautiful Bill Act (P.L. 119-21), with proposals to limit the use of PTET workarounds stripped from the final bill, tax professionals are wondering if Treasury and the IRS will finally draft new PTET guidance — and if so, whether they would follow the position taken in Notice 2020-75 or adopt a different approach.
The Federal Treatment of State and Local Income Taxes: A Guide to the Perplexing - Jeremy Lent, David Lenter and Andrew Boardman, Tax Notes ($):
The treatment of state and local taxes for federal income tax purposes is surprisingly complicated, with many areas of ambiguity that may or may not be resolved by Congress, the courts, or the IRS anytime soon. This article is a guide for taxpayers and practitioners to the considerations relevant in determining how SALT affects federal income tax liability for individuals and business entities, with an emphasis on issue areas in which the law is complex or unsettled.
Modernization and Relief in Idaho, Iowa, and New Hampshire
Idaho
Idaho Tax Agency Alerts Businesses to New Filing Requirements - Emily Hollingsworth, Tax Notes ($):
In a November 12 notice, the tax commission announced that businesses with tax permits that file W-2s, 1099s, and other returns must submit their returns through the Taxpayer Access Point (TAP) portal beginning with 2026 returns.
Iowa
Iowa Completes Tax Modernization Project - Melissa Menter, Eide Bailly:
The Iowa Department of Revenue recently announced the completion of a five-year project integrating 22 Department legacy systems into one portal, GovConnectIowa. The new portal allows taxpayers to file and pay taxes, obtain business licenses and permits, and correspond with the Department of Revenue. More information can be found at revenue.iowa.gov/portals
New Hampshire
New Hampshire Tax Amnesty Available Now - Melissa Menter, Eide Bailly:
New Hampshire is running a tax amnesty program from December 1, 2025 through February 15, 2026. The amnesty program applies to tax that was due on or before June 30, 2025 and covers a wide variety of taxes including Business Enterprise Tax, Business Profits Tax, Interest & Dividends Tax, and Real Estate Transfer Tax. Taxpayers that qualify will receive relief from all penalties and one-half of any interest due. Amnesty is received by simply filing the outstanding tax returns and paying the tax and one-half of the interest due.
Other SALT Updates: California Market-Based Sourcing, Credits and Incentives in Kentucky
California
A Look at California's Market-Based Sourcing Regs on Intangibles - Kathleen K. Wright, Tax Notes ($):
Under the market-based sourcing regulations, the rules changed dramatically, and now the income from intangibles is sourced where “property” is used. Because this sourcing rule is similar to the sourcing rule for sales of tangible property, the sourcing of the gross receipts might not change even if the classification of the transaction is wrong.
See related: California Finalizes Market-Based Sourcing Changes
Kentucky
Kentucky Lures Foxconn to Louisville With Incentives Package - Matthew Pertz, Tax Notes ($):
Once again, Foxconn Technology Corp. USA is planning to build a U.S.-based advanced manufacturing facility with the support of state and local tax incentives.
[...]
Now Foxconn says it will invest $173.6 million in a new facility in Louisville, Kentucky, to manufacture consumer electronics. Louisville Mayor Craig Greenberg (D) said in a December 9 release that the project will be supported by a 10-year incentive agreement worth up to $3.4 million through the Kentucky Business Investment Program, which provides corporate income tax credits for eligible investments. The company will also receive up to $600,000 in refunded sales tax on construction materials and equipment through the Kentucky Enterprise Initiative Act.
[...]
Now Foxconn says it will invest $173.6 million in a new facility in Louisville, Kentucky, to manufacture consumer electronics. Louisville Mayor Craig Greenberg (D) said in a December 9 release that the project will be supported by a 10-year incentive agreement worth up to $3.4 million through the Kentucky Business Investment Program, which provides corporate income tax credits for eligible investments. The company will also receive up to $600,000 in refunded sales tax on construction materials and equipment through the Kentucky Enterprise Initiative Act.
If you are considering building a new facility or other business expansion, we can help you! Please reach out to Matt Carlson with Eide Bailly's C&I practice to learn about available credits and incentives for your project.
Data Center Boom: Economy Boost or Buyer's Remorse? - Billy Hamilton, Tax Notes ($):
The data center boom in the United States began long before the emergence of artificial intelligence applications, but AI has supercharged the importance of these massive computing facilities.
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Industry representatives argue that state and local incentives are key in determining where this investment is made. Josh Levi, president of the Data Center Coalition, told Pluribus News that reviews from tax commissions and academics show that 90 percent of data center investments would not have occurred without tax exemption programs.
[...]
Lately though, a surprising thing has been happening on the way to the AI revolution: Local citizens and groups have begun pushing back on data center development, worried about the impact of the massive facilities on their communities caused by air and noise pollution, along with concerns over the vast amounts of water and electricity the facilities consume.
[...]
Industry representatives argue that state and local incentives are key in determining where this investment is made. Josh Levi, president of the Data Center Coalition, told Pluribus News that reviews from tax commissions and academics show that 90 percent of data center investments would not have occurred without tax exemption programs.
[...]
Lately though, a surprising thing has been happening on the way to the AI revolution: Local citizens and groups have begun pushing back on data center development, worried about the impact of the massive facilities on their communities caused by air and noise pollution, along with concerns over the vast amounts of water and electricity the facilities consume.
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