This Week in State Tax

The Indiana Department of Revenue has announced that the a state tax amnesty program authorized by the legislature in 2025 will run from July 15 – September 15, 2026. The program is currently applicable to tax periods ending before January 1, 2023. Legislation has also been sent to the governor to extend the amnesty to tax periods ending January 1, 2024. Eligible taxpayers can resolve unpaid liabilities for a broad range of Indiana “listed taxes,” including income, sales, excise, and other taxes the state is required to administer.

Upon full payment or agreement on a department-approved plan for payment of the outstanding tax, taxpayers will be relieved from penalties, interest, collection fees, and other related costs. The Department will also release any liens and will not pursue civil or criminal prosecution for the periods covered by amnesty. Any assessment, demand notice, or warrant for payment will be withdrawn for the taxes and periods granted amnesty. Note that failure to pay the full amount invalidates the amnesty for that period, and participants will be barred from future amnesty programs for the tax involved. The department intends to publish additional guidelines regarding eligibility and procedures in the future. For further information on participating in the Indiana amnesty, please reach out to Dave Perry.

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The Michigan Court of Appeals recently ruled that a taxpayer selling electricity wholesale to a Michigan buyer was not entitled to a corporation income tax refund because the sales were properly sourced to Michigan for apportionment purposes. The taxpayer generated electricity in Michigan that was sold wholesale to a regional transmission operator that coordinated transmission and sales to consumers in several states. The relevant agreements required that the electricity be made available to the transmission operator at a location in Michigan. The taxpayer sourced these sales entirely to Michigan on its original income tax returns for tax years 2013 to 2016, then later sought a refund from the Michigan Department of Treasury, arguing that some of the sales should not have been sourced to Michigan because the “ultimate destination” of the sales was outside the state. The Department denied the refund request because, per the relevant service agreements, the electricity was delivered to the wholesale buyer at a location in Michigan. The taxpayer then petitioned to the Tax Tribunal which granted summary disposition to the Department, and this appeal followed.

On appeal, the Court of Appeals disagreed with the taxpayer, holding that the sales were properly sourced to Michigan. Michigan corporate income tax statutes provide that “[s]ales of tangible personal property are in [Michigan] if…in the case of electricity…the contract requires the property to be shipped or delivered, to any purchaser within [Michigan] based on the ultimate destination at the point that the property comes to rest regardless of free on board points or other conditions of the sale.” The court first noted that the sales to the regional transmission organization constituted a “sale” for purposes of the Michigan corporate sales factor. Further, the electricity was required to be delivered to the purchaser at Michigan locations where title transferred to the purchaser, and the taxpayer was compensated for the electricity delivered, thus meeting the requirements of a sale to be sourced to Michigan.

The taxpayer also argued that because Michigan law requires sourcing to the ultimate destination without regard to free-on-board (FOB) and other conditions, the transfer of temporary flash title to the wholesale buyer was a FOB point that must be disregarded. The court disagreed with the taxpayer’s argument that the transfer of title to the wholesaler was a mere condition of the sale. Ultimately, the court found that although any FOB points or other conditions of sale must be disregarded, there were no such points or conditions in this case. Please contact Dan De Jong and Arthur Orzame with questions on CMS Energy Corp. v. Dep’t of Treasury, Mich. Ct. App., No. 374696.

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District of Columbia: President Trump last week signed House Joint Resolution 142 approved earlier by Congress that would repeal D.C. City Council legislation that would sever the District income tax from a number of provisions included in the One Big Beautiful Bill Act (P.L. 119-21) (OB3). [For details on the Council’s actions [Bill B26-0457 and Bill B26-0458], see our TWIST of November 10, 2025]. The disapproval resolution has caused considerable uncertainty as tax year 2025 D.C. tax forms and guidance had been developed based on decoupling from OB3 and about 200,000 individual tax returns have been received already. In addition, the City Council had questioned whether the disapproval resolution was passed within the 30-day window accorded Congress to disapprove.

D.C. Attorney General Brian Schwab has now weighed in with the issuance of an official Opinion addressed to the City Finance Officer. The Attorney General stated that the congressional joint resolution did not affect application of the two OB3 decoupling measures approved for tax year 2025. Despite the joint resolution, in the view of the Attorney General, District law still decouples from the following OB3 provisions for tax year 2025: IRC section168(k) (bonus depreciation), IRC section 168(n) (bonus depreciation for qualified production property), IRC section 174A (full expensing of domestic Research & Experimental expenditures), and the amendments to IRC section 163(j) (interest expense disallowance). The Attorney General reasoned that the joint resolution did not specifically state that retroactive decoupling changes were repealed as required by applicable federal and D.C. law. Instead, the resolution only expressed disapproval of the legislation. The opinion noted that U.S. Supreme Court case law creates a presumption that Congressional action should not be applied to retroactively alter substantive liabilities (such as tax liabilities) unless Congress specifically so provides. Here, Congress provided no indication that the repeal of the OB3 decoupling bills should affect taxpayer liabilities in tax year 2025.

With respect to the timing of the disapproval resolution, the Attorney General stated that Congress is provided 30 days to review D.C. legislation, but because the joint resolution was not enacted into law within the 30-day period, he found additional support for the position that D.C. remains decoupled from OB3 provisions for tax year 2025. In the Attorney General’s view, the OB3 decoupling bills remain in effect in the District for tax year 2025 unless Congress takes subsequent action to retroactively conform the District to OB3 for tax year 2025.

In one other twist to the saga, the Chief Financial Officer released a revenue estimate excluding the revenue from decoupling, due to the uncertainty regarding the outcome of the conformity legislation. This will constrain the resources available to finance the Mayor’s FY 2027 budget proposal. Stay tuned to TWIST further updates or contact Tom Dexter-Rice with questions regarding the conformity activity in the District of Columbia.

New Mexico: Senate Bill 151, which has been passed by the legislature and awaits signature by Governor Grisham, would decouple New Mexico law from IRC section 168(k) (bonus depreciation), section 168(n) (depreciation of production property), and interest expense limitation changes in IRC section 163(j). It also eliminates the subtraction modification for global intangible low taxed income. The bill also would allow taxpayers to include the factors of controlled foreign corporations (CFC) in the New Mexico apportionment calculation to the extent the income of the CFC is included in net income. For more information on Senate Bill 151, please contact Nick Palmos.

Virginia: The 2026 Virginia legislature passed and Governor Spanberger approved amendments to the 2025 Appropriations Act that will replace the Commonwealth’s rolling conformity with a fixed date conformity tied to the IRC as of December 31, 2025. Recall that in 2025, Virginia paused its rolling conformity for tax years 2025 and 2026 in light of the passage of OB3 and its potential revenue impact. The updated legislation would effectively conform Virginia to the provisions of OB3 unless the legislature specifically decouples from them. The 2026 legislation did decouple from IRC section 168(n) (production property), IRC section 174/174A (research and experimentation expenses), and IRC section 179 (depreciation of certain assets). In a Tax Bulletin, the Virginia Department of Taxation provided additional guidance on reporting these conformity adjustments. As it relates to the IRC section 163(j) interest expense deduction, Virginia generally conforms to the OB3 amendments. However, the 2026 enactment reduced the Virginia-specific subtraction modification for federally disallowed business interest from 50 percent to 20 percent for tax years beginning on or after January 1, 2025. For tax years beginning on and after January 1, 2024, Virginia allowed an additional deduction of 50 percent of limited interest, and previously allowed additional deductions of 20-30 percent, depending on the tax year. For more information on Tax Bulletin 26-1 and House Bill 29, please contact Diana Smith. 

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