This Week in State Tax

The Massachusetts Department of Revenue (Department) issued a Technical Information Release (TIR) to assist financial institutions seeking to file amended returns to claim the state research credit in light of State Street Co. v. Massachusetts Commissioner of Revenue. In that case, the Massachusetts Appellate Tax Board determined that financial institutions are eligible for the research credit under the plain language of the statute, as opposed to the credit being available only to general corporations subject to the corporation excise tax as the Department had contended.

In the TIR, the Department acknowledged that financial institutions may seek to file amended returns taking advantage of the credit in open years. The Department intends to waive a regulatory requirement that requires a taxpayer to elect into an “alternative simplified method” for computing the credit on its original return. Instead, the Department will permit a financial institution affected by State Street to make the election on its amended return, and it intends to promulgate an updated version of the regulation to that effect. Please contact Nikhil Sequeira for more information on TIR 25-3.

Download PDF >

In a recent ruling, the Mississippi Supreme Court affirmed that separate third-party freight charges—when the freight service is not provided and charged by the seller of the tangible goods—should not be included in the use tax base of the tangible goods. The Mississippi Department of Revenue (Department) initially sought to tax the third-party freight charges, contending the freight services were a necessary component of the taxpayer’s business activities and therefore part of the taxable base for use tax purposes. After protesting the assessment to the Department, the taxpayer appealed to the Board of Tax Appeals, which held in favor of the taxpayer. The Department appealed to the Chancery Court, which upheld the taxpayer’s position, and the Department sought review by the state high court, resulting in the instant matter.

The taxpayer was an interstate provider of natural gas transmission services through a pipeline network running from the Gulf Coast to the Northeast. The taxpayer purchased tangible property for use in Mississippi and paid use tax on the purchases. It later paid freight charges to a third party to ship these goods to Mississippi. The Department assessed use tax on the freight charge, arguing that the definition of sales price in the statute includes freight charges and that the taxation of third-party freight charges is not prohibited in the statute. In its review, the state supreme court agreed with the trial court that the freight charges and the charge for tangible goods should be viewed as two separate closed transactions. Relying on state law which provides that “every closed transaction by which the title of taxable property passes shall constitute a taxable event,” the court affirmed that the purchase of tangible goods constituted one closed transaction, while the later purchase of third-party shipping service constituted a second closed transaction, and the latter charges were not subject to use tax.

The Department had also appealed a trial court determination that a Fact Sheet the Department had issued on distribution charges was not an “officially adopted publication” that should be accorded deference.  Having found that the separate freight charges were not taxable, the supreme court did not address this matter. For questions regarding Mississippi Department of Revenue v. Tennessee Gas Pipeline Company, LLC please Randy Serpas or Christopher Geer. 

Download PDF >

Assembly Bill 3009C–the New York 2026 budget bill–was signed into law by Governor Hochul on May 9, 2025. Provisions of this bill alter personal income tax rates without extending the current corporate tax rate increase, modify the existing Metropolitan Commuter Transportation District (MCTD) payroll tax, disallow certain deductions on covered properties owned by institutional real estate investors, and create a state reporting requirement for federal partnership audit adjustments.

Corporate and Personal Income Tax Rates: The bill phases in a reduction of personal income tax rates for most tax brackets (up to $323,200), coupled with an increased rate for income above $2,155,350. These provisions expire after 2032. Notably, the current temporarily increased corporate tax rate of 7.25 percent for taxpayers with business income exceeding $5 million was not extended; it is currently set to expire on December 31, 2026, when the rate will revert to 6.5 percent.

MCTD Payroll Tax: The MCTD is divided into two zones – Zone One, which includes Bronx, Kings (Brooklyn), New York (Manhattan), Queens, and Richmond (Staten Island) counties and Zone Two, which includes Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk, and Westchester counties. The budget bill restructures the MCTD rates and brackets as shown in the table below. There are reduced tax rates for local government employers in Zone One with greater than $2.5 million in quarterly payroll expense; local government employers are not subject to the tax in Zone Two.

Reporting Federal Partnership Adjustments: The budget bill adopts rules similar to the Multistate Tax Commission (MTC) model statute for state reporting of federal partnership audits and adjustments. The bill requires partnerships to report any federal adjustments for the reviewed year to the state within 90 days; partners are required to pay any additional tax due within 180 days after the final federal determination or the filing of an administrative adjustment request – unless the partners elect to have the payment made at the partnership level. These provisions are effective immediately, but adjustments with a final determination date or administrative adjustment request occurring before the effective date (May 9, 2025) must be reported to the state within one year of that date. No interest will accrue on these adjustments. The bill also provides for reporting of federal adjustments for New York City tax purposes.

Institutional Real Estate Investor Changes: The enacted budget establishes a waiting period for a covered entity to purchase, acquire, or offer to purchase or acquire any interest in a single-family or two-family residence unless such residence has been listed for sale to the public for at least 90 days. A “covered entity” means an institutional real estate investor or an entity that receives funding from such investor. Further, an “institutional real estate investor” means an entity that, directly or indirectly, 1) Owns 10 or more single-family and/or two-family residences (covered properties); 2) Manages or receives funds from investors and acts as a fiduciary for investor(s); and 3) Has $30 million or more in net value or assets under management on any day during the tax year. If a covered entity fails to comply with the 90-day waiting period, then it may be subject to civil damages and penalties not exceeding $250,000. 

Additionally, the bill disallows a deduction for depreciation and interest for covered properties owned by an institutional real estate investor or a partner, member, or shareholder of an institutional real estate investor. The depreciation and interest deductions must be added back when computing New York entire net income or adjusted gross income. However, any interest paid or accrued in the tax year with respect to covered property sold to an individual for use as a principal residence, or to a nonprofit organization for use as affordable housing, is excluded from the interest disallowance. This provision is applicable to tax years beginning on or after January 1, 2025. Please contact Russell Levitt with questions on A. 3009C.

Download PDF >

South Carolina recently enacted legislation to expand the state sales and use tax exemption for durable medical equipment (DME) exemption to equipment sold by a provider whose principal place of business is not located in the state. Recall, the South Carolina Supreme Court ruled in 2024 that the state DME exemption violated the Commerce Clause of the U.S. Constitution because it required that the seller’s principal place of business must be located in South Carolina. The amendment now makes the DME exemption available to all sellers, regardless of their location. Contact Nicole Umpleby for more information on H.B. 3800.

Download PDF >