State and local tax (SALT) developments continue to create new compliance and tax planning considerations for businesses operating across the United States. In July 2026, states introduced and proposed changes affecting corporate income tax, net operating losses, federal conformity, research and development expenses, corporate income tax sourcing, sales and use tax on digital products and software, local sales tax sourcing, unclaimed property, high-value residential properties, and data center operations.
These U.S. SALT developments for July 2026 highlight the importance of monitoring state-specific tax rules, particularly for businesses operating across multiple jurisdictions. Changes in state conformity with federal tax provisions, sourcing rules, digital taxation, and industry-specific taxes can affect how businesses calculate their tax liabilities and manage state tax compliance.
The following 11 state tax developments highlighted are key developments businesses should have on their radar.
Corporate Income Tax
Florida – DOR publishes tax publication addressing updates to federal conformity
The Florida Department of Revenue (DOR) issued its annual guidance with respect to determination of income for the purposes of Florida Corporate Income Tax (CIT) on 07th July 2026, which is applicable from 01st January 2026 retroactively.
The state adopts the definition and provisions of the IRC in effect as on 01st Jan 2025, without considering amendments made by OBBBA for the following sections.
| Section & Provisions | Treatment as on 01 Jan 2025 (Florida adopted) | Treatment post OBBBA |
| Section 168(k) – Bonus depreciation | 20% bonus depreciation for 2026 and fully phased out starting from 2027 | Reinstates 100% of bonus depreciation permanently |
| Section 174(a) – Amortization of R&E expenditures | Mandatory capitalization of domestic R&E expenses and amortizing for 5 years | Allows immediate expensing of domestic R&E expenses |
| Section 163(j) – Limitation on business interest expense deduction | No addback of depreciation and amortisation for computation of ATI* | Addback of depreciation and amortisation is allowed for computation of ATI |
| Section 274 – Disallowance of entertainment & meal expenses | 50% of meal expenses are disallowed Entertainment expenses fully disallowed | 100% of meal expenses are disallowed Entertainment expenses fully disallowed |
| Section 179 – Expensing of certain depreciable assets | Deduction limit – $1.25 million Phaseout cost limit – $3.13 million | Deduction limit – $2.5 million Phaseout cost limit – $4 million |
Florida also actively decouples from new provisions introduced by OBBBA such as Section 174A, which provides for immediate expensing of domestic R&E expenses, and Section 168(n), which allows immediate expensing for certain qualified production property.
New Jersey – Temporary limitation on NOL deduction introduced for corporate taxpayers
For tax years ending on or after 31st July 2026 but before 31st July 2030, the state of New Jersey imposes a temporary cap of $1 million per year on NOL deductions that can be claimed by corporate taxpayers, suspending the 80% of taxable income limitation. Taxpayers must exhaust ‘prior NOLs’, meaning losses incurred in tax years ending before 31st July 2019, before utilizing ‘NOL deductions’, which are losses incurred in tax years ending on or after 31st July 2019, under the new rules.
Losses which are deferred due to the new limitations are allowed an additional six tax years added to their carry forward cycle. For tax years ending on or after 31st July 2030 and before 31st July 2032, the NOL deduction will be capped at an amount equal to 75% of that tax year’s taxable income.
North Carolina – The state decouples from Sec 174A & announces a new mechanism for domestic R&E expenses
Rather than conforming with the full first year depreciation for domestic R&E expenditures under Section 174A (post OBBBA), the state requires taxpayers to addback 80% of the depreciation amount deducted at the federal level.
However, the 80% addback is not lost. The state permits taxpayers to deduct 25% of the addback amount in each of the following four years.
In contrast to the pre-OBBBA provisions of Section 174, which says that domestic R&E expenditures are required to be amortized over 5 years using a mid-year convention which stretches the amortization period over 6 tax years generally, the state of North Carolina allows taxpayers to deduct the domestic R&E expenditures over 5 years in equal instalments.
The changes brought about by the state are applicable retroactively from tax years beginning 01st Jan 2022 for ‘small taxpayers’ who make the federal election to apply Section 174A retroactively, and from tax years beginning 01st Jan 2025 for all other taxpayers.
Pennsylvania – State bulletin proposes regulations for corporate income tax sourcing rules
The Pennsylvania Department of Revenue (DOR) has issued a state bulletin (Vol.56, No.30) on 25th July 2026, outlining proposed regulations with respect to sourcing rules for the purpose of corporate net income tax computations.
The proposed change seeks to limit the existing sourcing rules under Section 153.26 of the PA Code to the sourcing of tangible personal property and seeks to introduce Section 153.26a to establish procedures to source service income, which essentially codifies the market-based sourcing principles which has been administratively followed by the state since 2014.
