August 2026 brought a wide range of developments in U.S. state and local taxation (SALT), covering income taxes, pass-through entity taxes, sales and use taxes, digital taxes, tax litigation and administrative procedures.
Several of these developments could directly affect businesses and individual taxpayers. These include changes to state conformity with federal tax provisions, new opportunities for remote retailers in Illinois, changes to New York City tax credits, litigation involving digital taxes and upcoming changes to voluntary disclosure and tax refund procedures.
For businesses with multistate operations, understanding these developments is important for evaluating compliance requirements, estimated tax payments and potential state tax exposure.
Here are the 12 key U.S. state tax developments from August 2026.
1. District of Columbia: Changes to OBBBA Conformity and PTET Credits
The District of Columbia Council enacted the Fiscal Year 2027 Budget Support Emergency Act of 2026 on August 13, 2026.
The legislation addresses D.C.’s conformity with selected provisions of the federal One Big Beautiful Bill Act (OBBBA). D.C. adopted non-conformity for certain federal provisions for specified tax periods.
These include Section 174A relating to immediate expensing of domestic research and experimentation expenditures, Section 163(j) concerning the computation of adjusted taxable income, and Section 168(n) concerning special depreciation for qualified production property.
D.C. also continues to disallow the Section 199A qualified business income deduction for owners, partners and members of pass-through entities.
Another important change applies to D.C. residents claiming a credit for pass-through entity taxes paid to another state. For tax years beginning after 2025, taxpayers must add back their share of the PTET paid to the other state to their D.C. income.
What it means: Businesses and pass-through owners with D.C. tax obligations should review the differences between federal and D.C. tax treatment when preparing state tax calculations and estimated payments.
2. Maine: New Guidance on Pass-Through Entity Tax Credits
Maine Revenue Services issued administrative guidance in its August 2026 Maine Tax Alert regarding the state’s newly enacted pass-through entity tax.
Maine’s PTET applies to each taxable year for which a pass-through entity elects to be subject to the tax.
Qualified members may claim a refundable income tax credit equal to 90% of their distributive share of Maine PTET paid on their Maine income tax returns.
The guidance provides important information for pass-through entities and their owners as they evaluate the state’s PTET regime.
What it means: Eligible pass-through businesses should review the election, tax calculation and owner-level credit mechanics when considering Maine PTET planning.
3. New York City: UBT Credit Reduced for High-Income Taxpayers
New York City enacted Int 0972-2026 on August 18, 2026, reducing the unincorporated business tax (UBT) credit available to high-income city residents.
NYC imposes UBT at the entity level on partnerships, LLCs and sole proprietorships operating in the city. The individual-level UBT credit helps mitigate the resulting double taxation when business income flows through to owners and is included in their personal income tax returns.
The revised credit structure applies retroactively to tax years beginning in 2026. NYC residents who are members of pass-through entities should therefore reassess their estimated tax liability and make appropriate adjustments to subsequent estimated payments.
4. Illinois: Remote Retailer Amnesty Program
Illinois introduced a remote retailer amnesty program running from August 1 through October 31, 2026.
Qualifying remote retailers may receive full abatement of unpaid penalties and interest on eligible transactions involving sales made between January 1, 2021 and June 30, 2026.
Illinois also adopted a simplified reporting approach under which participating remote retailers can report and pay using a blended 9% rate, rather than the standard destination-based state and local retail occupation tax rates.
To participate, a qualifying remote retailer must register with the Illinois Department of Revenue and file the application electronically through MyTax Illinois.
What it means: Remote retailers with historical Illinois sales tax exposure should evaluate whether they qualify for the temporary amnesty before the October 31 deadline.
5. Pennsylvania: Enforcement of Local Sales Tax Sourcing Rules Delayed
Pennsylvania’s Department of Revenue has deferred enforcement of the destination-based local sales tax sourcing rules under S.B. 146 until October 1, 2026. (see State Tax Insights – July 2026 for details).
The legislation requires local sales and use tax in Philadelphia and Allegheny County to follow destination-based sourcing rules, with the change retroactively effective from January 1, 2026.
While the effective date remains unchanged, the Department will not begin auditing for compliance or imposing penalties until October 1.
