State tax policy continues to move quickly. Legislatures, departments of revenue, and courts are addressing pass-through entity taxes (PTETs), economic nexus, income tax rate reductions, digital products taxation, and conformity to recent federal tax legislation.
For tax professionals, these developments create both planning opportunities and compliance risks.
1. California: Continued Focus on PTET Planning and SALT Decoupling
California remains one of the most active states for pass-through entity tax planning. The state continues to allow eligible partnerships and S corporations to elect into the PTET regime as a workaround to the federal SALT deduction limitation.
California is also among the states that have decoupled from selected provisions of recent federal tax legislation. Taxpayers may need state-level addbacks for certain federally excluded items. (Kiplinger)
Considerations
- Review annual PTET election deadlines carefully.
- Confirm estimated payment requirements were satisfied.
- Analyze whether California addback adjustments apply to federal exclusions.
- Watch for updated Franchise Tax Board guidance during the filing season.
California’s PTET election can still provide substantial federal tax benefits for high-income owners despite the temporary increase in the federal SALT cap. (Beancount)
2. New York: Expanded Enforcement Around Remote Work and Nexus
New York continues aggressive enforcement related to remote employees, sourcing, and multistate business activity. Businesses with remote workers in New York should reassess income tax withholding and corporate nexus exposure.
The state also continues to monitor PTET elections and resident credit interactions for multistate owners.
Considerations
- Review employer withholding obligations for remote employees.
- Analyze convenience-of-the-employer sourcing issues.
- Confirm PTET credit coordination for resident taxpayers with multistate income.
- Monitor audit activity involving remote work arrangements.
Courts and state tax agencies continue evaluating nexus thresholds and sourcing methodologies following expanded remote work arrangements. (Eide Bailly)
3. Illinois: Grocery Tax Elimination
Illinois enacted legislation eliminating the state grocery tax beginning in 2026. Local taxes may still apply depending on jurisdiction. (Kiplinger)
This change affects retailers, point-of-sale systems, and sales tax compliance procedures.
Considerations
- Verify local tax treatment for grocery items.
- Review retailer system updates and sales tax mapping.
- Evaluate potential refund or reporting issues during transition periods.
Illinois joins several states reducing or eliminating grocery taxes to offset inflation-related consumer costs. (Kiplinger)
4. Texas: Continued Economic Nexus Enforcement
Texas continues to expand enforcement around economic nexus and remote seller compliance. Marketplace facilitator rules and sales tax audits remain active areas of focus.
Considerations
- Review sales thresholds for remote sellers.
- Confirm marketplace facilitator reporting treatment.
- Evaluate franchise tax nexus exposure for out-of-state entities.
- Review digital product and SaaS revenue characterization.
5. Georgia: Individual Income Tax Rate Reduction
Georgia reduced its flat individual income tax rate for 2026. (Kiplinger). Lower rates may affect estimated tax planning and withholding calculations for both residents and pass-through entity owners.
Considerations
- Recalculate estimated payments for 2026.
- Review withholding adjustments for wage earners.
- Reevaluate entity-level tax elections for Georgia owners.
Multiple states continue transitioning toward lower flat-rate income tax structures. (Kiplinger)
6. Ohio: Flat Tax Structure Changes
Ohio implemented additional income tax rate reductions for 2026. (Kiplinger)
Tax professionals should review how the lower rates affect pass-through planning and composite return calculations.
Key considerations for preparers
- Update withholding projections.
- Review composite filing strategies.
- Recalculate extension and estimated payment amounts.
Ohio remains part of a broader national trend toward simplified state income tax structures. (Kiplinger)
7. Maine: Expansion of Sales Tax to Digital Products
Maine expanded sales tax rules covering digital products and electronically delivered goods. (Kiplinger)
This creates additional compliance complexity for SaaS providers, digital subscription services, and online businesses.
Key considerations for preparers
- Determine whether digital offerings are taxable.
- Review sourcing methodologies for multistate transactions.
- Confirm invoicing systems properly distinguish taxable and nontaxable items.
States continue broadening sales tax bases to include digital transactions and remote commerce. (Eide Bailly)
8. New Jersey: Increased Focus on Gambling and Sports Betting Taxes
New Jersey continues expanding taxation and reporting oversight involving sports betting and gambling activity. (Kiplinger)
Tax professionals should expect greater scrutiny involving gambling losses, withholding, and state conformity differences.
Key considerations for preparers
- Review gambling income documentation carefully.
- Confirm state treatment of gambling losses.
- Monitor federal-state conformity differences involving gambling deductions.
States are increasingly using gambling taxation as a revenue source. (Kiplinger)
9. Mississippi: Retirement and Property Tax Relief Changes
Mississippi expanded property tax relief provisions for certain taxpayers, including seniors. (Kiplinger)
These changes may affect planning for retirees and property owners.
Key considerations for preparers
- Review eligibility for expanded exemptions.
- Confirm local filing requirements.
- Evaluate interaction with retirement income exclusions.
Several states continue adopting retiree-focused tax relief measures. (Kiplinger)
10. Multistate PTET Developments Continue to Evolve
More than 35 jurisdictions now offer some form of PTET election. States continue revising deadlines, credit mechanisms, and eligibility requirements. (Marble)
At the federal level, lawmakers have debated changes that could limit PTET deductibility in future years, although entity-level deductibility remains available under current IRS guidance. (Current Federal Tax Developments)
Key considerations for preparers
- Verify election deadlines annually.
- Review resident credit interactions for multistate owners.
- Monitor federal legislative proposals affecting PTET treatment.
- Analyze whether PTET elections still produce net tax savings under increased SALT caps.
PTET elections remain a major planning tool for partnerships and S corporations, particularly in high-tax states. However, the benefit varies based on owner residency, credit limitations, and state-specific rules. (Beancount)
State tax developments continue to accelerate as states respond to remote work, digital commerce, federal tax changes, and budget pressures. Tax professionals should expect continued changes involving:
- PTET elections
- Economic nexus
- Digital goods taxation
- State conformity adjustments
- Individual income tax rate reductions
Multistate compliance reviews and proactive planning remain critical for both individual and business taxpayers in 2026.
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