The proposal also puts forth specific sourcing rules for certain industries and businesses whereby the location of delivery might be difficult to ascertain, including digital services, software, subscriptions, advertising, telecommunications, utility providers, etc.
Sales & Use Tax
Indiana – DOR proposes new rules on taxation of digital products and computer software
Indiana DOR issued proposed regulations and rules addressing the state’s sales tax treatment of specified digital products and computer software.
One proposed rule states that a merchant who makes a retail sale of “specified digital products”, which includes digital audio works, digital audiovisual works and digital books, to an end user wherein the right to use is not conditioned on continued payment (subscriptions), falls under the definition of a ‘retail seller’.
Another proposed rule provides that prewritten software, regardless of mode of delivery, whether physically or electronically, is subject to sales tax in the state and that remotely accessed prewritten software is not subject to sales tax in the state.
Comments on the proposed rules were due on 24th July 2026, followed by a public hearing conducted on 27th July 2026.
Pennsylvania – S.B.146 adds new sections to the state’s statute modifying local sales tax sourcing principles
S.B. 146 was signed into law on 12th July 2026, which brings about a major change on how local sales tax in the state is applied.
The bill adds two new sections to the state’s code, which mandates that local sales and use tax in Philadelphia city and Allegheny county, the only two locations which collect local sales tax in the state, must be levied using destination-based sourcing rules.
Prior to this change, unless the seller was based out of the above localities, sales tax did not apply. Changes to the local sales tax sourcing rules are applicable retroactively, from 01st January 2026.
Other Updates
Arizona – Exemption from Unclaimed Property reporting requirements repealed for digital gift cards
Arizona has enacted S.B. 1336, repealing the longstanding exemption that excluded gift cards, electronic gift cards, stored value cards, prepaid phone cards, frequent flyer miles, and merchandise points from the definition of reportable unclaimed property.
Unclaimed property rules provide that property owed to an individual or entity that remains unclaimed for a specified period, are required to be reported and remitted to the state by the holders.
With effect from 12th September 2026, any unredeemed balances on these instruments along with certain B2B exemptions previously in place may now be subject to Arizona’s unclaimed property reporting and remittance requirements.
Issuers doing business with Arizona customers should review their gift card, stored value and loyalty program liabilities to assess reporting exposure ahead of the effective date.
Illinois – Effective date for Interchange Fees Prohibition Act deferred to July 2027
The state of Illinois has delayed the effective date of enforcement for its Interchange Fee Prohibition Act again.
The state defines the law’s scope to cover any debit or credit card transaction processed within Illinois and prohibits charging or receiving interchange fees on the sales tax and gratuity (tip) components of such transactions.
This restriction applies to banks, credit unions and payment card networks that set or collect interchange fees on covered transactions. However, a federal court has separately ruled that this restriction is unenforceable against national banks, out-of-state state banks, federal savings associations and payment card networks.
Though the law was originally scheduled to take effect on 01st July 2026, the Illinois General Assembly has postponed its effective date for a second time to 01st July 2027, via Senate Bill 3645.
New Hampshire – HB 639 prohibits imposition of certain taxes on digital assets
The New Hampshire Legislature has enacted House Bill 639 (“The Blockchain Basic Laws”), effective September 8, 2026, introducing legal and regulatory changes for digital asset and blockchain activities. The new law prohibits the state and local agencies from imposing any tax, fee, withholding, assessment, or similar charge solely because a digital asset is used for lawful payments for legal goods or services.
The Act also clarifies that individuals or businesses engaged in digital asset mining, as well as persons operating blockchain nodes, are not required to obtain a money transmitter license and are not treated as securities under New Hampshire law.
Further, the Act establishes a dedicated blockchain dispute docket within the New Hampshire Superior Court to hear qualifying blockchain-related civil disputes where the parties consent to its jurisdiction.
New York City – A new ‘pied-à-terre’ surcharge introduced on non-primary residences in the city
With effect from 14th July 2026, the New York City Department of Finance (DOF) has adopted final rules implementing a new surcharge on certain high-value residential properties, commonly referred to as ‘pied-à-terre’ properties, that are not used as primary residence.
For the first two tax years, 2026-27 and 2027-28, the surcharge covers family homes worth over $5 million and condominiums and cooperative units worth $1 million. Rates run from 0.8% to 1.3% of value for homes, and 4.0% to 6.5% for condos and co-ops.
The surcharge does not apply if the property is genuinely used as a primary home whether by the owner, a tenant, an immediate family member, or a majority owner of the entity holding title.
The DOF began notifying owners of properties that may be subject to the surcharge by letter from 23rd July 2026. Owners seeking an exemption must file an application, along with supporting documentation, by 18th September 2026.
Virginia – Commonwealth of Virginia introduces a new tax on electricity consumed by data centers
With effect from 01st July 2026, the Commonwealth of Virginia imposes a new tax on electricity consumed by data centers.