The Department had also not issued guidance on how interim-period sales would be treated once enforcement begins.
Businesses making taxable sales into affected Pennsylvania jurisdictions should use the additional time to review their sourcing and sales tax processes.
6. Illinois: New Challenge to Digital Asset Tax Act
Illinois’ Digital Asset Tax Act is facing another legal challenge.
The Blockchain Association and Crypto Council for Innovation filed a separate lawsuit following the earlier challenge brought by the Digital Chamber.
The latest lawsuit challenges the Digital Asset Tax itself and also questions the validity of the legislative process used to enact the broader bill.
The challenge focuses partly on Illinois legislative requirements concerning readings and debates of bills. S.B. 3019 originated as legislation concerning agricultural loans but was replaced on the final day of the legislative session with legislation containing the Digital Asset Tax Act. The revised bill was reportedly read only once before passage.
The lawsuit also raises concerns about the inclusion of unrelated subjects within the same legislation.
If the procedural arguments succeed, the implications could extend beyond the Digital Asset Tax itself and potentially affect the broader omnibus legislation.
7. Maryland: Digital Advertising Tax Struck Down
The Maryland Tax Court invalidated the state’s Digital Advertising Gross Revenues Tax (DAGRT) on August 14, 2026, in three cases involving Apple, Google and Peacock.
The court found the tax discriminatory under the Internet Tax Freedom Act because Maryland did not impose a similar statewide tax on advertising services delivered through non-digital means.
The court also found issues under the Commerce Clause because the tax was based on revenue in a manner that could capture revenue generated outside Maryland. The tax was additionally found to violate the Due Process Clause.
The ruling is formally binding on the three named plaintiffs. Other affected taxpayers may consider protective claims while monitoring further developments, particularly because Maryland had a 30-day period from the ruling date to appeal.
8. Missouri: Voters Reject Individual Income Tax Elimination Proposal
Missouri voters rejected Constitutional Amendment 5 on August 4, 2026. (See our previous State Tax Insights – June 2026 for details.)
The proposed amendment would have phased out the state’s individual income tax while expanding the sales and use tax base to compensate for the resulting revenue reduction.
Because voters rejected the proposal, the planned individual income tax rate reductions will not take effect. The proposed expansion of the sales and use tax base will also not be implemented.
The vote therefore leaves Missouri’s existing individual income tax framework in place.
9. New York City: Pied-à-Terre Surcharge Faces Litigation
New York City’s pied-à-terre surcharge also saw significant developments in August.(see State Tax Insights – July 2026 for details)
The surcharge was implemented beginning July 14, 2026, with the first payments expected to be due from January 2027. The Department of Finance began issuing notices to potentially affected property owners on July 22.
The surcharge was subsequently challenged in O’Brien v. City of New York. On August 10, the New York State Supreme Court, Richmond County, issued a temporary restraining order restricting certain implementation activities by the Department of Finance.
The City appealed, and on August 13 the appellate court placed a hold on the restraining order, allowing the Department of Finance to resume implementation.
Property owners potentially subject to the surcharge should continue monitoring the litigation and related implementation developments.
10. Florida: New Rules Proposed for Tax Overpayment Interest
Florida’s Department of Revenue proposed regulations implementing changes to interest accrual on tax overpayments under legislation enacted earlier in 2026.
Under the current rules, interest on a tax overpayment begins accruing only after a 90-day period following the point at which a refund application is considered complete.
For claims filed on or after January 1, 2027, the proposed change would make the Department’s receipt of the application the relevant starting point. Interest would begin accruing on the 91st day after receipt, even if the Department later determines that corrections or additional information are required.
The 90-day period before interest begins would remain unchanged.
11. Nevada: Proposed Changes to Voluntary Disclosure Program
The Nevada Tax Commission proposed amendments to the state’s Voluntary Disclosure Agreement program through LCB File No. R140-26, issued August 5, 2026.
One significant proposed change would require taxpayers to disclose their identity when filing a voluntary disclosure application, effectively eliminating the current anonymous application model.
The proposal would also expand the types of taxes potentially covered by the program, including certain license taxes, fuel-related taxes, live entertainment taxes and governmental services taxes.
