Digital taxes, federal conformity battles, and budget stress are reshaping multistate tax exposure for many large companies. Here’s what in-house tax teams can do now
Key takeaways:
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Changing the balance of taxes — Budget‑driven tax swaps and incentive reforms are changing the balance between income, property, and sales taxes, forcing large companies to revisit their multistate footprint.
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How revenue is sourced is changing, too — Rapidly evolving digital and AI‑related taxes are creating new nexus, sourcing, and base‑definition issues for businesses that rely on revenue from digital advertising, social platforms, data monetization, and automated tools.
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Planning amid continued uncertainty — New federal tax regulations, tariff‑related uncertainty, and even the elimination of the penny are all amplifying state‑by‑state complexity for in‑house tax departments.
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WASHINGTON, DC — Tax industry experts who gathered at Tax Executives Institute (TEI) Midyear Conference to provide updates on the current landscape of state and local tax (SALT) policy and offer insight that corporate tax departments should consider found, not surprisingly, that they had a lot to talk about in the current economic environment.
Mapping the new SALT frontier
For starters, this year’s SALT agenda is not just an abstract policy story for large, multistate businesses, rather, it’s a direct driver of cash taxes, effective tax rate (ETR) volatility, and audit exposure. Indeed, several state legislatures are advancing new taxes on digital advertising and data, revisiting incentives and data center exemptions, and using conformity to federal law — especially the tax provisions in the One Big Beautiful Bill Act (OBBBA) — as a policy lever, all against the backdrop of slowing revenues and contentious elections.
“Tax swaps” and incentives — States that are facing budget pressure are, unsurprisingly, looking at tax swaps to reduce income or property taxes while broadening the sales & use tax base and trimming exemptions. For example, on March 3, the state of Florida — which already doesn’t have a state income tax — passed legislation that eliminates most property taxes in the state.
Moreover, with the rapid expansion of AI come the extensive need for data centers. Several states are reassessing data center exemptions and credits, either tightening qualification standards, requiring centers to supply more of their own power, or repealing incentives outright. A decision in Virginia to roll back or limit data center benefits, for example, is viewed as a potential template for other states, particularly in those areas in which energy and environmental concerns are priorities. At the same time, proposals targeting corporate welfare include expanded corporate tax disclosures, CEO compensation surcharges, and enhanced reporting on apportionment and group filing methods.
What companies should consider — Large companies operating over multiple states should consider making an inventory of their credits and incentives by jurisdiction, including looking at sunset dates and political risk indicators.
Companies should also build forward‑looking models that show how any sales tax base expansion would interact with their supply chain and their procurement of digital and professional services.
New exposure for tech, marketing & data
Bipartisan legislators in several states are continuing to expand on digital economies as a revenue and policy target. For example, Maryland continues to lead with its digital advertising tax; while Washington state’s expansion of its sales tax to include certain digital and IT services and Chicago’s social media taxes illustrate the variety of approaches that state and local jurisdictions are exploring to expand their tax base and raise revenue.
Data and “digital resource” taxes — Proposals in states such as New York would tax companies that derive income from resident data, treating data as a natural resource. While no state has fully implemented a comprehensive data tax, however, large platforms and data‑driven enterprises are monitoring these bills closely.
AI‑related SALT rules — Many states still classify AI solutions under existing Software as a Service (SaaS) or data‑processing categories, but some — including New York — are exploring surcharges tied to AI‑driven workforce reductions. And at least two states are explicitly taxing AI, similarly to the way software is taxed.
For corporate tax leaders, some practical next steps should include mapping those areas in which your group has digital ad spending, user bases, data monetization, or AI deployments. Then, overlaying that with current and pending digital tax proposals. In parallel, it is increasingly critical for the tax team to partner with IT and marketing teams to understand how contracts, invoicing structures, and platform design will affect nexus, tax base definition, and sourcing.
Federal shifts magnify multistate complexity
The OBBBA made permanent several key business provisions of 2017’s Tax Cuts & Jobs Act, while expanding SALT relief on the individual side and creating new interactions for multinational groups. Because most states start from federal taxable income — either on a rolling, static, or selective conformity basis — OBBBA changes reverberate across state corporate income tax bases, especially in those states that have decoupled themselves from interest limits, R&D expensing, or new production‑related incentives.
Corporate tax departments must now juggle different conformity dates and selective decoupling rules across rolling and static states, including jurisdictions that automatically decouple when a federal change exceeds a revenue impact threshold. This requires more granular state‑by‑state modeling of OBBBA impacts on apportionable income, deferred tax balances, and cash tax forecasts. It also heightens the risk that political disputes — such as Washington DC’s decoupling controversy — produce mid‑cycle changes that complicate provision and compliance processes.
Penny elimination — With federal production of the penny discontinued, states now are moving toward symmetrical rounding for cash transactions, rounding the final tax‑inclusive total to the nearest five cents while attempting not to alter the underlying tax computation. For retailers and consumer‑facing enterprises, this shifts the focus to point of sale (POS) configuration, consumer‑protection exposure, and class‑action risk if rounding is implemented incorrectly.
Tariffs and refunds — The U.S. Supreme Court’s Learning Resources, Inc. v. Trump decision striking down certain tariffs under the International Emergency Economic Powers Act in February leaves open how more than $100 billion in tariffs be refunded and what that means for prior sales & use tax treatment. Streamlined guidance generally treats tariffs embedded in product prices as part of the taxable sales price but excludes tariffs paid directly by a consumer‑importer from the tax base, raising complex questions if tariff refunds reduce costs or sales prices retroactively.
For indirect tax department teams, the confluency of the 2026 SALT changes — including the impacts around everything from data center credits to the recent Supreme Court tariff decision — the need to rely on internal partners across the business has never been stronger. Combining that with a greater reliance on technologies, including dedicated research tools to stay abreast of state-by-state tax changes, may be the best way for corporate tax teams to keep up with compliance requirements and avoid penalties.
You can download a full copy of the Thomson Reuters Institute’s 2025 Indirect Tax Report here