The state defines ‘Data Center’ as a facility whose primary services is to centralize the storage, management and processing of digital data, and houses computer and network systems, performance management systems, internet-related equipment, etc.
This tax will be collected by electricity providers from data center operators and remitted on a monthly basis to the state. However, if the electricity is self-supplied by the data center operator, then such operator shall remit the tax directly to the state.
Though the newly imposed tax will be collected on monthly basis going forward, the first collection of the tax shall occur in September 2026 for the period beginning on 01st July 2026 and ending on 31st August 2026.
What These July 2026 U.S. SALT Developments Mean for Businesses
The July 2026 SALT developments underscore how quickly the state tax landscape is changing, with new rules, evolving tax positions, and emerging areas of taxation taking shape across the U.S.
The developments span multiple areas of state and local taxation. Corporate taxpayers need to monitor changes involving federal conformity, NOL deductions, R&E expenses and corporate income tax sourcing. Businesses selling digital products or software need to pay attention to evolving sales and use tax rules. Companies with gift card, stored value or loyalty program liabilities may also need to review potential unclaimed property reporting obligations.
At the same time, developments such as Pennsylvania’s destination-based local sales tax sourcing rules, New York City’s surcharge on certain high-value non-primary residences, and Virginia’s new tax on electricity consumed by data centers demonstrate how state and local tax obligations can vary significantly depending on the nature and location of business activities.
For businesses operating across state lines, keeping track of these developments is therefore an important part of managing state tax compliance and identifying potential changes to existing tax positions.
Frequently Asked Questions
What are the key U.S. SALT developments for July 2026?
The July 2026 developments cover corporate income tax, sales and use tax, local sales tax sourcing, unclaimed property, digital assets, high-value residential properties and data center taxation across several U.S. jurisdictions.
What changed in Florida corporate income tax conformity?
Florida issued guidance on 07th July 2026 applicable retroactively from 01st January 2026. The state adopts the IRC provisions in effect as of 01st January 2025 for specified provisions and decouples from certain newer OBBBA provisions.
Did New Jersey change its NOL deduction rules?
Yes. For tax years ending on or after 31st July 2026 but before 31st July 2030, New Jersey imposes a temporary $1 million annual cap on NOL deductions claimed by corporate taxpayers, while suspending the 80% of taxable income limitation.
What changed for domestic R&E expenses in North Carolina?
North Carolina requires taxpayers to add back 80% of the depreciation amount deducted at the federal level under Section 174A, while permitting taxpayers to deduct 25% of the addback amount in each of the following four years.
What is changing in Pennsylvania’s corporate income tax sourcing rules?
Pennsylvania has proposed regulations that would limit existing sourcing rules to tangible personal property and introduce procedures for sourcing service income based on market-based sourcing principles, along with specific rules for industries such as digital services, software, subscriptions and advertising.
Are digital products and software subject to sales tax in Indiana?
Indiana has proposed rules addressing the sales tax treatment of specified digital products and computer software. The proposed rules distinguish between different types of digital products and software, including remotely accessed prewritten software.
What changed for local sales tax sourcing in Pennsylvania?
S.B. 146 requires local sales and use tax in Philadelphia and Allegheny County to be levied using destination-based sourcing rules. The changes apply retroactively from 01st January 2026.
What is changing for digital gift cards in Arizona?
Arizona S.B. 1336 repeals the longstanding exemption for certain instruments, including gift cards, electronic gift cards and stored value cards, from the definition of reportable unclaimed property. The changes take effect from 12th September 2026.
What is the new New York City pied-à-terre surcharge?
New York City adopted final rules implementing a surcharge on certain high-value residential properties that are not used as primary residences. For the first two tax years, the surcharge applies to specified family homes, condominiums and cooperative units meeting the applicable value thresholds.
What is the new Virginia tax affecting data centers?
Effective 01st July 2026, Virginia imposes a new tax on electricity consumed by data centers. Electricity providers generally collect and remit the tax, while data center operators are responsible for remitting it directly where electricity is self-supplied.
About M2K Advisors
M2K Advisors is an international tax advisory firm having offices in India, Singapore, USA & UAE. Our firm offers varied services in USA such as setting up companies in Delaware and other states in USA, tax advisory, tax return filing, state & local tax compliance, sales & use tax compliance, IRS audit representation, FBAR & FATCA filing. M2K Advisors is the specialist firm for businesses managing US tax obligations. Our focused expertise in M&A and cross border structuring, state & local nexus studies, and multi-state compliance makes us the most reliable partner for foreign entities and startups entering the USA market.
Disclaimer: This article is intended for general guidance only and should not be considered tax advice or an opinion. On any specific matter, reference should be made to the appropriate advisor.