At the same time, certain taxes, including property tax, agricultural real property tax and real property transfer tax, would be expressly excluded.
Businesses considering voluntary disclosure in Nevada should monitor the proposed amendments and assess how the changes could affect future applications.
12. North Carolina: Courts to Apply De Novo Review
North Carolina enacted S.B. 445, the Regulatory Reform Act of 2026, on August 11, 2026.
The legislation changes the judicial review framework for state rules and regulations by providing that reviewing courts and administrative law judges should apply de novo review.
Under this approach, courts assess the issue without giving binding weight or presumption to an agency’s interpretation.
An agency, including the Department of Revenue, may still inform the court’s judgment through its interpretation of a rule, but that interpretation is not binding.
The change is particularly relevant to businesses involved in state tax disputes where the interpretation of regulations is contested.
Key September 2026 Tax Compliance Dates
Alongside these August developments, taxpayers should also keep the following September deadlines in view:
| Compliance Type | Due Date | Taxpayer Category | Details |
| Federal and state estimated tax | September 15, 2026 | All calendar-year taxpayers | Q3 2026 estimated tax payment due |
| Federal and state income tax return filing | September 15, 2026 | Partnerships and S corporations | Extended filing deadline for calendar-year partnerships filing Form 1065 and S corporations filing Form 1120-S |
These deadlines are particularly important for taxpayers whose estimated liabilities may have changed because of recent state tax developments.
What These SALT Developments Mean for Businesses
The August developments show how quickly state tax rules can change through legislation, administrative guidance, litigation and enforcement decisions.
For multistate businesses, three areas deserve particular attention.
State conformity: D.C.’s treatment of selected OBBBA provisions demonstrates that federal tax changes do not necessarily translate directly into state tax treatment.
Sales tax compliance: Illinois and Pennsylvania highlight the continuing importance of monitoring remote seller rules, sourcing requirements and state enforcement positions.
Tax litigation: The Maryland DAGRT decision and Illinois Digital Asset Tax litigation demonstrate that state tax regimes can face significant legal challenges after enactment.
Businesses should therefore review their state tax positions regularly rather than relying solely on federal tax treatment or previously established compliance processes.
Frequently Asked Questions
What were the major U.S. state tax developments in August 2026?
The major developments included changes in D.C.’s conformity with federal tax provisions, Maine PTET guidance, NYC UBT credit changes, Illinois remote retailer amnesty, Pennsylvania sales tax enforcement, digital tax litigation in Illinois and Maryland, and administrative changes in Florida, Nevada and North Carolina.
What is the Illinois Remote Retailer Amnesty Program?
The Illinois program runs from August 1 through October 31, 2026. Qualifying remote retailers may receive full abatement of unpaid penalties and interest relating to eligible sales made between January 1, 2021 and June 30, 2026.
What happened to Maryland’s Digital Advertising Gross Revenues Tax?
The Maryland Tax Court invalidated the tax on August 14, 2026, finding issues under the Internet Tax Freedom Act, Commerce Clause and Due Process Clause.
When is the Q3 2026 estimated tax payment due?
For calendar-year taxpayers, the third estimated federal and state tax payment is due September 15, 2026.
When does Pennsylvania begin enforcing the new local sales tax sourcing rules?
The Pennsylvania Department of Revenue has deferred enforcement until October 1, 2026, although the underlying rules remain retroactively effective from January 1, 2026.
Why should businesses monitor state and local tax developments?
SALT rules can differ from federal tax treatment and may change through legislation, administrative guidance or court decisions. Monitoring these changes helps businesses identify potential compliance requirements, estimated tax adjustments, refund opportunities and areas of state tax exposure.
Conclusion
August 2026 was an active month for U.S. state and local taxation, with developments affecting income taxes, pass-through entities, sales taxes, digital taxation, property taxes and tax administration.
From D.C.’s federal conformity decisions and Maine’s PTET guidance to Illinois’ remote retailer amnesty and Maryland’s digital advertising tax ruling, businesses have several developments to evaluate.
With the September 15 tax deadlines approaching and additional state changes taking effect or moving toward enforcement, businesses with multistate operations should review their current SALT positions and determine whether any compliance or estimated tax adjustments are required.
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.
